By Dori Zinn / Photo by Martin Barraud/Getty Images
Breaking into real estate is one way to significantly increase your passive income. But it usually comes with an upfront cost: some serious capital to get started. Not everyone has the cash on hand to buy a home, renovate or remodel, and then either rent it out or flip it.
But another way to get into it the market is through fractional real estate investing. If you want to start your real estate venture but don’t have the capital, fractional real estate investing might be worth considering. Here are the pros and cons and what you need to think about before you start.
What is fractional real estate investing and how does it work?
Fractional real estate investing is when many different investors split the cost of a property among them. Sometimes they may be called shareholders, depending on the exact legal arrangement. You might see the concept used for other things, such as private jets and sports cars. Partial ownership gives you a stake in the real estate and makes you a part-owner.
Fractional real estate investing can differ depending on the group of investors or organization you invest with. Fractional real estate may mean that you get a deed and equity in the property, but it may also mean that you can buy shares in a property. In this latter case, the property is typically operated by a management firm, making it more of a turnkey operation for owners.
In some cases, your fractional ownership interest entitles you to stay in the property, say, for vacation, for a portion of the year. In other cases, you can invest in the properties with no intent to actually stay in them. In either case, you can enjoy the benefits of ownership while someone else does the heavy lifting of managing the property and preparing it for the next guests.
If you’re looking to be more hands-on, you can take ownership and manage it yourself, renting it out, perhaps on Airbnb or VRBO, or using it as a retreat for yourself, when it’s unoccupied. And don’t confuse it with a timeshare, which just grants you use of a property at a certain time.