Fractional Ownership for Passive Income: Earn Rent without the Hassle

One of the most well-known and established ways for people to establish a passive income stream for themselves throughout history is through real estate.

According to NoBroker, average rental in India’s major cities has increased by 8-12% in 2023 compared to 2022 highlighting the sector’s strong performance and potential.

However, a major entry barrier for a lot of investors is the upfront cost related to investing in commercial real estate. They might also struggle to understand compliance requirements due to their lack of industry experience. Thankfully, fractional ownership platforms have surfaced to democratize commercial real estate investing, opening it up to regular investors.

So if  you have  ever dreamed of owning a piece of commercial real estate but felt the hurdle of high upfront costs was unsubstantial? Or perhaps if you’re interested in diversifying your investment portfolio and generating passive income without the headaches of traditional property management then fractional ownership might be the perfect solution for you.

What is Fractional Ownership Of Commercial Real Estate?

Fractional ownership allows you to own a share of a high-value commercial property, such as office buildings, retail spaces, or industrial facilities, alongside other investors. This means you can reap the benefits of owning commercial real estate, like rental income and capital appreciation, without having to invest a large sum of money or manage the day-to-day operations of the property.

Think of it like a Pie:

Depending on how much you invested, you may own one or more slices, each of which represents a portion of the property.  This allows more people to participate in the lucrative world of commercial real estate, regardless of their initial capital.

How Does it Work?

Platforms like Assetmonk that offer fractional ownership generally buy commercial properties,  divide them into shares, and then present those shares to individual investors. Investors can choose the amount they want to invest, and their ownership percentage will be proportional to their investment.

After that, the property is managed by the platform, which also handles maintenance, repairs, and tenant relations. Investors receive regular distributions of their share in the form of the rental income, and they also benefit from any appreciation in the value of the property when it is eventually sold.

Assetmonk, for example, offers a fractional ownership model where fractional ownership opportunities of high-valued commercial real estate investments start with a minimum investment of INR 25 lakhs.

Benefits of Fractional Ownership for Passive Income

• Lower entry cost: Fractional ownership allows you to invest in commercial real estate with a much lower initial investment than buying a property outright. This makes it accessible to a wider range of investors, including those with limited capital.
• Passive income: One of the most attractive benefits of fractional ownership is the potential for passive income. You can earn a share of the rental income generated by the property without having to put in any work.

The rate of investment in commercial real estate is a whopping 4% higher than the rate of investment in residential real estate, said a study from the National Council of Real Estate Investment Fiduciaries (NCREIF). A residential property’s rental income ranges from 1.5% to 3.5 percent, while a commercial property’s typical rental yield is between 6 and 10%. Thus, investing in commercial real estate is more profitable than investing in residential real estate.

• Diversification: Investing in real estate can help you lower overall risk and diversify your portfolio. It is a valuable asset class. Fractional ownership enables investors to diversify their investments across multiple high-value properties. By owning a share in various properties, investors can spread their risk and mitigate the impact of any losses.
• Flexibility: One of the most significant benefits of fractional ownership is its flexibility.
• Transparency and Liquidity: Fractional ownership platforms typically offer a high degree of transparency to investors. You can easily track the performance of your investment and access information about the property, tenants, and financial reports. Additionally, most platforms offer a secondary market where you can sell your shares if you need to access your capital.
• Professional Management: The platform takes care of all the day-to-day operations of the property, freeing you up to focus on other things.You may relax knowing that a professional is managing your investment and that you will get income distributions on a regular basis.
• Longer Lease Periods: Commercial real estate tenants sign leases for a long time. This is due to the fact that companies want to establish themselves in one place and stay there for a long time in order to gain good visibility and revenue. For investors, long-term leasing can guarantee stability and passive income.

Is Fractional Ownership A Good Investment For You?

In 2023–2028, the Indian commercial real estate market is expected to grow at a Compound Annual Growth Rate (CAGR) of 25.60% according to a report by analytics firm Mordor Intelligence.

Well, the numbers don’t lie: CRE is an attractive investment choice that offers distinct benefits and long-term growth. Many advantages come with investing in commercial real estate, such as the potential of higher returns, tax benefits, steady rental income, chances for value addition, portfolio diversification, and inflation protection making it a lucrative investment option for savvy investors like you.

Commercial real estate classes like office spaces, co-living, warehouses, Grade A commercial buildings, etc are now being accessible by retail investors via fractional ownership.

The rate at which Grade-A offices and coworking spaces are absorbed will likewise increase. In fact, it’s anticipated that in 2022–2023, the absorption of Grade A offices will surpass 700 million square feet.

TruBoard report suggests that the fractional ownership market in India jumped from Rs 1,500 crore in 2019 to Rs 4,000 crore in 2023.

