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Fractional real estate investments: What are they?

On Behalf of | May 30, 2020 | Firm News |

You’ve always heard that investing in real estate is a good idea — but you don’t have the money to buy a lot of property. Even if you did, you certainly don’t have the time (or inclination) to be someone’s landlord.

Could fractional real estate investments be the answer? Maybe. Fractional real estate investing essentially turns the active process of investing in real estate into a passive one. Instead of buying a property on your own and managing it, you — along with other investors — pool your money and purchase a (usually high-end) property together. Each investor, therefore, owns a fraction of the purchased real estate.

The majority of fractional real estate investors will make their purchases through an investment firm that specializes in these types of real estate deals and arranges for the management of the property afterward.

The advantages are fairly clear: You can get a toehold on an investment property that would normally be out of your reach, with little effort on your part. You can also take advantage of hot markets in cities all over the nation, instead of trying to keep your properties where you can watch over them. You never have to worry about late-night calls from tenants with plumbing issues.

The drawbacks aren’t always obvious, however. When you invest in fractional real estate, dropping an investment isn’t as easy as selling a stock. It can take weeks, months or years to liquidize your investment by selling your share of the property later. Further, the returns on your investment may be slow in building. You also aren’t in charge of your own money — especially since you aren’t picking the property out yourself.

If you’re thinking about investing in any kind of real estate, it’s smart to get some legal advice before you start. An attorney can often anticipate or spot problems that you might not even be aware are a possibility.