Fractional Real Estate Investing: An Investor’s Guide

There are many ways to invest in real estate today. From buying a property outright to fractional real estate investing, where you buy shares in a residential or commercial property. Fractional real estate investing is gaining momentum because it reduces barriers to entry for new investors while maintaining the high rates of return historically enjoyed by property investors.

Table of Contents

What Is Fractional Real Estate Investing? How Does It Work?

• Fractional Ownership of Personal Properties vs. Commercial  
• Fractional Investing vs. Private Equity
• Fractional Investing vs. Traditional Real Estate Investing

Pros and Cons of Fractional Real Estate Investing

Fractional Investment Platforms You Can Use

• Concreit
• Fundrise
• Crowdstreet
• DiversyFund
• Arrived

ROI on Fractional Real Estate Investing

How to Sign Up for Fractional Real Estate Investing

Fractional Real Estate Investing FAQs

What Is Fractional Real Estate Investing? How Does It Work?

Fractional real estate investing means you own a fraction or portion of a piece of real estate, but you get all the same benefits you would have gained if you owned it yourself. You don't have to worry about professional management, expenses, or anything else that goes along with real estate investing, but you get to reap all the benefits.

Here's how it works.

A company buys a piece of real estate. It could be residential but is usually commercial real estate. The company then divides the property's cost into fractional shares, which they sell to investors like you. 

Anyone that invests receives cash flow from the rent paid on the entire property, whether commercial or residential. However, not all individual properties have rental income immediately, so it's important to pay attention to the property types you are investing in.

Fractional Ownership of Personal Properties vs. Commercial  

The fractional ownership model looks different for personal properties versus commercial properties.

Fractional ownership of personal properties is usually a vacation property. Each owner gets either time occupancy or space occupancy. Time occupancy, sometimes known as a timeshare purchase, gives fractional owners a specific amount of time each year to use the property. With this real estate investing method, you own the property with other owners, and you each get your time in the property. Each will also benefit from the property's appreciation.

However, commercial property fractional ownership usually doesn't include any time occupancy. Therefore, rather than receiving time in the property, you acquire rights to a prorated amount of the rent received either weekly, monthly, or quarterly.

Fractional Investing vs. Private Equity

Fractional options often include private equity. So rather than being a 'versus' situation, it's a situation where you have a choice.

A private equity investment is usually an LLC (limited liability company) that buys commercial properties and raises equity for the property by letting investors purchase property shares. All investors then earn a prorated rental income, cash flow, and potential returns earned when the entire property is sold.

A key challenge with private equity investing is its lack of liquidity. Unlike publicly traded stocks, private equity often requires longer holding periods, as startups need time to grow and either go public or be acquired. Fractional shares, however, offer investors added flexibility by enabling them to sell their shares on secondary markets.

Another popular fractional ownership option is the Real Estate Investment Trust. REITs are companies that own multiple properties, usually commercial real estate and sell shares of their company. Investors that purchase shares get access to the rent, cash flow, potential returns, and profits of all individual properties owned.

One last attractive option is the Delaware Statutory Trust. This trust is explicitly established to invest in commercial real estate. Like the REIT, individual investors purchase shares of the trust and earn a prorated amount of the income earned by the real estate.

Fractional Investing vs. Traditional Real Estate Investing

Traditional real estate investing often requires substantial upfront costs. For instance, the average down payment for a single-family home in the U.S. is around 20%, which translates to approximately $60,000 for a $300,000 property. In contrast, fractional real estate investing allows individuals to start with much lower amounts—sometimes as little as $100. This low barrier to entry democratizes access to real estate, enabling a broader range of investors to participate.

One of the major drawbacks of traditional real estate investing is its illiquidity. Investors typically need to hold properties for several years before realizing any gains, and selling a single property can be a lengthy process. In 2023, the average time it took to sell a home in the U.S. was about 34 days. Conversely, fractional real estate investments often allow for selling shares on secondary markets, offering more liquidity and flexibility.

Pros and Cons of Fractional Real Estate Investing

Pro

• No big down payment/Low barriers to entry
• Access to competitive markets
• You don’t have to do the work
• Expert analysis that reduces risk
• Great traditional financial returns

1. No Big Down Payment/Low Barriers to Entry

Fractional real estate investing makes it possible to own a portion of a property without needing a large upfront down payment. Instead of the substantial capital typically required for purchasing real estate outright, investors can buy smaller shares of a property or portfolio. 

2. Access to Competitive Markets

Markets like Seattle, New York, LA, San Francisco and Denver price many people out of the market. Fractional investing gives people access to competitive real estate markets with higher returns.

3. You Don't Have to Do the Work

Fractional ownership opportunities are a form of passive income. You don't have to do any physical work to maintain the property, yet you reap the financial rewards, much like you would when you invest in the stock market. 

4. Expert Analysis That Reduces Risk

Real estate professionals are doing analysis and looking at emerging real estate markets to find the best places to invest in real estate. Investing in fractional real estate gives investor's the opportunity to leverage the experience of seasoned real estate investments to reduce risk.

5. Great Traditional Financial Returns

Historically, real estate annual returns have been great for investors. In the US, for example, in 2024, the average real estate return on rental property is 10.6%, while the average commercial real estate ROI is 9.5%.

