7 min read • Published 16 Dec 24
How to own Real Estate without buying Property: Fractional Investing
Table of Contents
This blog delves into perspectives shaped by Mr. Maulik Gandhi, a Chemistry teacher who has remarkably attained financial freedom. With a portfolio amassing ₹7 crores and investments across five distinct properties valued collectively at ₹1.2 crores, his journey is both inspirational and instructive.
Drawing from Mr. Maulik’s insights, let us delve into fractional real estate investing, exploring everything from its foundational concepts to future prospects. This blog offers insights into making informed investment decisions, evaluating platforms, managing risks, and leveraging this new asset class for steady income, diversification, and long-term growth.
First, let’s start with the basics of real estate investing.
How to Invest in Real Estate?
When comes to investing, real estate can be categorized into two broad buckets: residential and commercial.
Residential real estate includes properties intended for personal living, such as apartments, villas, and houses. Residential real estate usually has lower rental yields but higher demand and emotional value. It is generally easier to liquidate and more accessible for individual investors compared to commercial properties.
Commercial real estate includes properties used for business purposes, such as office spaces, retail stores, warehouses, and shopping malls. Commercial real estate typically offers higher rental yields and longer lease terms but often requires larger investments and comes with risks tied to business cycles and tenant stability.
But, how can one invest in real estate?
Real estate has always been a coveted investment avenue, but the high cost of property ownership often acts as a barrier for many. Although now one can invest in real estate in many different ways, like buying an entire land or the entire property or starting with something as small as investing in say stock of a real estate company.
Another way to invest in real estate is through fractional real estate investing, a concept that allows individuals to invest in real estate without the financial burden of buying an entire property or land.
| Parameter | Directly in Land/Real Estate | Fractional Real Estate |
| Ticket Size | High (₹50 lakh to ₹5 crore or more) | Moderate (₹15 lakh to ₹30 lakh, may lower in future) |
| Returns Expected | 8%-12% annually (rental + appreciation) | 15%-16% (rental + appreciation) |
| Timeline | Long-term (5+ years for meaningful returns) | Medium to long-term (4-5 years recommended) |
| Ease of Liquidity | Low; selling property takes time | Moderate; requires finding replacement investors |
| Diversification | Limited; high capital ties to one property | High; invest in multiple properties across sectors |
| Risk Level | Medium; property-specific and market risks | Medium; subject to market and tenant risks |
Now, let us get a better understanding of fractional real estate investing.
Fractional Real Estate Investing: What is it?
Fractional real estate investing involves multiple investors pooling their resources to collectively own a property. For example, if a commercial property is valued at ₹50 crore, instead of purchasing the entire property, individuals can buy smaller stakes—say ₹50 lakh each—representing 1% of ownership. Investors earn monthly rental income proportional to their stake and also benefit from the property’s appreciation over time.
Fractional ownership provides a middle ground between the extremes of investing in real estate stocks and purchasing an entire property. It suits individuals looking to diversify their portfolio with a time horizon of at least four to five years.
Investors often gravitate toward fractional ownership for its potential to deliver consistent rental yields and capital appreciation. For instance, rental income can range between 8.5% to 9%, while the combined returns, including appreciation, can average 15%-16%.
To understand whether fractional real estate investing is a smart choice, let us see its pros.
Is Fractional Real Estate Investing a Smart Investment Choice?
- Affordable Entry Point
Unlike traditional real estate investments, fractional ownership requires smaller ticket sizes, typically ranging from ₹15 lakh to ₹30 lakh. This lowers the barrier to entry for retail investors. - Diversification
Investors can spread their funds across multiple properties in different cities or sectors, reducing risk. - Steady Income
Monthly rental payments provide a steady income stream. This income is typically credited directly to the investor’s bank account on a fixed date every month. - Transparency
Most reputable platforms conduct due diligence, ensuring properties are legally sound and tenants are reliable. - Professional Management
The property’s maintenance, tenant management, and other operational aspects are handled by the portal or a dedicated team, saving investors time and effort.
Fractional ownership does have pros, but how to invest in real estate through this approach in India.
How to Dive into Fractional Real Estate in India?
In India, individuals can invest in fractional real estate through specialised online platforms and portals that facilitate shared ownership of commercial properties like office spaces, warehouses, and retail outlets. Some of the portals include Strata, Real X, hBits, Wisex, and Asset Monk.
Apart from this, investors can also invest in Real Estate Investment Trusts (REITs).
REITs are publicly traded entities that own, operate, and manage income-generating real estate assets. By purchasing shares in a REIT, investors can earn dividends derived from the rental income and profits generated by these properties, offering a simple and liquid way to invest in real estate.
But, How to Choose a Portal?
When selecting a portal for fractional real estate investing, several factors need careful consideration.
- Start by evaluating the management team—who are the key players, such as the CEO, and what is their track record?
- Next, assess the portal’s longevity and credibility in the market. How long has it been operational? Have they acquired successful properties, and are there notable examples of exits where investors benefited?
- A key concern is the risk of portals going bankrupt. To mitigate this, platforms use escrow accounts for transparency, where investors pay 10% upfront, with the remaining 90% transferred only after full funding. Ownership is safeguarded through trusts or SPVs, ensuring the property stays in the investors’ name. While rental income may vary due to tenant changes, the property’s capital appreciation secures the investment’s long-term value.
What Needs to be Considered Before Investing?
1. Location of the Property
Investing in high-demand cities such as Mumbai, Bengaluru, and Pune can offer better rental yields and appreciation. Understanding local market dynamics is crucial.
2. Tenant Profile
Properties leased to long-term, financially stable tenants reduce the risk of vacancy. Platforms often secure tenants with high relocation costs, ensuring lease continuity.
3. Exit Strategy
While fractional real estate offers good returns, liquidity is limited. Portals typically take 15 to 90 days to find a replacement buyer if you wish to exit before the property is sold.
4. Management Fees
The investors can be charged a management fee of around 1% from the portals for managing the property they have bought.
Challenges of Fractional Real Estate Investing
Liquidity Issues
Unlike stocks, fractional real estate is not instantly liquid. Exiting requires either a replacement investor or collective approval from co-investors.
Market Risk
Like any investment, fractional real estate is subject to market fluctuations, which can impact both rental yields and property appreciation.
Regulatory Changes
The landscape for fractional real estate is evolving, with regulatory bodies like SEBI introducing measures to standardize the sector. Upcoming changes may lower ticket sizes but could also alter the investment structure.
Future of Fractional Real Estate Investing
The concept is poised for growth as it transitions into small and medium real estate investment trusts (SM REITs). SEBI’s proposed reforms aim to make this asset class more accessible to retail investors by lowering the minimum ticket size to ₹10 lakh.
Metropolitan areas, with their ever-increasing demand for commercial and residential spaces, are expected to drive significant growth in this segment.
Final Thoughts – Is Fractional Real Estate Right for You?
Fractional real estate can be a great addition for those looking to diversify and secure steady returns. However, it is important to consider your financial goals, risk tolerance, and age. Younger investors may not need immediate rental income and can focus on appreciation, while older investors (40s or 50s) may prefer the stability and lower-risk fractional ownership offers compared to equities.
For those with larger sums, allocating around 20% to fractional real estate helps diversify the portfolio. Diversification remains key—spreading investments reduces risk and fosters long-term growth.
