Before committing to add fractional real estate to your investment portfolio, there are a few key elements to consider to decide if it is the right investment for you.
Fractional Investing vs. Savings Accounts
With inflation rising rapidly, money sitting in a savings account accruing <1% interest is losing value every day. Many investors turn to real estate as a way to beat the market. Real estate provides a solid investment that can appreciate over time, providing a hedge against inflation.
Fractional investing can be a truly 'passive' investment where you, as the investor, can make your investment and collect your share of the benefits without the effort that traditional real estate investing requires. Because of this, making investments in fractional real estate can be more easily compared to leaving the same sum of money in a savings account.
Beyond the appreciation value that real estate investments bring, investors can also expect their share of any cash flow the property generates. If a property generates a 10% Cash on Cash return per year (10% of the cash invested is returned per year), that is 1000% higher return than leaving cash in a 1% savings account. With 10% as a benchmark for return, you are beating the 20-year average 2.70% rate of inflation by over 7%, not to mention any appreciation or tax benefits that you get when you invest in real estate.
Because of these benefits, investors with excess cash losing value in a savings account should consider investing in fractional real estate to see better returns on their money from a 'passive' investment vehicle.
Are You An Accredited Investor?
An accredited investor is an investor that meets certain requirements in their country and is qualified to invest in complex or sophisticated types of securities. By qualifying as an accredited investor, you gain access to unique investment opportunities which may not be accessible to ordinary investors - including fractional real estate. These investments offer the investor better diversification within their portfolios and may offer the prospect of better returns.
If you are an accredited investor, there are few limits on the investments you can make and you are free to explore fractional real estate as your next investment.
View the requirements defined by the SEC to qualify as an accredited investor.
What Are Your Investing Goals?
Individual goals are very important to keep in mind when considering a new investment vehicle.
When compared with traditional real estate investing, fractional real estate is a passive investment vehicle with a low cost of entry, higher potential returns, and minimized personal risk. This combination of benefits makes it the perfect tool to generate long term wealth.
Whether you are a young professional, busy parent, or the CEO of a large company, fractional real estate provides the easiest and most passive way to invest in one of the best performing asset classes.
If you are a new investor or just learning the basics of real estate investing, we suggest you join our free newsletter to stay up to date and gain access to more free education so you have the knowledge to ensure that fractional real estate is the right investment for you.
How Much Do You Plan To Invest?
Since fractional real estate investments may have minimum entry requirements of anywhere from $5,000 to $100,000 or more, it is important you know your finances and have an idea of the amount you are willing to invest before getting started with your first investment.
When you invest with HomeStakes, you have the opportunity to buy as little as 1% of the property (this can be as low as a couple thousand dollars) up to 20% of each property (can range up to the hundreds of thousands). With HomeStakes, there are investment levels for all range of investors. Become an investor now to start diversifying your portfolio with fractional real estate.
Just as any investment, fractional real estate does not come without risk. As such, this is an investment and it is best to never invest more than you are willing and able to lose. Read more on the risk vs. reward of investing in real estate here.
How Does Fractional Real Estate Fit Your Timeline?
It is important to determine your timeline for any investment. Typically, investments are viewed as either short term or long term depending on the intended holding period.
Fractional real estate investments - and real estate investments, generally - tend to perform better over the long-term as the property appreciates, equity is bought down, and rental figures increase. As such, most investors view real estate as a long term investment.
Although fractional real estate investments are expected to perform better when treated as long term investments, there is a unique liquidity potential that other traditional real estate investments do not offer. Investors have the ability to sell their stake in fractional real estate at any time (be sure to check for potential lockup periods that may affect this) increasing the liquidity and potentially making it easier to exit the investment.
Again, any investment in real estate will generally perform better over the long term and it is suggested that you treat fractional real estate the same for the best results.
So - Is Fractional Investing For Me?
Fractional investing may not be for everyone. After you have determined your goals, the amount you plan to invest - either one time or recurring (recommended) - and your timeline, you can then decide if investing in fractional real estate is right for you. If you are looking to add a passive investment that will help you generate long term wealth, it may be a good option.
If you decide that you are ready to make your first investment into fractional real estate, sign up to be a HomeStakes investor and start investing with us to capture the benefits.
To follow along and learn more about fractional investing and real estate investing in general, sign up for our free newsletter for articles like this every week.