What is Fractional Real Estate Investing? Guide for 2023

Real estate investing has long been a popular way for individuals to build wealth and generate passive income. However, traditional real estate investing often requires a significant amount of capital and expertise, making it inaccessible to many.

This is where fractional real estate investing comes in, providing investors with a new way to invest in real estate with lower minimums and greater accessibility.

What is Fractional Real Estate Investing?

Fractional real estate investing is a form of real estate investment where investors own a fraction or a specific percentage of a property. This means that investors can own a share of a property without the need for direct physical ownership. Fractional real estate investing platforms typically provide investors with the opportunity to invest in a diverse range of properties, such as commercial or residential properties.

How Fractional Real Estate Investing Works

Fractional real estate investing platforms allow investors to browse a range of properties and invest a minimum amount of capital. Once a property reaches its minimum funding target, the platform acquires the property on behalf of the investors and manages it for the investors. The investors receive income from rent, which is proportional to their investment percentage, and the property's appreciation is shared among the investors when sold.

For example, let's say a commercial property is listed on a fractional real estate investing platform with a minimum investment of $10,000. An investor can invest $10,000 or more to own a percentage of the property. If the minimum funding target of the property is reached, the platform will acquire the property and manage it on behalf of the investors. The investors will then receive a share of the rental income generated by the property, and when the property is sold, the investors will receive a share of the profits based on their investment percentage.

Benefits of Fractional Real Estate Investing

One major benefit of fractional real estate investing is the ability to diversify investments across multiple properties, spreading investment risk and potential rewards. This means that investors can invest in multiple properties with lower minimums, reducing the risk of losing all their investment in one property. Additionally, fractional real estate investing provides access to commercial investment opportunities that were previously unavailable to individual investors. This means that investors can invest in high-value commercial properties that generate high rental income and appreciation potential.

Another benefit of fractional real estate investing is the lower investment minimums compared to traditional real estate investment options. This makes it more accessible to the average investor who may not have the capital or expertise to invest in traditional real estate. Fractional real estate investing also allows investors to invest in properties without the need for direct physical ownership, reducing the time and effort required to manage the property.

Potential Risks and Drawbacks

While fractional real estate investing has many benefits, it is not without potential risks and drawbacks. Investing in properties can be unpredictable, and there are no guarantees that an investment will generate returns. This means that investors should conduct thorough research and due diligence before investing in any property. Additionally, fractional real estate investing platforms may charge high fees and expenses, reducing the overall profitability of the investment. Investors should carefully review the fees and expenses associated with each platform before investing.

Another potential risk of fractional real estate investing is the illiquidity of the investment. This means that an investor may not be able to sell their share of the property immediately, as there may not be a market for the investment. This can make it difficult for investors who need to access their capital quickly.

Despite these potential risks and drawbacks, fractional real estate investing provides investors with a new way to invest in real estate with lower minimums and greater accessibility. With careful research and due diligence, investors can potentially generate passive income and build wealth through fractional real estate investing.

Best Platforms for Fractional Real Estate Investing

Now that we have discussed the definition, benefits, and potential risks of fractional real estate investing, let's dive into some of the best platforms on the market.

DiversyFund

DiversyFund is a fractional real estate platform that offers investors an opportunity to invest in a diversified range of properties. The platform invests in commercial and residential real estate and aims to provide high-quality investments with a minimum investment of $500. DiversyFund charges a 2% management fee for their platform that allows investors to earn money through the appreciation of the property and potential rental income.

One of the unique features of DiversyFund is that it offers investors the opportunity to invest in multifamily properties. Multifamily properties are buildings with multiple units, such as apartments or condominiums. Investing in multifamily properties can be a great way to diversify your portfolio and earn a steady stream of rental income. Additionally, DiversyFund's team of experts thoroughly vet each investment opportunity to ensure that they are of high quality and have the potential for long-term growth.

Fundrise

Fundrise is a real estate investment platform that uses a pooling approach to offer fractional real estate investment opportunities to accredited and non-accredited investors. It enables investors to invest in commercial and residential properties through eREITs, which are portfolios of properties. The minimum investment is $10. The platform is quite easy to use and has low fees.

One of the benefits of investing with Fundrise is that they offer a variety of investment options, from eREITs to standalone properties. This allows investors to choose the investment option that best fits their goals and risk tolerance. Additionally, Fundrise has a team of experienced real estate professionals who carefully select and manage the properties in each portfolio to ensure that they are of high quality and have the potential for long-term growth.

RealtyMogul

RealtyMogul is a platform that offers investors high-quality real estate deals, including commercial and residential properties through funds, eREITs, and individual properties. It targets accredited investors and has a minimum investment of $5,000. RealtyMogul is a fee-based platform, with fees ranging from 1% - 1.25% depending on the investment type.

One of the benefits of investing with RealtyMogul is that they offer a variety of investment options, from individual properties to eREITs. This allows investors to choose the investment option that best fits their goals and risk tolerance. Additionally, RealtyMogul has a team of experienced real estate professionals who carefully select and manage the properties in each portfolio to ensure that they are of high quality and have the potential for long-term growth.

CrowdStreet

CrowdStreet is a platform that offers accredited investors the opportunity to invest in commercial real estate properties. It offers investment opportunities in various commercial property types, including office, retail, and multifamily. CrowdStreet has a minimum investment of $25,000 and charges fees ranging from 1% to 2.00% depending on the investment type.

One of the benefits of investing with CrowdStreet is that they offer a wide range of investment options in various commercial property types. This allows investors to choose the investment option that best fits their goals and risk tolerance. Additionally, CrowdStreet has a team of experienced real estate professionals who carefully select and manage the properties in each portfolio to ensure that they are of high quality and have the potential for long-term growth.

Roofstock

Roofstock is a platform that targets investors looking to invest in rental properties without dealing with the time and expenses associated with property management. It allows investors to purchase individual rental properties and provides a seamless process for buying and selling such properties. It has a minimum investment of $5,000 and charges fees such as a 0.50% listing fee for sellers.

One of the benefits of investing with Roofstock is that they provide a unique opportunity to invest in individual rental properties without having to deal with the time and expenses associated with property management. Additionally, Roofstock has a team of experienced real estate professionals who carefully select and manage the properties in each portfolio to ensure that they are of high quality and have the potential for long-term growth.

Conclusion

Fractional real estate investing is an innovative approach to real estate investment that provides investors with the opportunity for diversification, lower investment minimums, and access to commercial real estate investments. The best platform for fractional real estate investing depends on an investor’s preference and investment goals. Always do your research and read the fine print before investing in any platform.