Fractional Ownership and Rental Income Sharing Investing
Exploring Online Real Estate Marketplaces
Welcome to strategy #6 of the Real Estate investing for under $1000 series. Today we’re going to talk about the rise of online real estate marketplaces that have revolutionized the way we invest in properties, making investing in real estate accessible to a broader range of investors with varying budget sizes.
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Fractional Ownership and Rental Income Sharing Investing
Real Estate Investing For Women
The Birth of Online Real Estate Marketplaces: A Paradigm Shift
As you know, traditionally, investing in real estate meant purchasing an entire property or committing a substantial sum of money to a real estate project. This approach excluded many individuals who lacked the financial resources to invest in this way. Enter online real estate marketplaces – platforms designed to democratize real estate investing by allowing investors to pool their resources and invest in properties collectively. These platforms offer a range of investment models, including fractional ownership and rental income-sharing arrangements, making it possible to enter the real estate market with a low minimum investment requirement. We’ve already talked about some such platforms in our Crowdfunding and Micro-Investing App episodes, but let’s dive in to see how you can utilize some other resources.
Fractional Ownership: Sharing the Real Estate Pie
One of the groundbreaking concepts brought to life by online real estate marketplaces is fractional ownership. This model enables investors to own a percentage of a property rather than the entire thing. This way, the cost of purchasing a property is distributed among multiple investors, lowering the entry barrier and enabling a more diverse range of people to become real estate investors. Fractional ownership is particularly appealing for high-value properties that would otherwise be out of reach for individual investors.
A while back I did an episode with Elise Alexander at AceTrader and we talked about investing in Farmland. This platform and investing style is a perfect example of fractional ownership investing.
Rental Income-Sharing: Profits Without the Landlord Role
Another innovative approach is the rental income-sharing model. In this scenario, investors contribute to the purchase of a property, and as the property generates rental income, the profits are distributed proportionally among the investors. This method not only provides an additional stream of income but also eliminates the responsibilities and headaches associated with being a landlord, such as property management, maintenance, and tenant relations.
Advantages of Online Real Estate Marketplaces
I’ve mentioned this before, but here are the advantages of using online real estate marketplaces:
- Diversification: With lower investment minimums, investors can diversify their portfolio across multiple properties or projects, spreading risk and potentially increasing returns.
- Accessibility: Online platforms make real estate investment accessible to a wider audience, including those who lack the substantial capital traditionally required to enter the market.
- Liquidity: While real estate is often considered illiquid, some online marketplaces offer secondary markets where investors can buy and sell their fractional ownership stakes, providing a degree of liquidity that wasn’t feasible before.
- Expert Management: Many online platforms have a team of experts who handle property management, ensuring that the properties are well-maintained and generating steady income.
- Reduced Commitment: I haven’t mentioned this one before. Fractional ownership and rental income-sharing models allow investors to participate without the heavy commitment of managing a property full-time.
Considerations Before Diving In
While the concept of online real estate marketplaces is undoubtedly exciting, potential investors should exercise caution and conduct thorough research before making any financial commitments. Here are a few factors to consider:
- Platform Reputation: Research the track record and reputation of the online marketplace. Look for user reviews, media coverage, and any information available about the platform’s history and performance.
- Property Selection: Evaluate the properties available for investment. Consider location, potential for appreciation, rental demand, and the overall strategy of the platform.
- Fees and Costs: Understand the fees associated with investing through the platform. These could include management fees, transaction fees, and other charges that might impact your returns.
- Exit Strategy: Before investing, have a clear understanding of how you can exit your investment if you choose to do so. Some platforms offer secondary markets, while others might have limitations on selling your fractional ownership.
- Market Research: Familiarize yourself with the real estate market in which the properties are located. This topic is worth its own whole series of episodes, but here are a few quick things you can look at to evaluate a market: job growth, economic health, laws and regulations like rent control or tax breaks for real estate owners, and of course demographics. A free tool you can use to get started is NeighborhoodScout.com On one of my shows before, someone also mentioned doing a search for “United van lines movers study” and you’ll get their most recent annual study on where people are moving to and from.
There are several online real estate marketplaces that offer opportunities for investors to participate in real estate through fractional ownership or other innovative models. Keep in mind that the availability of these platforms can vary by region and over time, so it’s a good idea to do your own research to find the most up-to-date options. Here are a few prominent platforms I found:
- EquityMultiple: EquityMultiple is a platform that offers both debt and equity investments in commercial real estate properties. While they provide a variety of investment options, some of their offerings may include opportunities for investors to earn a share of rental income.
- Cadre: Cadre offers a platform for accredited investors to access institutional-grade commercial real estate deals. They provide investment opportunities in a range of property types, including office, multifamily, and more.
- Patch of Land: Patch of Land provides a platform for investing in real estate-backed loans. They emphasize short-term residential and commercial property loans that are often used by real estate professionals.
- Groundfloor: Groundfloor is unique in that it focuses on providing real estate loans to house flippers and property developers. Investors can participate in these loans, which are secured by the underlying property.
- AceTrader: As I mentioned earlier, A while back I did an episode with Elise Alexander at AceTrader and we talked about investing in Farmland. This platform and investing style is a perfect example of fractional ownership investing. Although I haven’t personally invested on this platform yet, since I was personally referred to this platform by a couple people I trust, I feel comfortable recommending you look into it. So, next week I’ll replay the show we did on this so you can get an idea of how this works, and maybe even be inspired to move forward investing with AceTrader, or in this format.
Online real estate marketplaces have transformed the way people invest in real estate, opening doors for a wider range of investors to participate in this lucrative asset class. Fractional ownership and rental income-sharing models provide flexibility, reduced commitment, and the potential for significant returns. However, as with any investment, due diligence is crucial. Carefully research platforms, properties, and associated costs to ensure you’re making informed decisions that align with your financial goals. With the right approach, online real estate marketplaces can be a powerful tool for diversifying your investment portfolio and tapping into the world of real estate.
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