Cons

• Long commitments required
• Inherent risk
• Fractional investment opportunities have fees

1. Long Commitments Required

Most real estate investments have a long timeline. You might find some with a redemption program allowing you to liquidate your shares early, but it's not typical. Many investment property options require a timeline of 5 to 10 years.

2. Inherent Risk 

All investors take risks. It's what gives you a great rate of return. However, real estate has several risks, including declining property values, bad tenants, non-paying tenants, market fluctuations, and more.

3. Fractional Investment Opportunities Have Fees

Fractional ownership companies must charge fees if they want to stay in business. Each company has its own management fee structure, so it's important to read the fine print, including the minimum investment timeline. 

Fractional Investment Platforms You Can Use

There are many fractional ownership opportunities today, but the most common real estate investment platforms include the following.

Concreit

Concreit invests in first-lien mortgages on commercial real estate to help borrowers get the funds they need. In addition, they offer private non-traded REITs to help you invest in real estate. What's great about Concreit is you can invest with as little as $1, and it's open to everyone, not just accredited investors. Concreit professionals vet every opportunity and only accept the investments that fit their investment strategy and help people like you invest in the real estate market. 

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Fundrise

Fundrise lets non-accredited investors invest in fractional ownership of real estate in both residential and commercial real estate. Fundrise sells REITs to investors through both the equity and debt side of real estate investing. Fundrise offers investment opportunities starting at $10 and up to $100,000. The shares you hold are designed for long-term investment. 

Crowdstreet

Crowdstreet offers real estate investors the opportunity to invest in debt or equity real estate investments. Rather than investing in a diversified investment portfolio, you invest in individual real estate projects, whether debt or equity. You can earn monthly or quarterly dividends as well as capital appreciation if you invest in fractional ownership real estate.

DiversyFund

If investing in apartment buildings has always piqued your interest, consider DiversyFund. They offer real estate investors the chance to invest in undervalued apartment buildings that have potential but need improvements. This can increase income to investors. During the investment, all cash flow is reinvested in the property to help it increase in value. 

Arrived Homes

Arrived Homes enables anyone to invest in shares of rental properties located in some of the fastest-growing markets across the United States. With a minimum investment of only $100, investors can easily diversify their portfolios across various properties and receive quarterly passive income from the rental revenue generated by each property. After a target holding period of 5 to 7 years, Arrived Homes will select the optimal time to sell the property for maximum gains. 

ROI on Fractional Real Estate Investing

While every investment opportunity is different, fractional real estate investing has a strong track record, especially when you diversify your funds. Since there's a low entry barrier, you need longer to grow your investments, but the timelines are typically no more than five years.

Return on investment in fractional real estate is determined by your ownership stake in the property. For example, if you invested $1,000 and the property is worth $100,000, you own 1% of the property. It also encompasses both rental income and any capital appreciation. Rental income is allocated to investors based on the proportion of their ownership share. 

With Concreit, you always have a way out should you need it, unlike if you invested directly into real estate properties. You don't have to worry about selling a physical property, waiting for the right seller, and waiting months for the funds to come. You can liquidate your shares on the market whenever necessary, but there is an early redemption fee if you redeem before one year.

How to Sign Up for Fractional Real Estate Investing

It's easy for anyone to sign up for fractional real estate investing at Concreit. Just download the app, provide your personal information and link your funding account to get your investments going.

It takes just seconds to sign up, and before you know it, you'll be investing in real estate as a fractional investor in no time.

Fractional Real Estate Investing FAQs

Does fractional ownership appreciate?

Yes, just like a residential property you might own, fractional property ownership appreciates. You earn a prorated amount of the potential property appreciation based on the percentage you own. There's never a guarantee that real estate will appreciate, though. Like any market conditions, real estate values have highs and lows, and no one can predict what might happen.

What is the minimum investment for fractional real estate investing?

The answer to this question depends on who you decide to invest with. Some investors can buy fractional shares or do initial investment for as little as a dollar. 

Is fractional real estate worth it?

If you're looking to break into real estate investing but don't have the funds to buy it outright, fractional real estate can be the next best thing. Even if you have the capital to invest in real estate yourself, fractional investing diversifies your funds and helps you avoid a total loss should one property not perform well.

What are the tax implications of fractional ownership?

Fractional real estate ownership has several tax implications that investors should be aware of. Income earned from rental properties is subject to federal income tax and must be reported on tax returns. When a fractional property is sold, investors may face capital gains tax on their share of the profits. It's essential for fractional real estate investors to consult a tax professional to fully understand their property taxes obligations.

Who should consider investing in fractional real estate?

Fractional real estate ownership is ideal for a diverse range of individuals, including new investors looking to enter the market, and those seeking to diversify their real estate portfolios without the need for full ownership. It appeals to passive investors who prefer a hands-off approach, budget-conscious individuals who want exposure to real estate, and retirement savers aiming for steady income and potential appreciation. 

Is fractional investing right for you? 

If you're looking for a way to break into real estate investing, consider fractional real estate investing. It's a way to earn passive income and not have to worry about property management. Instead, you fund your investment and sit back and watch the money roll in between the appreciation and monthly cash flow. 

If investing in fractionally owned property sounds right for you, take a look at our website to learn more and get started!