Fractional Ownership: What Is It and Why Do You Need It?

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YONKERS,NY —September, 22, 2022 —Many of the world’s wealthiest people have built their net worth with real estate. Even if their initial surge in income came from a different source, such as starting a company or developing new technology, the top billionaires know to invest some of their money in real estate to grow it further.

Real estate can be imposing for those without millions of dollars lying around or a team of professionals to help spot suitable investments. A lack of industry knowledge or a low credit score can cause people to think they can’t enjoy the same benefits of real estate as the world’s elite. Thankfully, fractional ownership is breaking down these barriers.

You may have heard about fractional ownership in the stock market or seen stories about people using it to share ownership of boats or private jets. If you aren’t familiar with how it applies to real estate, you may be missing out on entering the real estate market and generating returns from high-yielding properties.

What Is Fractional Ownership?

It’s a strategy used for many different products and services, typically those with higher costs. This enables someone who may not be able to afford the item by themself to own a portion of it at a price within their budget.

For example, one share of Tesla stock has cost more than $1,000 in the past. However, some stock brokerages enable investors to purchase a percentage of the stock for a lesser amount. If the Tesla share costs $1,000 exactly, a brokerage might allow someone to own 30% of one share for $300. Once they do this, the person sees their investment value change proportionally with the stock. If the Tesla share is trading later for $1,500, the investor’s percentage would now be worth $450.

This concept has carried beyond the stock market into many other high-priced assets. While the product and price point differ, the mechanics work similarly in real estate. A multi-million-dollar vacation rental property might be out of someone’s budget. Still, that same person might be able to purchase a percentage of the ownership rights with a smaller amount of money.

Why Do You Need Fractional Ownership?

The most obvious reason is the one just mentioned. This strategy can open the door to investing in high-yielding properties previously out of your price range. Although this is the easiest advantage to spot, there are many other perks. 

It can eliminate the need for a large mortgage with high fees and interest rates

By raising enough money upfront to purchase the place with cash, there is no longer a mortgage with high fees or interest rates associated with the property. You can also benefit by not worrying about the hoops and hassles of checking your credit score and verifying microscopic details during the application process.

It provides a team to manage the property

Some of the biggest concerns of becoming an income property owner involve the day-to-day management of it. These include maintaining the property, finding certified professionals for repairs when they arise, and keeping up with the local rules and regulations. That doesn’t even mention the stress of finding tenants or setting up a successful billing system. With fractional ownership, these tasks are covered by a team that knows how to handle these things correctly and efficiently. 

It enables you to control how your money is invested

You can invest in different types of properties and different locations based on what interests you. You can also determine how much you want to invest in each property since you buy a percentage rather than paying full price.

It gives you the benefit of property appreciation

If the value of the property increases, so does the value of your shares because you have equity in the property. This will come in handy when you decide to sell your shares.

It can offer the same tax benefits as owning an entire property

Of course, you’ll want to check with a tax professional to clarify your situation. However, fractional ownership usually provides tax benefits like deductions for property taxes, interest, and depreciation.

Conclusion

Fractional ownership is not a new idea. It has been used for many high-priced items over the years, but now it is gaining more acceptance as many consider its benefits. With several advantages like a management team and reaping the gains of property appreciation, it is easy to see why its popularity is increasing in the real estate industry. If one of your life goals has been to become a real estate investor, this might be your strategy.

eHeziFractional Ownership: What Is It and Why Do You Need It?

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