Fractional Property Investment: How Does It Work?

Interested in fractional property investment Singapore? It’s become more popular recently because it offers investors a more accessible way to invest in real estate. 

Unlike traditional property investment, fractional investing has lower entry barriers. This is because it allows multiple investors to own a share of the same property. 

What Is Fractional Property Investment?

Fractional property investment is when several individuals collectively purchase a property. Each of them owns a fraction of the property that’s proportional to their contribution.

In most cases, investors hold shares in a company that owns the property, rather than directly owning the physical property.

These investors then share both the ownership and its responsibilities. That means the maintenance costs and management of the property are shared across all of them.

The result is an option for investors to get real estate exposure without having to invest too much capital. In a simplified example, it translates to five investors needing to pay only $1M each to own a property instead of one investor paying $5M all by himself.

How Fractional Investment Works

Generally, a property up for fractional investment is divided into shares. Each of these shares represents a fractional ownership stake, i.e. part ownership of the property. 

In our simplified example, five investors buying equal shares of $1M each in a property worth $5M means that each investor owns 20% of the property (100% ownership divided by five).

However, ownership and returns are always proportional to your investment in a fractional investment. 

So, let’s say we only have four investors instead of five. Say three of them buy $1M shares in our fictional $5M property. Then, the fourth investor buys the remaining two $1M shares for a total stake of $2M.

This means the first three investors each still own 20% of the property, but the fourth one owns 40% of it. 

Furthermore, when the property begins to see returns or profits, that fourth investor’s returns will also be higher compared to the returns for any of the other three.

In any case, fractional investments like these are typically achieved on structured platforms. These platforms can simplify the management process, from the administrative processes and paperwork to the dividend distributions.

The Role of Platforms in Fractional Investment

Online platforms can play an important part in fractional property investment. That’s because they make it more accessible and transparent for a lot of the investors involved. 

A good example is RealVantage, a property investment Singapore platform that facilitates efficient and transparent fractional investments.

Among other things, it offers investors pre-vetted properties worldwide and provides detailed analysis and projected returns for each one. This lowers the barriers to fractional property investment even further, placing key info and functions right in investors’ hands.

The platform also handles administration, due diligence, and ongoing management, reducing the effort required from individual investors in managing their co-owned property.

Benefits of Fractional Property Investment

The benefits of this type of investment are fairly easy to see

●       Higher accessibility than traditional property investment

●       Enables diversification across different property types and locations

●       Hassle-free management when handled by professional platforms (e.g. RealVantage)

Drawbacks of Fractional Property Investment

Like any other type of investment, fractional ones also have their drawbacks:

●       Investors may have limited control or influence over property management decisions

●       Restricted liquidity, depending on the type or location of the property

Should You Consider Fractional Property Investment?

Fractional property investment is an appealing solution for Singaporeans who want to enter the real estate market without spending substantial amounts of capital. However, anyone venturing into this category of investments should strive to understand its workings and risks first.

To begin with, it’s advised to take time selecting the right investment platform to use. A good platform can ease the entry significantly and make reviewing your portfolio a smooth process instead of a slog.