Ultimate Guide for investors to fractionally invest in the real estate market

Investment on the real estate market has always been attractive for investors. The real estate investment option not only provides capital growth over time, but also makes a secure passive income from renting the properties out. The real estate market however, like other investment options is subject to downturn and recession, as this is the nature of all markets. But, in the long run, investing in properties seems to be secure and attractive from investors’ perspective across the globe.

Despite the attractiveness of such an investment, it is not an option for small scale investors, as valuable investment opportunities in the real estate market need a considerable amount of money. To respond to such an issue, fractional ownership has come into existence recently. Let’s dive deep and see how it works.

Real estate fractional ownership and how it works

Fractional real estate simply refers to dividing the ownership of a property to equal portions, so several investors will be able to buy and own a property at the same time. Obviously, such an option will lower the barrier to enter into real estate investment for small scale investors. 

There are multiple reputable platforms across the internet that make the investors able to fractionally own a property. Fundrise, Arrived, HappyNest, HoneyBricks and Lofty.ai are just a few out of many platforms, where you can purchase a portion of a property. 

Through those platforms, you can invest as little as USD 10 and take advantage of rental income and capital growth if applicable. 

In recent years, there is another option to own a fraction of a property that is introduced by blockchain technology which is called asset tokenization. Let’s now see what asset tokenization is and how it makes real estate fractional ownership easier. 

Tokenized property; the modern way to fractionally invest in real estate

Blockchain technology, as a breakthrough to the industry, has provided a wide range of opportunities in the investment industry. All real world assets such as a piece of diamond, a barrel of oil or a ton of wheat can be tokenized within a blockchain network. The ownership and authenticity of the underlying asset will be securely stored in the blockchain network and can be traded 24/7 at an agreed price. Likewise, all types of properties such as commercial, residential or office spaces can be divided into equal portions and tokenized across the blockchain network. This is how people can invest in tangible assets in the crypto market. 

Like other assets, all the details about the ownership, authenticity, etc. is stored in the blockchain network. There are several advantages associated with such an approach that makes it very popular across the market.    

Benefits of investing in tokenized properties

• Liquidity

One of the major risks to consider when investing in real estate is the liquidity risk. It normally takes a considerable amount of time to find a customer to be in the surrounding area and have enough financial capability to purchase the property. With tokenization, investors have access to other investors across the world and can trade the tokens 24/7 with no geographical limitation. 

• Transparency and security

Ownership, authenticity, trade history and all other information about the token is stored in blockchain edger. This information can not be changed and replicated and it is accessible to all potential investors. Besides, all trades and rental income calculation and collection are automated by smart contracts with no human interference.

• Cost Effective

Buying a property involves a range of side costs such as insurance and bank fees, broker fees, etc. Blockchain has eliminated all intermediary costs by leaving it to be done by smart contracts. As such, purchasing tokenized properties is more cost efficient when compared to traditional ways of buying a property.

• Fractional ownership 

The most important benefit that asset tokenization creates is making small scale investors be able to invest in the real estate market. Assume of a luxurious villa in Emirates Hills that normally costs USD 20 million. There are very limited individuals who are able to pay for such a property. However, if such a villa is tokenized to say 1000 tokens, many investors will be able to buy one, two or more tokens to invest in such a valuable property and take advantage of not only capital growth over time, but also instant rental income. 

Bottomline

As outlined above, there are several benefits associated with fractional investment in the real estate market. On top of that, with blockchain technology and property tokenization, the process has become even easier and accessible to more investors. The truth is that the blockchain has made the real estate market more efficient by providing the opportunity for small scale investors to invest and on the other hand, improving the real estate market liquidity by bringing more investors. The market is open 24/7 and is accessible to all investors across the globe.