- September 13, 2018
- Thomas Adam
- Real Estate
Unfortunately, not everyone has the resources to independently fund real estate investment. To increase the number of people who are able to become involved in real estate investments, fractional investments were created, which allow several individuals to become involved in real estate projects. One of the effects of this new law has been that more people are now allowed to become involved with real estate projects. Many people, however, still have questions about how fractional investment works.
The Concept Behind Fractional Investment
In fractional investment, a property is divided into numerous smaller parts. These arrangements allow investors to become associated with a property by investing much smaller amounts of capital than if they had attempted to purchase the property as a whole. While this concept might seem novel, it is important to recognize that the concept is not new and originates with Dividend Reinvestment Plans. Fractional investment frequently means that not only is the cost of ownership in a property split, but so are the maintenance costs required to maintain and take care of the property. As a result, fractional investment leads to multiple landlords and multiple shareholders rather than just one.
Methods of Fractional Investment
There are two methods commonly used for factional investment – tenancy in common and Delaware Statutory Trusts. In tenancy in common, each investor owns a distinct interest in the property. Frequently, deciding on financing for tenancy in common relationships is challenging. Under Delaware Statutory Trusts, however, investors own interest in a trust rather than real estate. Because these trusts function as a single union, financing decisions are often less complicated than with tenancy in common. The exact relationship that will work best for investors depends on a number of factors, but both arrangements create investment opportunities for individuals who might not have otherwise been able to establish ownership in a property.
The Benefits of Fractional Investment
As previously mentioned, fractional investment has created more opportunities for investors to become involved with the ownership of property. In turn, this number of increased investors leads to an increased number of rental opportunities for tenants. Investors also risk less money than if an entire piece of property was involved. Unfortunately, there are also some risks associated with fractional investment, including the risk that an investment opportunity does not gain the attention of enough investors for the property acquisition to be successfully completed. Given the way that property values fluctuate, there is also a potential that a person’s interests will fall in value over time rather than increase.
Speak with a Knowledgeable Real Estate Lawyer
Deciding on whether fractional investment works for you involves a complicated series of decisions. One of the best ways to decide on a good fractional investment decision is to first speak with an experienced real estate lawyer who can help you navigate each step involved with purchasing property. At Adam Law Group, we understand the numerous challenges involved with property investment. Contact us today to schedule an initial free consultation during which time we will review your various available options.