What is Fractional Real Estate?

Fractional real estate investing allows multiple investors to collectively own shares of a property. Each investor owns a percentage of the property proportional to their investment, entitling them to a corresponding share of rental income and any appreciation when the property is sold. Think of it like buying shares in a company, except instead of owning part of a business, you own part of a physical property. The property generates income through rent, and that income is distributed to shareholders based on their ownership percentage. This model democratizes real estate investment by eliminating the traditional barriers: massive down payments, mortgage qualifications, and the responsibilities of property management. Professional teams handle everything from tenant screening to maintenance, while you simply collect your share of the returns.

Properties are typically divided into shares or digital tokens, with each share representing a specific percentage of ownership. For example, a $500,000 property might be divided into 5,000 shares at $100 each. When you purchase shares, you become a fractional owner with legal rights to your portion of the property. Your ownership is documented through the platform and, in many cases, backed by SEC-qualified offerings that provide regulatory oversight and investor protection. The number of shares you own determines your voting rights on major property decisions and your percentage of any distributions. If you own 1% of a property, you receive 1% of the net rental income and 1% of the proceeds when the property is eventually sold.

Traditional real estate investing requires substantial capital (typically 20-25% down payment), mortgage qualification, and hands-on management responsibilities. You bear all the risk and reward of a single property. Fractional investing flips this model: • Capital Required: $50-$500 vs. $50,000-$100,000+ • Diversification: Own pieces of many properties vs. all eggs in one basket • Management: Fully passive vs. landlord responsibilities • Liquidity: Some platforms offer secondary markets vs. months to sell a property • Entry Barrier: Simple account signup vs. mortgage approval process The tradeoff is control. As a fractional owner, you don't make decisions about tenants, renovations, or when to sell. These decisions are made by the property sponsor or through collective shareholder voting.

Several models exist for fractional real estate ownership: Blockchain-Based Fractional Real Estate: Properties are represented as blockchain tokens, enabling transparent ownership records and potential for 24/7 trading on secondary markets. Platforms like RealT and Lofty use this approach. SEC-Qualified Offerings: Platforms like Arrived Homes offer shares through Regulation A+ offerings, providing strong investor protections and regulatory oversight. These are similar to buying stock in a publicly traded company. Real Estate Syndications: Private offerings where investors pool capital for specific deals. Typically requires accredited investor status and higher minimums, but may offer higher potential returns. REITs (Real Estate Investment Trusts): Publicly traded funds that own portfolios of properties. Highly liquid but you can't choose specific properties. Not quite fractional ownership, but serves a similar purpose for passive real estate exposure.