Benefits of Fractional Ownership in Commercial Property

When it comes to putting your money in a safe place where it can give you good returns, you may think of real estate. It is considered one of the most reliable investment options in the country. Real estate is a good investment option giving upward trajectory, especially in purchasing property.

There are three popular investment options in real estate, like land, commercial, and residential properties and all these options vary in terms of profits based on the premises. 

Earlier, people used to invest in residential property due to easy access and management and the key reason was low or no awareness about the potential of commercial property. People were not aware of the benefits of fractional ownership in commercial property at that time. 

The Co-founder of Claravest Technologies, Mananki Parulekar, defines rational investing or ownership in real estate to zeebiz.com as spitting pizza with friends, where everyone gets a slice. Parulekar mentioned that instead of bearing the full cost of the property, investors can own a fraction of it. This allows investors to invest money in high-end properties without breaking the bank. One can spread the financial burden with other investors still enjoying the ownership benefits.

Due to the internet and other sources, people became aware of the value of commercial real estate and its potential returns. Hence, if any investor wants to earn more return on investment (ROI) which is buying a commercial property a good investment. This article will help you understand in detail why to invest in commercial property and how to invest in commercial property.

Also Read: What is a Real Estate Investment Trust (REIT)?

Why is Fractional Property Ownership a Growing Trend in India?

As per JLL analysis, the investors get several new opportunities with the help of a fractional investment ownership system. Investors can now think of purchasing huge commercial property and getting higher potential. Despite the COVID-19 pandemic, fractions of investment property deals were worth 350 million in the advanced stages in India. 

Financial Express cited Knight Frank’s report mentioning that the market size of fractional ownership in India was USD 5.4 billion in 2020 and it is projected to reach 8.9 billion by 2025, which is growing at a CAGR of 10.5 percent.

The benefits of fractional ownership in commercial property is that one can sell a portion of the commercial property anytime even if the property’s title is still tied to payment history. Fractional Ownership of real estate is not only innovative but also gives high returns, motivating everyone to make investments in real estate even though the benefits of fractional ownership in commercial property are so high. Get to know more about all the reasons to invest in commercial real estate.

Also Read: Differences Between Timeshare and Fractional Ownership in Real Estate Investment

1. Stable Income Streams

The most suitable investment is investing money in real estate commercial properties like retail establishments, warehouses and office buildings are some prime examples. Generally speaking, commercial leases are longer term as compared to residential leases giving steady cash flow. There are several commercial options such as residential properties, office buildings, warehouses and retail establishments that offer stability and generate higher revenue. Longer leases are signed by businesses to guarantee steady financial flow. 

2. Portfolio Diversification and Growth

Although there are plenty of options one of them is risk management strategies which is portfolio diversification. A diversified portfolio can become balanced and reduce risk management including commercial real estate. Beyond conventional equities and bongs, investors can diversify their portfolios by buying commercial real estate. 

When an investor diversifies their portfolio, it can help lower risk and shield against market volatility. Purchasing commercial real estate can expand the portfolio, produce income, and gradually increase equity. The growth potential of commercial real estate can enhance wealth accumulation and overall investment success.

3. Higher Returns and Potential for Appreciation

Commercial properties offer higher returns as compared to residential properties. Attractive returns on investment come with the potential to appreciate over time. The worth of commercial properties has the potential to rise over time. Property value appreciation influences market demand and location as well. Long-term value appreciation has the possibility for commercial assets. Investors might get profit from capital gains selling property as rising property over the period.

4. Triple Net Leases

A triple net lease means the tenants can be charged higher property costs like taxes, maintenance, and insurance which are common types of commercial lease. This triple net lease is considered the benefits of fractional ownership in commercial property that increases the net rental income and reduces the landlord’s daily expenses. This is an agreement type that can benefit property owners by giving extra hands-free investing experience. 

5. Longer Lease Terms

Generally speaking, commercial lease terms are for a period which is more than the residential ones. Longer leases lower the chance of vacancies to provide property owners with high turnover and less stability. It is also a very important benefits of investing in fractional ownership.

6. Professional Tenants and Business Relationships

The most common aspect of commercial real estate is working with business partnerships. When businesses make good connections leading potential investment opportunities in the future. Businesses, government organizations, and corporations are the best renters who are drawn to giving the best commercial properties. The best part is the rent risks are lower now as tenants are more educated and mature giving good care to the property and paying their rent on time.

7. Tax Advantages

When it comes to the benefits of fractional ownership in commercial property, tax advantages make it more about these possible advantages. One can get the most tad advantage through mortgage interest deductions, and depreciation deductions. These tax breaks can lower tax obligations and maximize returns. 

8. Adaptability for Different Businesses

It also offers flexibility to a variety of industries accommodating plenty of businesses. This flexibility of commercial business might be useful while the economy might be shifting. 

9. Inflation Hedge

Commercial real estate has an inflation hedge. The amount of protection for investors provides the fact that rental income and property values frequently increase in line with inflation. Inflation-adjusted rental income and property values offer investors a dependable means of wealth preservation over the long term.

10. Control Over Asset and Value

The benefits of fractional ownership in commercial property is that one can buy real estate offering investors investing options such as stocks or mutual funds. To increase the value, investors can decide on leasing conditions, strategic upgrades, and property management. In residential real estate, investors come with greater control over the commercial assets’ value. The value of a property can positively impact quality tenant attraction, smart upgrades, and efficient management. 

11. Cash Flow Distributions from Real Estate Investments

Real estate investment preferably returns the invested amount in two ways, i.e., distributions from cash flow and appreciation in property value. Cash flow is the income that property has generated deducting the expenses and debt services. Income from commercial real estate property can be derived from various sources maximizing cash flow like parking lots, storage spaces, application fees, pet services, and fitness centers.

It can be distributed to investors in steady payments, and some investors prefer to get regular income from investment, which is one of the benefits of fractional ownership in commercial property.

Also Read: Types of Real Estate Investment

Conclusion

Investors who are interested in making stability and financial progress can figure out that the best way to invest is through a real estate endeavor. There are plenty of reasons to believe that there is a high possibility for gaining portfolio diversification and steady income streams. Just like all investments, investors need to be extra careful and make some extra efforts to figure out the benefits of fractional ownership in commercial property. The chances of commercial property investment can be increased by forming partnerships with financial advisors and real estate specialists. 

In the end, there are plenty of advantages of investing in commercial real estate like triple net leases, portfolio growth, professional tenants, long-term appreciation, higher returns, diversification, and ownership over the asset. To get into the financial objectives, people can invest in commercial real estate with knowledge if they want to invest in these factors but for such efforts, you need to make extensive efforts and improve your commercial property investment strategy.

Also Read: Real Estate Bonds vs Fractional Ownership