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- ➗ Fractional Real Estate: 🤘🏽Democratizing Real Estate Ownership
➗ Fractional Real Estate: 🤘🏽Democratizing Real Estate Ownership
Ben Apple
April 04, 2023
Launch Letter is a weekly newsletter that breaks down real estate trends and topics. Subscribers include brokers, developers, industry executives, and investors. If you are not already a subscriber, sign up and join the others who receive it directly in their inbox each week — it’s free.
Here’s what you will learn in today’s email:
What is fractional real estate ownership?
How can you buy shares of real estate for cash flow?
How can you buy shares of properties around the world to use?
Can anyone invest?
Can you raise capital through fractional real estate platforms?
And more!
👉 Problem
Real estate is one of the best ways to build wealth and many now can't afford it.
⚡ Big Idea
The fractionalization of real estate democratizes ownership and allows anyone to invest and gain the benefits of real estate ownership with less capital.
📊 Trend Data
Median home prices have increased dramatically.
A home used to be the most affordable way to invest in real estate, but affordability is at an all-time low.
Source: Goldman Sachs
🔥 Opportunities
Invest in fractional cash flow properties for investment
Fractional real estate gives investors the ability to invest in passive cash flowing assets. Typically, investors are equity shareholders of an LLC that owns the property.
Ex. Arrived lets you invest in shares of rental properties and earn income
Invest in shares of vacation homes for use
While some fractional real estate platforms give you the ability to passively invest, other platforms help you co-invest with others in vacation homes that you can use.
Ex. Pacaso lets you co-invest in vacation homes that they manage and you use
Raise capital through crowdfunding or tokenization platforms
As a developer, there are platforms that help you raise equity for your projects.
Ex. HoneyBricks has a platform to help sponsors raise capital
Offer new asset classes and product types for investors
While there are options on the market to invest in residential and commercial, we expect to see new niche offerings.
Ex. Nada offers "Cityfunds" that give investors the ability to invest in "index-like" single family rental portfolios in cities like Miami and Austin.
Buy and sell shares of real estate
One of the biggest problems in real estate ownership is liquidity. New platforms are working to solve the problem of liquidity by offering marketplaces to trade shares.
🔑 Key Drivers
New regulations in capital raising, such as Reg A+ and Reg CF, have opened up opportunities for fractional real estate investment for non-accredited investors.
Blockchain technology has opened up new opportunities to tokenize and sell shares of assets.
Retail investor demand for alternative assets has increased.
💼 Case Studies
St Regis Aspen - First single asset REIT to issue security token - successfully raised $18M equity
The Spot @ Myra Park - MarketSpace Capital tokenized this multifamily asset in Texas - token market cap and trading can be viewed here
Value Add Realty Mogul - Financial Samurai shows case study of Realty Mogul investment
Pacaso second home - Case study of fractional second home ownership
🤝 Players
Co-ownership for Use
While some platforms are designed to give investors passive cash flow. These companies make it easy to invest in vacation homes for use.
Pacaso - Co-ownershop model single family home for use or investment; valued at over $1B
Sojourn8 - co-ownership of european guest homes
Vivla - Co-ownership model for second homes in Europe
Lilo - Co-own second homes in Europe for shared use
Ember - Co-own vacation homes for use
August - Co-ownership platform of European luxury homes
Tribevest - Invest in real estate with friends and family
Kocomo - Co-own vacation rentals for use
Plum - Co-own vacation homes for use
Fractional Residential Investment Platforms
These companies make it easy to invest in residential homes as a passive investment.
Nada - Cityfund product allows you to invest in single family home portfolios based on US cities
Fintor- Mobile app to invest in real estate for as little as $5
Ark7 - Buy shares in curated rental homes
Arrived - Raised $162M; Invest in passive cash flow real estate deals with as little as $100
Fractional - Raised $5.5M series A for fractional co-ownership community platform - invest with as little as $5,000
Nada - Cityfund product allows you to invest in single family home portfolios based on US cities
Roofstock - Single Family Rental (SFR) platform; now allows investors to buy shares of curated funds
ReAlpha - Invest in vacation rentals for as little as $500
Lofty - Marketplace to buy and sell shares of properties for only $50
Here - Invest in vacation rentals like stocks
Landa - Buy shares of rental properties for income
Equity Estates - Invest in luxury home fund
Crowdfund Commercial Investment
These companies make it easy to invest in commercial properties as a passive investment.
YieldStreet - Offers fractional investment in single deals and REITs
SolidBlock - Tokenized real estate marketplace
RealT - Buy and trade tokenized real estate
Concreit - Invest in real estate equity and debt for as little as $1
HoneyBricks - Invest in commercial real estate syndicate deals for as little as $1,000
AcreTrader - Fractional land ownership
Diversifyfund - Invest in multifamily portfolio fund and commercial assets
Private Crowdfund REITs
HappyNest - Invest in commercial real estate REIT for as little as $10
Wander - vacation rental REIT that offers membership benefits to stay at properties
RealtyMogul - Commercial real estate crowdfund REIT
Venture Capital
Parker 89 - Proptech investor
Fifth Wall - Proptech investor
Developers
Orion Real Estate Partners - Raised capital for value-add multifamily in Ogden, Utah with HoneyBricks
✨ Predictions
More niche fractional platforms will be built to own and invest passively
More liquid secondary markets will be developed to trade shares
Further expansion into more commercial assets
Increased regulation on the tokenization and trading of real estate assets
Increased use of blockchain technology on these platforms
✨ Risks
Liquidity risk - Although some of these fractional ownership platforms are looking to solve the liquidity problem, none have the same liquidity as publicly traded markets.
Financing - Investing within these fractional ownership platforms may not allow you to finance ownership.
Technology - Some of these platforms use blockchain technology. Some do not. It is important to understand the technology behind these investments and the potential risks and implications.
Regulatory risks could also exist. Some cities and local communities have begun to protest fractionally owned homes. The government is also still evaluating blockchain and the tokenization of assets and further regulation could impact fractional real estate platforms.
✅ Key Takeaways
Fractional ownership gives investors the ability to invest in real estate with lower barriers to entry
Funds and developers can gain additional access to capital through fractional equity platforms
Investors are able to invest passively and diversify in various asset classes around the world
Invest in vacation home(s) to use with friends, family, or other investors
🧐 FAQ
Is fractional equity the same as a REIT (Real Estate Investment Trust)?
No. Fractional real estate is ownership of shares of an asset. However, some fractional platforms allow you to invest in multiple properties, funds, and REITs.
Is this just a timeshare packaged a new way?
No. Timeshares typically give you rights to use the property for a duration of time, but don't always give you ownership. Timeshare owners don't have the ability to earn income on their investment. Fractional real estate owners hold equity and shares that increase or decrease with the value of the underlying real estate.
What is the ownership structure?
There are various structures, but typically, an LLC is created for a group of buyers. Each owner owns a share of the company and underlying asset. In the case of a fund, the owner would own shares in the company that owns the assets.
🔗 Resources
KPMG Real Estate Tokenization - Report on tokenized fractional real estate
Legal FAQ - Review of legal matters concerning fractional real estate
Alts - Report on fractional real estate investing
Bain Digital Assets - Guide to private market digital assets
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Launch Letter is a weekly newsletter that breaks down real estate trends and topics. Subscribers include brokers, developers, industry executives, and investors. If you are not already a subscriber, sign up and join the others who receive it directly in their inbox each week — it’s free.