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Ever wonder what fractional ownership means or what it means to own a fractional property? It is a group of like-minded people who get together to invest in owning a property. As each one of them owns the property together, they become a fractional owner. In the majority of cases, it is a commercial property which is fractionally invested. Read More at: https://www.preleaseproperty.com/blog/fractional-ownership--the-new-reality-of-the-real-estate-market/10
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What is fractional ownership? It is a group of like-minded people who get together to invest in owning a property. As each one of them owns the property together, they become a fractional owner. In the majority of cases, it is a commercial property which is fractionally invested. Let’s understand this concept with an example. Suppose there is a new office space with world-class amenities being constructed in a prime location in Bangalore, valued at Rs. 50 Crore. Given the extensive high price range, only a high net worth individual can afford it. But now imagine multiple people coming together and pooling their desired amount. With this, each investor gets to own a part of the property and split the benefits equally. With the increase in the market value, all the people who invested could earn rental returns and avail of the long-term capital benefits.
Why Invest in Fractional Ownership? Liquidity Flexible Nature 01 02 When planning for retirement investment, the first thought one has is investing in NPS- National Pension System. But with a lock-in period of 25 years, it becomes a highly illiquid investment. A carefully structured contract for a highly valued property with verified tenants for a long period is something that will pave the way to a stable return aiding the investor to build a superior retirement portfolio. Low Risk Best for Middle Income Investors 03 04 Fractional ownership in commercial real estate holds the major benefit of allowing the investor to split the fund into smaller parts and invest in multiple high-end properties rather than focusing on one sole investment. It can be rightly said that fractional ownership in commercial real estate can be a far more efficient way to ensure that the silver years are financially comfortable and stress-free.
How Do the Investors Earn? From a pre-leased commercial property, one can yield a rental of approx 8-12% annually, which is paid on a monthly or quarterly basis. If the investor wishes to exit the investment, it can be done in a couple of ways: Either they can sell it in the secondary market or they can wait for a buyer to buy the property. The sale of a complete asset takes place only when 75% of the investors are in favor of the sale. The rental income is treated as interest for taxation purposes and is taxed at slab rates. On the other hand, the profits made are treated as capital gains and taxed at 20%.
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