How to Start Fractional Investment in Real Estate India: A Beginner’s Guide

 

Real estate investments are lucrative, but for a beginner involving a lot of money at the initial stage becomes difficult. However, fractional ownership can make their dream come true. The idea of fractional investment is “ If you cannot invest in a property of 20 crore, you can invest in 1% of that property with 20 lakhs”. Buying a fraction of the real estate property makes you a fractional owner and you can start earning financial benefits out of it. It’s a pretty new concept, but quite popular among the new investors. Thanks to the smaller ticket size it lets first-time investors get access to high-quality real estate properties. In this piece, we are going to focus on how to start fractional investment in real estate in India. 

Fractional Real Estate Investment for Beginner’s Guide

The idea of fractional ownership is simple, but as a beginner things may seem daunting at times. As a beginner, you may need professional assistance too. However, at this phase, investors usually form a group and contribute together to buy a property and become fractional ( part) property owners. 

There are online platforms through which investments are made in fractional real estate. These are called FOP’s or Fractional Ownership Platforms. FOP’s are crucial because they perform the following tasks so that the investors don’t need to take the hassles of these backend jobs.

• Researching property
• Buying Property
• Selling property
• Documentation work
• Legal work
• Collection of Rent
• Distribution of Rent back to the co-owners

Also Read: Benefits and Risks of Fractional Ownership in Real Estate

 

Which Properties Come Under Fractional Real Estate?

Any high-end exclusive commercial property comes under the domain of Fractional ownership investment. It can be anything from luxurious vacation homes to Land.

Fractional Ownership in Vacation Homes:

Fractional ownership in vacation homes is a popular arrangement where multiple individuals share ownership of a holiday property. Each owner has a designated period during the year to use the property, ensuring that the vacation home is utilized efficiently and cost-effectively. This model is particularly appealing to those who desire a second home but want to share the financial responsibilities and maintenance efforts.

Fractional Ownership of Land:

Fractional ownership of land allows multiple investors to collectively own a parcel of real estate. This can be beneficial for large tracts of land used for various purposes, such as agriculture, recreation, or development. Each owner holds a percentage interest in the land, and decisions related to its use, development, or sale may be determined through consensus or a predefined agreement.

Fractional Ownership in Commercial Properties:

Commercial properties, including office buildings, retail spaces, or industrial facilities, can also be subject to fractional ownership. Investors pool their resources to collectively own a share of the property, providing an opportunity for smaller investors to participate in larger real estate ventures. This approach can offer diversification and potentially generate rental income or capital appreciation, depending on the property type and market conditions.

What is the Minimum Ticket Size?

As already mentioned the cumulative value of a posh exclusive property is no less than 20 cr. Even if a small fraction of 1% could earn the investors a lot. Usually, the minimum ticket size is again no less than 5 to 25 lacs and this is a somewhat balanced amount for those who are looking to invest in real estate. Once you visit the Fractional Ownership Platforms make sure that you check out the target IRR, total price, and other necessary details before you invest. 

Getting Started with Fractional Investment

Now that you have already decided to start as a fractional ownership investor, here’s what you must put in effort. This checklist is going to help beginners start with fractional investment. 

1. Do your Research:

This is extremely crucial because you only understand the market after thorough research. You need to learn the concept in detail, evaluate the risks involved, and be careful about the regulations about fractional ownership in India. Keep in mind that the legal regulations vary from one country to the other. Do your research on the FOP’s track record success rate, fees, and investment process.

2. Goal Determination:

Whenever you are investing, you must have a particular goal in your mind. Maybe you want to build a stable investment profile or look for a regular passive income. Fractional Ownership is a great option in both cases and sometimes offers benefits of both in a balanced form. Most beginner investors use fractional ownership for capital appreciation as well as for rental income alongside their primary income. So, identifying your goals at the very first stage is crucial.

3. Trust a Good FOP:

Many platforms are offering smart investment options in the fractional ownership model. Each of them has great unique features. Assess your needs and then decide what actually works for your plan. Check out the income potential from each of the listed properties and then decide. Get to know the fees, transparency as well as track records of the website before you go with any plan.

 

4. Read Through your Property Details:

When you are investing in a property, make sure you have every minute information about it. Read through the property information, exact location, estimated rental income, and more about the risks involved with the investment. Go through every document provided by the FOP for detailed evaluation.

5. Monitor your Investment Performance:

Once you are done with your research and investment, it’s time for regular monitoring. Keep a tab on price fluctuations, performance updates, and every other notification related to property management.

Also Read: How to Diversify Your Investment Portfolio in India

 

Key Considerations

This is one of the key concerns about fractional ownership. Though any FOPs offer secondary markets, many beginners tend to sell the shares. But, this is not at all a wise decision because this way you will never achieve stability. Moreover, you cannot sell your shares immediately when you want or at the desired price. There’s no concept of guaranteed liquidity especially in the fractional investment plan, unlike traditional real estate.

Understand the fee structure of your investment platform carefully. There are two types of fees that the platforms normally charge- first, management fees, and, second, transaction fees. Any other fees except these might affect your returns.

When you are a part owner, your responsibilities are shared and so is your decision-making authority. It means you have limited control over your investment.

Fractional ownership is an emerging trend and the regulatory norms related to this investment model are still being upgraded. Keep a tab on these to avoid any troubles.

Also Read: What is Fractional Investment in Real Estate in India?

Conclusion

As a beginner, you might not be aware of the twists and turns in the market. So, it’s always a good idea to start small and keep studying the market to gain experience. Do not make any big investment beyond your risk tolerance just for the anticipation of making high returns. Investment plans indeed come with potential risks and you cannot avoid them every time. However, proper evaluation of your investment goals and risk tolerance can help you gain stability. There must be a well-defined strategy in place so that you can make the most of your fractional ownership effort.