Traditional vs Fractionalised Real Estate Investing: Which Is Smarter?
Investing represents an important way through which people can put their money to use on a global level.
In other words, instead of letting your money sit in a bank account and get eaten up by inflation, you might want to get involved with the investment.
Now, there are two main categories of investing, traditional types of investments as well as new, fractionalised real estate investment options.
Real estate is one of the most time-proven and well-established ways through which someone can invest their capital, and today, we are going to go over the differences between these two categories so you can make a well-educated decision as to which option is better for your specific needs and requirements.
Stay informed about what’s going on in Real Estate.
Subscribe to be the first to hear about the newest profitable real estate investment opportunities. With Propchain’s newsletters, you’ll learn the critical investing takeaways from essential news items, and the macro trends that underpin them. We keep it simple and give you the TLDR each time.
What Is Fractionalised Real Estate Investing and How Does It Work?
Fractional real estate is a reference to any type of investment that is essentially owned by multiple parties involved with it. Timeshares are typically an example of a fractional real estate model, where the individuals would own a specific week of the year on a vacation property.
However, it is important to note that this timeshare model is not, in many cases, considered an investment. There are ongoing maintenance fees and low resale value, which in the minds of many, makes it a liability rather than an asset.
Today, however, fractional real estate has evolved when compared to timeshares.
Fractionalisation leverages the power of blockchain technology, where assets are tokenized, which then get locked within a smart contract. This way, they can be broken down into fungible tokens that have equal value. From this point onward, anyone can buy as many shares within a property as they want to, and this provides numerous benefits.
Why is Fractionalised Real Estate Investing Better when Compared to Traditional?
Traditionally, if someone wanted to buy real estate, they would need to buy an entire home or an entire apartment. However, through fractional ownership, real estate investments have essentially removed the massive barrier of entry that they initially had due to the fact that anyone can buy a tokenized asset. This means that, unlike traditional investments, investors are not required to have good credit or make a substantial down payment in order to buy a percentage of a specific property.
Think of it this way, let’s say you find a property, and this is just an example, for $500,000 or for $700,000. This is a lot of money for a lot of people, and they would not be willing to risk that amount or might not be able to gain instant access to it. However, they might have $100 or $500 to invest with.
With fractional real estate, they can just buy a percentage of that $500,000 property worth $500 or buy a $100 share in 5 different properties to diversify.
This makes an otherwise illiquid asset extremely liquid as well, as it is no longer just locked to a select number of people with a lot of capital, and just about anyone will be able to begin their investment journey by initially providing a small amount of capital to this procedure.
Furthermore, many people that own real estate might typically own a single property that is outside of their primary residence. If the property has, for example, poor cash flow, or if it falls in value, they have no other outperforming property that can compensate for this poor performance.
However, with fractionalised investments, they can invest the same amount of capital within multiple properties, so if one performs extremely well, it can balance things out.
Furthermore, investors that opt for fractional real estate are also able to achieve a diverse real estate portfolio that features a modest first investment.
Another key reason why people might shy away from making traditional investments in real estate is due to the fact that they do not want to handle the management headaches that occur. However, with fractional real estate, typically, professionals will handle the property maintenance and management, while the investors are typically completely passive.
Most of the asset fractionalisation will also typically occur using blockchain technology, which can be extremely secure as well as transparent, as everything gets recorded on top of a public ledger known as the blockchain, which can be explored by anyone at any point in time using a blockchain explorer, which will provide investors with the ability to truly see the value of a given asset or property. This is how a real estate block chain would function for example.If you want to get involved with fractionalised real estate investments, you can use Propchain and get an average yearly yield of 8% to 12%. Make sure to give Propchain a try today.