Fractional Property Ownership – Definition, Purpose, and Examples

Discover the allure of fractional property ownership, a novel approach enabling partial ownership in prime real estate without shouldering full costs or maintenance. This emerging field entices investors with low-risk, high-return opportunities in luxurious or corporate properties, spurring interest in shared ownership.

If intrigued by this concept’s potential for low investment and higher returns, fractional ownership proves an enticing avenue. At SustVest, we guide you to make the right investments and make informed decisions to get higher returns and long-term sustainable income. 

Our comprehensive article delves into fractional property ownership, detailing its purpose, advantages, illustrative examples, and steps to commence fractional real estate investments.

What is Fractional Property Ownership?

Fractional Property Ownership refers to buying some percentage of the property and becoming a fractional owner. In this type of ownership, multiple fractional owners split the asset’s cost and get the benefits. It’s the most secure way to invest in assets with low investment and get ownership, usage rights, and higher returns. 

It opens new opportunities for investors with lower investments who want to own high-value assets. Also allows investors to invest in real estate assets, expand their exposure and build new income streams with lower investments.

There are different types of real estate properties for fractional investment, such as commercial areas, residential properties, or warehouses. 

So investors can find the best property for investment at a prime location and buy some percentage of ownership to get property appreciation and higher returns with their investments.

For Example: Suppose a luxury villa costs INR 5 Crore. It may seem challenging for some investors to buy the whole property alone. So a group of five people decided to buy 20% shares of that property by investing INR 20 lakh each and make an agreement that each owner could stay in the villa for three months every year. 

It gives each investment property ownership, usage rights, and year returns of the property appreciation. Also, the cost of maintenance, repairs, and reservation is managed by fractional companies, so no such expenses are included. Investors can enjoy property usage and get higher returns on their investments.

Why is Fractional Property Ownership Gaining Popularity?

There are various reasons for gaining higher popularity of fractional property ownership. One of the biggest reasons is it allows individual investors to own high-value properties with prime locations that are out of their reach with low investment. 

It’s an effective way to buy any property by owning some percentage of shares that helps them diversify their portfolio, owning assets in different prime locations, and increasing revenues.

Additionally, fractional property ownership gives similar benefits to owners, such as usage rights, property appreciation over time, rental income, strong asset portfolio, and easy-to-sell shares with appreciated value.

It’s a great investment option for long-term profitability and stable income.

Check Out: Complete Guide of REIT Investment in India: Pros, Cons, and Investment Potential

Things to Keep in Mind Before Diving into Fractional Property Ownership

When it comes to fractional property ownership, there are many things that you should keep in mind to make the right investments and build a strong stream of income:

1. Understand the Ownership Structure

Before considering this option for investment, you must clearly understand the owner’s structure, legal agreement, usage rights, responsibilities of each owner, percentage of ownership, schedules, maintenance, and other things. So that you make informed decisions while investing in any property with clear objectives.

2. Extensive Market Research

It is a new concept in India, but it’s emerging rapidly. So make sure that you’re doing the best research in the market, the right properties, whether commercial or residential, property values, and must-have prime locations. Additionally, try to analyze the potential of property value appreciation, rental income, and overall benefits that come with that asset to invest and get higher returns.

3. Plan for Exit Strategy and Resale Option 

When entering into fractional property ownership, you must plan for exit strategies like how long you hold the ownership, how many options are available for exiting the investment, restrictions, policies, and resale options. These things will help you have a clear exit strategy and the resale option to invest safely and maximize your returns.

4. Get the Best Deal

One of the most important things you need to consider while investing in fractional property ownership is getting the best deal possible, trying to negotiate the price, and getting a fair value to invest. You can compare different properties and find the best deal for higher returns.  

5. Financial Considerations

Financial consideration is an essential aspect that every investor must check. To invest in fractional property ownership, you must assess the initial investment, property price, maintenance fees, property taxes, and other financial expenses that come with fractional ownership. It helps you to make the right financial decision based on your budget and keeps you alert from unexpected expenses.

By doing these things, investors can make informed decisions, lower the risks, and maximize the returns.  

Read here to know: Guide to Equity REIT Investing in India

Pros and Cons

Here are some pros & cons of fractional property ownership:

Pros:

• It allows you to buy ownership of high-value properties with lower investments.
• It gives a steady stream of income.
• You’ll get higher returns, property appreciation, and rental income.
• You can resell your shares with appreciated value.
• It lowers the risks and allows diversified investment in various properties.
• Access to luxurious property at a small investment.

Cons:

• Limited control over property decisions.
• Fewer banks are offering finances on fractional property ownership.
• Selling a fractional property can be a tough task.
• Face many disagreements among co-owners while making decisions.

Does Fractional Property Investment Support Liquidity?

Liquidity means when you can easily convert your assets into cash as per market price. It’s one of the important things that every investor must consider to ensure they’ve liquid assets that can easily convert into cash for any reason or emergency. 

When it comes to fractional property ownership, investors can easily transfer their shares to another investor interested in investing in it. Additionally, investors should plan their investments with their liquidity needs.

How do Fractional Property Ownership and Renewable Investing Works Together?

Their ownership and renewable energy together are considered the best investment approach. It leads to investing in those sustainable properties that include renewable energy or are located in sustainable communities. Investing in these types of sustainable properties can generate income for investors with higher property value appreciation. 

Both fields work great together and unlock new opportunities for investors and their values. The demand for sustainable properties will continuously grow, and fractional ownership makes it more affordable to start investing and generating higher returns.

Find Out: Why Do Investment in Renewable Energy in India?

FAQs: Fractional Property Ownership

Q.1 Is Fractional Property Ownership a good investment option?

It’s a great investment option that allows individual investors to own high-value properties, usage rights, lower investments, diversified portfolios, and higher returns with value appreciation.

Q.2 Can you get a mortgage for Fractional Property Ownership?

Getting a mortgage for fractional property is uncommon since it’s a new concept in India. However, some lenders offer financing options for fractional ownership.

Q.3 Does Fractional Property Ownership apply to buildings under construction?

Yes, fractional ownership can be applied for buildings under construction, but it depends on agreements between investors and developers.

Q.4 Are fractional property ownership risky?

Every investment comes with a risk; there’s no zero-risk investment option. However, fractional property ownership can reduce the risks and give higher returns.

Q.5 Can you sell fractional property ownership shares?

It can be sold and transferred to other investors who want to invest in the same. The best part is investors can sell their shares with the appreciated market value.

Conclusion

Fractional property ownership is a burgeoning market attracting investors keen on accessing luxury properties with reduced investments. This field holds vast potential for generating substantial returns and sustained profitability. Pairing their ownership with renewable energy ventures unlocks fresh investment avenues, offering elevated returns, mitigated risks, and avenues for income generation. However, navigating this terrain without the requisite knowledge and expert guidance can pose challenges for aspiring investors looking to initiate their foray into this domain.

Get in touch with SustVest and start your investment journey in sustainable real estate projects by making informed decisions and building a steady income stream.