Fractional ownership: how does it happen in real estate

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Do you find real estate much expensive? Do you think it is impossible to buy a home in your budget? Do you wish to buy a portion of the apartment? Fractional ownership can help you. It was a concept popular in commercial properties but as times are changing it has gained popularity in residential property as well.

The people who are in the service sector or small business owners are now opting to dominate the real estate sector by teaming up. The commercial fractional investment requires a huge amount also for an individual. The risk of fractional investment in commercial and retail spaces is higher depending upon the location of the commercial property. Hence now people are moving towards residential properties for fractional investment.

Various types of fractional ownership

The ownership of the property can be individual or by special purpose vehicle firms. The various options are:

Pay and use: One can use the property, and he/the group has to pay charges for using the property each day/week/month. In case the individual or the group is not using the property they can rent it to non-owners for a short time.

Usage Assignment: Every user is assigned some amount of days/weeks/months for which he has the right to the user the property during which he can personally use it or rent it out.

Lease: In this, the owner can lease the property for up to 11 months.

How is fractional investment organized?

One can find properties for investment by searching on investment platforms. From the same platform, one can find other investors who wish to buy in the same property. If the numbers of investors are less than seven, then they can invest as an individual. If the numbers of investors are more than seven a special purpose vehicle firm is created in which all the investors then become shareholders. The ownership of the shareholders is decided by the number of shares each has. The whole arrangement is legalized by an agreement which has details of each share holder’s amount invested. If a partner wants to leave the venture, then he can sell off his share and can easily exit. The liability of your investment is dependent on the capital investment that you have made. The taxation rules will also be applicable while purchasing and the rents earned during the whole time will be divided as per shareholding method.

How to pay in fractional investment?

Investment is always based on money so the next big question is how I pay for my investment. In the fractional investment, the payment has to be direct without a loan. Fractional investments are never eligible for home loans, so one obviously has to go for a personal loan. The rental income that each shareholder will receive will be after the taxes deducted and paying off a maintenance charge of the property. The only thing that can challenge fractional investment is real estate mutual fund. Hence, there are no absolute reasons for fractional investments to fail and also it is a glowing alternative to conventional investment types.

 

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