Investing in traditional assets, like real estate, fine art, or stocks and bonds, has long been considered a luxury reserved for the wealthy and the elite.
Of course, there’s a good reason for that.
Historically, these assets were available only to those with large sums of money to invest. Fractional investing turns that notion upside down by lowering the barrier and allowing ordinary individuals to invest in assets that were once out of reach.
At its core, fractional investing involves buying and selling portions of an asset, thus enabling investors to own a small piece of a larger investment.
Take real estate, for example. Because of private equity investing, the proliferation of short-term rentals, and other market factors, real estate prices have skyrocketed, barring more and more young people from investing in real estate or even owning a home.
With fractional investing, you can have the same opportunities as the wealthy without breaking the bank. Fractional investing revolutionizes the investment landscape by providing flexibility and diversity to grow your portfolio, even if you don’t have much capital. Best of all, it doesn’t matter if you’re new to investing. It is an excellent way to get started without much risk.
So, let’s explore the benefits of fractional investing and check out the different companies and methods offering fractional investment opportunities.
What are the benefits of fractional investing?
There are several benefits to fractional investing, including:
- Diversified risk exposure: Diversification is a fundamental principle of investing that spreads risk across multiple assets, reducing the impact of a single asset’s performance on the overall portfolio. Fractional investing allows investors to own fractions of various assets, providing diversification benefits previously only available to those with large sums of money to invest.
- Lowered barriers to entry: Accredited investors are high-net-worth individuals with a net worth of at least $1 million, excluding their primary residence or annual income of at least $200,000 for the last two years. Fractional investing platforms have enabled everyday investors to invest in real estate, fine art, and even private equity, providing an opportunity to build wealth through alternative investments.
- Increased access to unique investment opportunities: Fractional investing gives investors increased access to unique options that were once out of reach. For example, real estate syndications allow investors to pool money to purchase apartment buildings, hotels, or commercial buildings. By pooling resources, investors can access opportunities that would be otherwise unavailable, providing the potential for higher returns than individual investments.
What fractional investing methods are currently available?
Several methods are available for fractional investing, including real estate investment trusts (REITs), syndications, fractional investment platforms, and crowdfunding.
Let’s look closer at each of these options and discuss their benefits and drawbacks.
A REIT is an investment vehicle that allows investors to invest in a portfolio of income-generating real estate assets, such as office buildings, shopping malls, and apartments. REITs typically pay out a high percentage of their earnings to investors through dividends, making them attractive to income-seeking investors. REITs can be publicly traded or non-traded, with non-traded REITs typically requiring a longer investment horizon and higher minimum investment.
REITs are commonly used by individual investors, institutional investors, and financial advisors. They are popular among retirees seeking income, as well as investors seeking long-term capital appreciation.
- real estate investment opportunity without owning physical property
- access to a diversified portfolio of assets
- high dividend yields
- potential for volatility
- limited asset control
- potential interest rate risk
Real estate syndications
Real estate syndications are REIT alternatives that allow individual investors to pool their money to invest in large deals, typically involving commercial or multi-family properties. The syndication is managed by a sponsor responsible for identifying the investment opportunity, structuring the contract, and managing the property. Real estate syndications are good for investors looking to invest in more significant real estate deals they would not have access to on their own and to participate in real estate deals without having to manage the property themselves.
Real estate syndications are commonly used by high-net-worth individuals, family offices, and institutional investors. They are popular for investing in commercial or multi-family properties that require significant capital and expertise to manage.
- access to more significant real estate deals
- professional management
- potential for higher returns
- potential for illiquidity
- lack of control over the property
- higher fees compared to other types of real estate investments
Fractional investment platforms
These online platforms allow investors to buy fractional ownership in a wide range of assets, including digital property investments, art, private equity, and more, enabling investors to invest small amounts of money in assets previously only available to high-net-worth individuals or institutional investors. Fractional investment platforms are good for investors looking to diversify their portfolios with alternative assets and gain exposure to unique investment opportunities. In addition, they provide low minimum investment requirements, transparent pricing, and ease of use.
Fractional investment platforms are commonly used by individual investors looking to build a diversified portfolio, as well as institutional investors looking to access unique investment opportunities.
- increased access to alternative assets
- diversified risk exposure
- low minimum investment requirements
- potential lack of liquidity in certain assets
- risk of fraudulent activities
- potential for higher fees compared to traditional investments
Crowdfunding is raising capital for a project or venture by soliciting small contributions from many people, typically through an online platform. It allows investors to invest small amounts of money in various projects and ventures, including real estate, startups, and small businesses. It provides access to many investment opportunities and the potential for high returns. Real estate crowdfunding has become popular among those just getting started with real estate, but it has significant drawbacks.
Crowdfunding is commonly used by individual investors, particularly those looking to support startups and small businesses. It is also used by entrepreneurs and small business owners looking to raise capital for their ventures.
- increased access to investment opportunities
- potential for high returns
- the ability to support innovative ideas
- the potential for high risk
- lack of liquidity
- potential for fraudulent activities
How the Homebase investment platform is redefining fractional property investing
The Homebase tokenized real estate investing platform aims to provide an affordable real estate investing solution and low-cost property investing options to investors who would otherwise not have a path.
Although fractional investing has become increasingly popular in recent years, issues with transparency, traceability, ownership, and composability still exist. Homebase solves these problems by providing a transparent, traceable, and immutable record of ownership on the blockchain. Real estate on-chain allows for more secure and efficient transactions and increased transparency and trust between investors and property owners. It also provides a composability layer that enables interoperability with other decentralized finance (DeFi) protocols.
One of the main benefits of Homebase is that it creates opportunities for accessible property investments for anyone, regardless of their financial status or location, opening up real estate investing to a much larger pool of investors and providing greater diversification and potential for returns.
Homebase also provides a future vision where anyone can buy a fractional ownership stake in a home, giving them the first right to move in with an aligned interest with the majority homeowner(s). The future vision of Homebase is to create a Zillow-like experience where buyers can invest in real estate online and potentially use their investment as a down payment for future homeownership.
Homebase will revolutionize the real estate industry and create new opportunities for investors of all backgrounds. Its intuitive and easy-to-use interface allows users to manage their tokenized real estate assets easily. For more information about getting started with tokenized real estate, tokenized property ownership, and how a $100 real estate investment is all you need to get started, check out Homebase today.
Thanks for reading!
- Alex, Homebase Co-Founder