Real estate investing is evolving, and fractional real estate investing is a big part of that change. Unlike traditional methods, fractional investing lets you buy a portion of a property, making it easier for more people to enter the real estate market.
While real estate investment trusts (REITs) have long dominated the scene, fractional real estate offers a new way for investors to get higher yield potential, more flexibility, and greater returns at low barriers of entry.
But there are still some misconceptions about fractional real estate investing. We’ll break down the myths versus facts to help you see if fractional investing is the right fit for your portfolio.
Myth 1: Fractional Real Estate is Just Like REITs
This myth simply isn’t true. While both fractional real estate and REITs allow you to invest without directly managing properties, the similarities pretty much stop there. Fractional real estate investing provides more control over which specific properties you invest in, as opposed to the bundled asset approach of REITs.
For example, Groundfloor’s Investor Account allows you to pick and choose which limited resource obligations (LROs) you want to invest in. Each one is backed by an underlying real estate asset, making it inherently less risky than investing in real estate equity.
However, if you’re still looking for a more bundled, set-it-and-forget-it approach, Groundfloor’s Flywheel Portfolio is the perfect choice for you. Unlike traditional REITs, the Flywheel Portfolio focuses on short-term real estate loans that offer more stability, flexibility, and consistent yields.
Fact 1: Lower Investment Barriers
One of the most appealing aspects of fractional real estate is the lower barrier to entry. Traditional real estate investments often require significant capital, making it challenging for many to break into the market. Fractional investing, on the other hand, allows investors to start with smaller amounts, sometimes as low as $100.
This accessibility opens doors for young investors, or those with limited funds, to begin building a diversified real estate portfolio. The Flywheel Portfolio, for instance, offers an affordable entry point with the promise of robust returns on a monthly basis.
Myth 2: Fractional Investing Offers Unpredictable Yields
Skeptics often say fractional real estate investments are too volatile for reliable gains. However, this depends on your portfolio’s diversification. With strong diversification, you can see stable returns in your investments.The Flywheel Portfolio leverages this strategy by investing your funds across 200–400 loans in one bundled portfolio. This diversification mitigates risk tied to individual property performance, providing a buffer against market fluctuations to ensure more predictable yields.
Fact 2: Improved Liquidity
Liquidity is a pressing concern for investors, particularly in real estate. Traditional investments often lock capital for extended periods, while fractional investing typically offers superior liquidity.
Platforms like the Flywheel Portfolio streamline liquidity, ensuring that investors have continuous access to their capital, unlike traditional REITs that may entail lengthy redemption processes.
With monthly payouts, investors can enjoy regular cash flow and easier access to their funds. And unlike REITs, the Flywheel Portfolio disburses principal and interest, not interest only.
Myth 3: Fractional Real Estate Lacks Transparency
Some investors worry about the transparency of fractional investing, which is a fair concern. When you don’t directly own a property, there can be concern that there’s less visibility of the investment’s performance and management. Thankfully, many modern platforms — like Groundfloor — prioritize transparency, offering detailed reports and insights.
The Flywheel Portfolio, for example, provides investors with clear and concise information about their investments, including regular updates on loan performance and repayment status. Such transparency builds trust and empowers investors to make informed decisions.
Fact 3: Automated Investment Processes
Automation is a key feature of fractional real estate investing. Using cutting-edge technology, platforms can automate the investment process to reduce the time and effort required from investors, which in turn lets you focus on broader financial goals.
The Flywheel Portfolio capitalizes on this by automating the reinvestment of returns, compounding growth, and ensuring continuous momentum with minimal work for investors. This hands-off approach appeals to both newer and more experienced investors, as you can sit back and relax while your money works hard for you.
Myth 4: High Fees and Costs with Limited Returns
A lingering myth is that fractional real estate investing includes high fees that diminish potential returns. While some platforms may have these costs, others like the Flywheel Portfolio offer competitive fee structures. This leads to the, incorrect, belief that fractional real estate investing can’t match the return potential of traditional real estate ownership.
With an annual management fee of just 1% charged quarterly (i.e. 0.25% charged per quarter), you can retain more of your earnings compared to traditional REITs, which often have higher fees. Investors in the Flywheel Portfolio are projected to make a rate of 10.5% – 11% that includes this fee, though this return range is not a guarantee. Strategic diversification and transparent and competitive pricing models like this are key to maximizing potential returns.
Fact 4: A Tangible Impact on the Real Estate Market
Fractional real estate investing isn’t just a trend; it’s a shift in the real estate investing game. By allowing more people to participate in the market, these platforms contribute to a more dynamic, inclusive real estate landscape.
The Flywheel Portfolio is a prime example of this impact, empowering investors to make informed choices that align with individual financial goals. This innovative powerhouse of fractional real estate investing is helping reshape the industry, making it more resilient, accessible, and adaptable.
Overall, fractional real estate investing is a promising and innovative approach for modern investors seeking diversification, flexibility, and stronger returns. By understanding the facts, you can confidently explore options like Flywheel Portfolio, which stands as a testament to the potential of fractional investments and provides a reliable way into the lucrative world of real estate. Whether you're a seasoned investor or a newcomer, there’s never been a better time to explore how fractional real estate can boost your financial strategy.