Discover the key differences between fractional ownership and REITs. Learn how these popular real estate investment methods compare in terms of flexibility, transparency, and control. Perfect for both novice and seasoned investors looking to expand their portfolios.
Investing in real estate offers a variety of paths, each with unique benefits and considerations. Whether you’re a novice looking to make your first investment or a seasoned investor exploring new opportunities, understanding the options available can significantly impact your strategy. This guide will compare two popular investment methods: fractional real estate investing and Real Estate Investment Trusts (REITs).
Fractional real estate investing allows individuals to buy shares in a property, as opposed to the entire property. This method lowers the entry barrier to real estate investing, making it accessible for those with limited capital. It also offers the flexibility to choose specific properties in which to invest, allowing investors to tailor their portfolios to their preferences and risk tolerance. Akin to picking individual stocks, with Realbricks, you can select individual properties to invest in, and have full control over your real estate portfolio.
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate. Modeled similarly to mutual funds or ETFs, a REIT pools the capital of numerous investors into a large portfolio of real estate assets, allowing individuals to earn a share of the income produced without directly buying or managing properties. This makes it possible for individual investors to earn dividends from real estate investments without buying, managing, or financing any properties themselves. REITs are typically segmented into three types: equity, mortgage, and hybrid.
Flexibility: Fractional ownership offers more control over the properties you are investing in than REITs as investors can choose exactly which properties they want. In contrast, REIT investors invest in a managed portfolio that include numerous pre-selected properties.
Transparency: Fractional ownership provides a clear view of what you’re investing in with detailed information about each property. REITs, while regulated, can sometimes lack this level of transparency as they do not offer the same granularity of investment detail. Some REITs do not actually disclose the property addresses or specific details at all. Leaving the investor guessing as to which properties are truly included.
Investment Control: With fractional ownership, you choose the properties that align with your investment goals. REITs do not offer this level of control; rather, they offer a diversified portfolio that is managed by professionals. With Realbricks, you will also be able to buy and sell shares of these properties at any time, when they are on our secondary market.
Potential Returns and Risks: While both REITs and fractional ownership offer opportunities for returns through appreciation and rental income, fractional ownership stands out for its potential to deliver higher returns, especially when you handpick promising properties. Unlike REITs, which spread your investment across a broad portfolio (often leading to more modest, averaged-out returns), fractional ownership allows you to focus on high-performing properties, maximizing your profit potential. While there can be a higher risk associated with individual properties, this approach gives you more control and the chance to capitalize on significant gains—much like choosing individual stocks over investing in the S&P 500 (SPY) or another ETF.
Fractional real estate investments stand out due to their lower investment thresholds, enhanced control over your investment choices, and the potential for personal involvement in the management of your investments. This can be particularly appealing for those who want to grow their real estate portfolio strategically and transparently.
The real estate market continues to evolve with the integration of technology and new investment structures. Fractional real estate, supported by digital platforms, is set to become an increasingly popular option due to its accessibility and scalability. With the Realbricks App on iOS, & Android, investing in real estate has never been easier.
Disclaimer: Investing in real estate involves risk, and this article does not constitute investment advice. Prospective investors should conduct their own due diligence and consult with financial advisors before making investment decisions.
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