Opportunities for leasing will arise as a result of the rising demand for office space and commercial real estate. The growth in fractional ownership opportunities is closely related to the increase in commercial real estate demand.

Co-ownership is the future of real estate ownership in India. The fractional ownership system has given investors new opportunities, according to a JLL analysis. They are able to imagine themselves earning with increasing potential and owning a portion of a sizable commercial property. In India, fractional investment deals worth 350 million were in advanced stages despite the Covid-19 pandemic.

Investing in fractional ownership can be a great way to diversify your investment portfolio and produce passive income. Those looking for a hands-off investment or those with limited capital would benefit most from it. But before making an investment, it’s crucial to learn about the risks and conduct due diligence.

Getting Started with Fractional Ownership

Ready to explore the world of fractional ownership? Here are some steps to get you started:

1. Research: Investigate different fractional ownership platforms and compare their offerings, fees, and investment options.
2. Choose a platform: Select a reputable platform with a proven track record and transparent investment terms.
3. Consult with a financial advisor: Seek professional advice to assess your individual financial situation and determine if fractional ownership aligns with your goals and risk tolerance.
4. Understand the risks: As with any investment, fractional ownership involves risks like market fluctuations, property vacancy, and potential illiquidity.
5. Start Investing: Begin with a smaller investment to gain experience and understand the platform before committing larger sums.

Here Are Some Things To Consider:

1. Asset Class:

• Investment horizon: Fractional ownership is typically a long-term investment. You should be prepared to hold your investment for at least 5-10 years to maximize your returns.
• Understand the risks: Each asset class comes with its own set of risks. Analyze factors like market volatility, tenant stability, and maintenance requirements for your chosen asset class.

2. Returns and Yield:

• Capital Appreciation: Consider the potential for the asset’s value to increase over time. Research market trends and historical performance data for similar assets in the chosen location and sector.
• Total Return on Investment (ROI): Evaluate the combined effect of income and appreciation to calculate your overall return on investment. Remember, past performance doesn’t guarantee future results, so prioritize realistic projections based on thorough research.

3. Tenant Profile:

• For Residential Properties: Research the typical tenant profile in the area. Consider factors like demographics, income levels, and rental history. Understanding tenant behavior can help predict rental income stability and potential vacancy risks.
• For Commercial Properties: Analyze the type of business occupying the property, their lease terms, and their creditworthiness. Consider the stability of the industry they operate in and potential risks of tenant turnover.

4. Investment Tenure:

• Exit Strategy Planning: Determine your desired investment timeframe. Some assets, like real estate, may require longer holding periods for optimal value realization.
• Liquidity: While fractional ownership platforms offer secondary markets, it’s important to remember that selling your shares may not be as easy as selling a stock or bond.
• Fees: Fractional ownership platforms typically charge fees for their services. These fees can include management fees, acquisition fees, and disposition fees. Be sure to factor these fees into your investment decision.

• Limited control: You might not have complete authority over the property as a co-owner. There may be times when all co-owners must agree on decisions, which can cause delays and arguments.
• Risks: As with any investment, there are risks involved with fractional ownership. These risks include the potential for vacancy, property damage, and changes in the market that could impact your returns.

Assetmonk: Your Gateway to Fractional Ownership

The fastest-growing platform for alternative investments in India, Assetmonk focuses primarily on structured, high-quality deals that offer outstanding returns and are backed by real estate, one of the most lucrative asset classes that was previously only available to the 1% of the population.

The concept of fractional ownership provides a host of unique benefits to investors, especially those interested in diversifying their portfolio with assets that were previously inaccessible due to their high cost.  In addition to diversifying investment portfolios, fractional ownership enables people to access and invest in high-value real estate assets that they might not have been able to otherwise and was previously limited to only HNIs.

Assetmonk offers a fractional ownership model where investments are secured and starts as low as 25 lakhs. Now you can also invest in India’s first ever Co-Living venture at GMR Hyderabad International Airport through Assetmonk’s offering “ The Landing ”.

THE ASSETMONK ADVANTAGE

• 80-point checklist, comprehensive legal and framework for risk reduction.
• High-quality assets, institutional- grade deals, and personalised financial goal solutions.
• All investments are asset-backed, thoroughly vetted and safely structured.
• Exceptional returns straight to your bank account and tax-efficient structures.
• Manage your investments: You can easily track your investments and manage your portfolio online.

Bottom Line

Fractional ownership opens doors to an exciting world of passive income and diversification. You can begin creating a stable financial future and take advantage of the benefits of real estate ownership without the usual hassles by utilizing this innovative strategy.

If you are looking for a way to diversify your portfolio and earn passive income, Assetmonk is a great option. For long-term retail investors looking to expand their exposure to the CRE market, Assetmonk’s fractional ownership options offer a high potential earning yield of 14 to 21% annually. Get started today!