Traditionally, folks have been investing in land, which is an appreciating asset. Due to elevated land scarcity and higher demand for it, such actual estate properties have supplied investors excellent returns and also helped them create wealth.
Although investments in contemporary higher-rise residential apartments include really tiny land ownership and predominantly involve investments in depreciating assets, industrial actual estate investment gives substantially greater money flow by means of rentals.
However, investing in a premium home demands a substantial sum of dollars, which is probable only for High Networth Individuals (HNIs) or the Ultra HNIs.
“It has historically been reserved for those with specialised knowledge, the right connections, and access to a huge amount of capital. This has kept investing in Commercial Real Estate (CRE) out of reach for most until a few years ago. However, to have a much-needed edge, people need to understand that CRE investments are a very important part of their portfolio,” mentioned Varun Mohan – Founder and CEO, Definite, an revolutionary begin up in prop-tech space that gives fractional actual estate ownership to investors in industrial actual estate.
“The major traits that are common in the wealthiest individuals and separates them from the rest are their Real Estate investments. Further, their income is not correlated to their time spent working and they focus on cash flow through Real Estate. These insights play a crucial role in transforming the way people invest in the CRE sector. Hence, as a solution to have specialized knowledge, the right connections, and access to a huge amount of capital, Fractional Ownership is the inevitable change coming to the CRE market,” he added.
What is fractional investment in actual estate and how is it various from REIT investments?
Started with an concept to democratise the actual estate investment sector, the platform – Definite – empowers folks with fractional ownership and assists them develop yield creating industrial actual estate diversified across asset classes and geographies.
Explaining how the platform can support not-so-wealthy folks advantage from investments in industrial actual estate by means of fractional investments, Definite Founder and CEO Varun Mohan explains the notion.
Concept of Fractional Ownership
There exists a premium industrial creating worth Rs 50 crore, generates excellent money flow and is a leased asset to a verified institutional-grade tenant. For instance, Aleksa (a new age investor) is hunting to participate in the type of asset with all the above mentioned characteristics but only desires to do it with just Rs 25 lakh.
Traditionally, Rs 25 lakh wouldn’t enable Aleksa to invest in person institutional-grade properties till fractional ownership. It enables to divide the Rs 50 crore worth asset into fractions or shares that represent equity and debt in the underlying asset. It implies that this asset can now be accessed by a wider pool of institutional investors, person investors, and fractional investors like Aleksa. Hence, enabling the new age investors to participate in new possibilities at a fraction of the expense previously needed.
Benefits of Investing in CRE
Investing in a CRE chance is the option of skilled investors than any other chance. This is given that stock markets are volatile and banking items like Fixed Deposits (FDs) give capital protection but with low returns if correlated with the inflation economics. Thus, the investors choose to invest in CRE as the chance gives a balance of these characteristics, has a physical underlying asset, the capacity to preserve capital and create month-to-month or quarterly money flow as properly.
Convenience of Fractional Ownership
Fractional ownership is a notion that has caught up in many created economies like America, Singapore, Hong Kong and is now gaining traction in India. A fractional ownership platform gives a portal exactly where folks can get with each other to obtain an asset, appreciate the yield it generates and ultimately be capable to sell their fraction when they want, hence enjoying capital gains. The platform also manages the asset and facilitates any payouts from the asset and automatically distributes these payouts to fractional owners like Aleksa.
In basic terms, Fractional ownership enables a particular person, to personal a fraction of a pre-leased asset worth Rs 50 crore, with a modest capital size of Rs 25 lakh, and appreciate the economic privilege like that of a Rs 50 crore asset owner such as an institutional-grade asset, verified tenant, and a money flow.
Diversification by means of Fractional Ownership
Fractional ownership assists in generating a diversified portfolio that distributes and minimises the threat. Now with just Rs 1 crore, an investor might acquire 4 various types of assets, at 4 various places with the help of folks possessing specialised understanding and vast knowledge, to handle the asset when working on behalf of them.
How Safe is Fractional Ownership?
Aligned with the message of technologies i.e. empowering folks to produce economic futures, and, fractional ownership, is driving equality and transparency. With PropTech platforms for fractional ownership, folks appreciate straightforward access to completely vetted, post-strict due diligence, stabilised possibilities in an institutional-grade physical asset possessing a predictable money flow.
“Entering into the commercial real estate segment has always seemed difficult for people having small capital available or planning to diversify the portfolio. However, with fractional ownership, people will be able to overcome the barriers of high capital requirement, lack of experience, and liquidity,” Mohan concludes.