Can you earn passive income without owning the full property? A decade ago, this would have been an absurd question. Either you buy the entire property or you don’t. Nothing as such as a partial acquisition. But, now, you very much can acquire only a “PORTION” and NOT THE ENTIRE property. And, yet, still generate passive income. All this is made possible by fractional ownership.
Passive Income Is?
Passive income may be a terrific strategy to help you produce extra cash flow, whether you’re operating a side business or just wanting to make a little extra money each month, especially while the economy suffers from widespread inflation. Passive income can help you earn more during good times and tide you over if you become abruptly unemployed, deliberately take time off from work, or if inflation continues to erode your purchasing power.
With passive income, you can have money flowing in while still doing your regular job, or if you’re able to build up a steady stream of passive income, you may want to relax a bit. Either way, a passive income provides you with added security.
Passive income is critical for establishing additional sources of income that can aid in the long-term accumulation of wealth. Passive income sources like rental properties are not always entirely passive because it requires the attention and management of investors for initial setup and upkeep.
But. passive income sources like commercial real estate fractional ownership is a passive one.
Fractional Ownership Is?
As the name indicates, fractional investing enables investors to put money into an asset without having to put up enough money to acquire the asset completely.
This simple yet unique method allows investors to benefit from the same benefits as the complete offering at a fraction of the cost.
In other words, rather than investing the entire amount required or investing in the entire property, investors can just put in a smaller amount, obtain exposure to the underlying asset’s value increase, and invest in a chunk of a property.
This has had a significant impact on the real estate market. Fractional ownership with the help of fractional ownership companies such as Assetmonk has brought up viable commercial real estate opportunities for a larger pool of average investors. For instance, an average investor via a fractional ownership platform can now affordably invest in premium commercial properties with just Rs. 25 lacs. Phew! What a relief!
A fractional property is a group of investors that pool their resources to purchase real estate. This reduces the financial burden only on investors, who split the rental earnings in proportion to the amount invested. Customers can own a share of a real estate asset and profit from a portion of the asset’s revenue as well as any increase in its value. After the platforms achieve a sale agreement or obtain a letter of intent from the owners, the properties are posted. In general, there is a purchasing minimum. They acquire the property using a special purpose entity after they have gathered the required number of investors (SPV).
The SPV owns the property, while investors own shares or obligatory convertible debentures in the SPV (CCDs). Each property is owned by a separate SPV. If the platform fails to attract the required number of investors, the token money of current investors is refunded with interest. Investors can exit the property by selling it or promoting it on the website. Some investors also look into real estate investing opportunities to better understand how market demand and investor strategies influence property values. Exploring different approaches can offer valuable insight into what factors might affect the price an investor is willing to pay.
Fractional Ownership Generates Passive Income: How So?
- Long-term lease: Renters in rental properties frequently change. As a result, until a suitable alternative is discovered, the landowner is compelled to pay the rent. Commercial leases are often for three years or more. The lease contract is also renewable. As a result, commercial properties provide investors with consistent revenue. Large corporations, technology organizations, and financial institutions rent high-end commercial space. These businesses make on-time rent payments. Furthermore, due to the time, effort, and resources put into converting the premises into offices, some tenants have extended their lease periods. Invest in a previously rented business property to earn large benefits.
- Rental Income Returns: Commercial estate fractional ownership delivers a high return on investment owing to continued rental revenue and appreciation. Commercial property investment in India has grown at a CAGR of 16% over the last five years. Aside from higher value, buying through a renowned fractional ownership group may result in a 15% improvement in rental revenue returns over the next three years. It is included in the leasing contract to safeguard against inflationary pressures and to ensure that your investment remains consistent over time.
- Double returns: Commercial real estate investment yields a double return. The advantages of fractional ownership include both immediate cash rewards and increased commercial property value. You own some commercial property. As a result, the value of your investment will rise. Small investors are increasingly being financially enticed.
- Liquidity: Liquidity is a key advantage of fractional ownership. The liquidity of traditional real estate investments is lower than that of fractional property assets. Of course, you should double-check your contract, but having the opportunity to sell your investment at any point decreases the danger of trading. How so? You may always sell the property and give others your ownership stake.
- Versatility: Do you want to diversify your real estate investments but don’t have the finances to buy in other markets? Real estate fractional ownership facilitates this. Shared ownership, for example, allows you to acquire real estate while working in commercial office buildings and renting out your house, all while generating mortgage payments. Because your money is not tied to a specific property, you may spread them among several properties, grades, locations, and regions within the same city. You may then select whether to specialize in a single industry or to continue diversifying and benefitting from economic ups and downs. It minimizes the possibility of market volatility. Diversification can give benefits without needing a big initial commitment.
- Strength: Small investors are becoming fractional owners of commercial properties due to portfolio diversification, ease of exit, financial gain, and continual rental income. Furthermore, the Indian commercial real estate market is predicted to expand from 13-16% shortly, making fractional ownership of commercial buildings a favorable investment. Furthermore, the commercial real estate market in India was predicted to decrease somewhat in 2020 due to Covid-19. Sure, it did. Nonetheless, it improved significantly in Q3 2020. Covid-19 has reduced global property values, particularly in London, Dubai, and Stockholm. According to industry experts, office leasing has expanded in tandem with India’s expanding outsourcing industry. Multinational corporations mainly from the United States and Europe have rented more than 63 percent of India’s commercial space.
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