When it comes to investing in real estate, the barrier of entry for investors can be challenging. However, as investment avenues expand by the day, fractional investments are becoming a popular way to get on the property ladder.
But, what are fractional investments in a broader sense? And how do they work? In this blog, we’ll take a look at fractional investments and how getting a slice of the action could very well be a valuable investment opportunity overall.
What Are Fractional Investments?
In short, fractional investments (or fractional shares), as the name suggests, are portions of an entire asset, based on the amount of money you’ve invested in. So, if we imagine an entire pie as a whole share, fractional shares are simply slices of that pie. That same pie can be divided into a few slices (think quarters), several slices (think eighths), or even more depending on the amount you’re after!
Now, whether you purchase the whole pie or just a few slices – that pie would taste the same, right? Essentially, when investing in fractional shares, you’ll still receive many of the benefits of whole shares, only at a lower purchase price – and this model applies to many asset classes, like stocks, Bitcoin, and real estate. In fact, fractional shares have come a long way, as they were traditionally available only during dividend reinvestment plans (DRIPs), stock splits, mergers, and acquisitions.
Nowadays, fractional property investments also enable you to buy a portion of a property, or many properties, so you get all the benefits of owning a property without worrying about the upfront cost or ongoing hassle, for example. That said, fractional investments have opened up the world of alternative assets to retail investors with limited capital, as it offers them an opportunity that was previously beyond their reach and strictly reserved for the 1%.
Benefits of Fractional Investment
There are many benefits of fractional investments, which we will summarize below:
1. Lower Minimums
The most notable benefit of fractional shares is that they allow smaller, manageable investments, as they drastically lower the minimum amounts required to start investing. Put simply, fractional shares enable you to purchase shares and build a portfolio that you would not be able to afford otherwise.
2. Diversification
The second benefit is diversification, as fractional investments allow investors to build a diverse portfolio of alternative assets within their budget. That means you could spread, say, AED 20,000 ($5,445) across a number of different asset classes. After all, you know what they say, don’t put your eggs in one basket!
As such, it’s best to spread your risk by investing in various assets, companies, and other financial instruments. Therefore, if one investment loses money, you’d still have a chance to profit from your other investments through fractional investing.
3. No Hassle
Another prominent advantage of fractional investing is that it eliminates the hassle that usually comes with buying alternative assets. So, when using fractional investment platforms, the platform normally handles all the hassle so you can simply invest as you would invest in a stock, property, or chosen asset.
One other thing to note is that the assets available on the platform have been carefully vetted and authenticated. That way, investors are provided with the best possible bargain, which encourages investor confidence.
Drawbacks Of Fractional Investment
There are many benefits of fractional investments, which we will summarize below:
1. Lack of Experiential Value
Evidently, assets purchased through fractional investment cannot be enjoyed in the traditional sense of consuming, living, maintaining, or wearing them, which you’d more likely get a greater experience out of. The same applies to collectibles such as luxury handbags or designers that you can wear and, if maintained well, still manage to sell for a profit.
2. Limited Choice
Though dealing with less hassle is an advantage to fractional investing, some investors might actually view it as a disadvantage. That’s because they’d very much prefer more hands-on involvement, particularly when it comes to tangible assets, like real estate, as once you make a fractional property investment, the property will be entirely handled and managed by a third party.
Fractional Investments in UAE
There are countless investment platforms that offer fractional shares for those who wish to invest in Dubai, more notably real estate crowdfunding sites. The great thing about fractional shares is that you don’t have to settle for one or two platforms, but you could invest in various fractional shares, from stocks to property. Of course, always make sure you’ve done your due diligence and thorough research before investing in any fractional shares.
To give you an idea of how fractional investments actually work in practice, let’s go over one such example of a fractional investments platform … *drumrolls* SmartCrowd! That’s right, from the comfort of your own home, you can own a share in a Dubai property starting at AED500 and earn returns proportionate to your investment.
In fact, it’s never been easier to invest in Dubai. Essentially, a property is listed on the SmartCrowd platform, along with independent valuation documents and transparent data including location, price, potential yields, as well as the expected return after 5 years. Registered users then choose the property they’d like to invest in, pooling in funds with investors in order for the property to get 100% funded.
After the property is fully funded, SmartCrowd creates a Special Purpose Vehicle (SPV) to form a transparent ownership structure for each property, as the SPV acts as a separate company for investors to become shareholders in it. Each SPV is then divided into one million shares and investors are allocated shares proportionate to their investment. So, if a property costs AED 1 million, then each share of that property is worth AED 1. That is to say, if an investor invests AED 20,000, then he/she owns 20,000 shares or 2% of the property. Simple enough, right?
Final Thoughts
If you’re looking for a great investment opportunity then fractional investments are definitely worth checking out! With numerous benefits at one’s disposal, including accessibility and convenience, this is an excellent way to diversify your portfolio, spread your risk and potentially even multiply your hard-earned money. This rings true especially if you’re a young, aspiring investor, as investing in fractional shares can be an affordable entry ticket to alternative asset classes.
If you’d like to explore fractional investment opportunities available to you, then consider downloading the SmartCrowd app and browsing our properties! Remember, at SmartCrowd, we allow you to invest in Dubai by owning fractional shares of a property, instead of an entire property. And, let’s be real, does it get any better than Dubai?!
Go on, be part of the ‘SmartCrowd’ and gain exposure to prime Dubai real estate while simultaneously diversifying your portfolio. 😉
Disclaimer: This blog is intended solely for educational purposes and shouldn’t be treated as financial advice. We suggest you always conduct thorough research, perform your own due diligence and consult with financial advisors to assess any real estate property against your own financial goals.
