September 11, 2025
It’s one of many ways to invest without blowing up your budget
Real estate investing has a reputation for being expensive and out of reach, but it doesn’t have to be. Fractional real estate investing offers a more accessible entry point by allowing you to buy a portion of a property or a stake in a loan. You get a piece of the potential returns without the steep costs or full ownership responsibilities. Here’s how it works and compares to other types of investment strategies..
Fractional Real Estate vs. Traditional Investing
Traditional real estate investing typically involves house flipping or becoming a landlord. For budding investors, both require a significant amount of capital and time. Between down payments, renovation costs, and property management, you are often committing tens or even hundreds of thousands of dollars upfront.
Fractional real estate investing offers a lower-stakes alternative, allowing you to still earn returns without taking on the full financial burden or daily responsibilities that comes with owning an entire property.
Common Types of Fractional Investing Models
Fractional real estate investing comes in a few different flavors, each with its own structure and level of involvement.
Property Shares
This is usually the most common approach: You buy a direct share of a physical property, such as a single-family home, condo, or apartment building. You may receive a portion of the rental income and appreciation, and in some cases, even voting rights on major property decisions. It's the closest you'll get to traditional real estate ownership, without full ownership.
Tokenized Real Estate
Using blockchain technology, tokenized real estate breaks property shares into digital tokens. These tokens represent ownership and can be traded on specialized marketplaces. For investors, this model can offer the potential for increased liquidity and global access, allowing investors to buy and sell their stake more easily.
Managed Platforms
A fractional real estate platform opens the door to shared property ownership. They allow multiple investors to pool their money and collectively own a piece of real estate. It’s one of many ways to get started in real estate investing, especially if you're working with a smaller budget.
Debt Investing
Fractional investments aren't limited to owning pieces of property. It also includes investing in real estate debt. Instead of becoming a landlord, you fund a portion of a real estate loan and earn returns through interest payments. It’s a way to tap into real estate without the responsibilities of ownership.
Is Fractional Real Estate the Same as a REIT?
Not quite. While both give you exposure to real estate without fully owning or managing property directly, fractional real estate investing and Real Estate Investment Trusts (REITs) operate very differently.
A REIT is a pool of funds that invests in real estate, similar to a basket of properties managed by a company. Although it’s structured as a company for legal and regulatory purposes, when you invest in a REIT, you are actually contributing to a shared fund that generates returns from real estate. This means you are not purchasing shares of the company itself; instead, you are investing in the real estate properties that it manages.
To further illustrate how this works, it's similar to investing in a mutual fund. You don’t get to choose the individual properties, and the portfolio is managed entirely on your behalf.
Is Fractional Real Estate the Same as Crowdfunding?
Not exactly, but they're closely connected.
If you are wondering what crowdfunding is, it's a method of raising money from a large group of people, typically through an online platform. In real estate, it's the funding method that allows everyday investors to pool their money to back a project. The project is typically one that they wouldn't be able to access on their own without having to invest a 5-digit amount.
However some crowdfunding platforms prioritize volume over vetting, which can lead to looser standards and less due diligence. It can result in deals involving less experienced developers or projects with less predictable outcomes. On top of that, these deals often come with complex or opaque fee structures that can eat into investor returns.
Conversely, fractional real estate can mean either owning a share of a property or buying a stake in a loan. Ownership is like having a slice of the pie, while debt investing is more like funding the recipe. You act as the lender and earn interest, without holding any equity in the property.
Is Fractional Real Estate Risky?
Investing always carries some risk, but fractional real estate lets you diversify more easily than buying a single rental property. Some platforms even offer pre-built portfolios that spread your investment across many properties. Consider this: More properties = more diversification = reduced risk from any one asset underperforming.
Is It More Liquid Than Other Assets?
Selling a rental or flip takes time, paperwork, and often a good dose of market luck. Fractional real estate offers greater flexibility in terms of liquidity. But it depends on the terms you agree to.
Also, while it is not relatively as quick as selling stocks or shares, some fractional platforms offer features like secondary markets or tokenized shares that make it easier to cash out when you’re ready.
Flywheel Portfolio vs. Fractional Investing
Groundfloor's Flywheel Portfolio is a hands-off way to invest in real estate debt. Instead of owning property, your money is automatically spread across hundreds of short-term, real estate–backed loans, generating passive income as borrowers repay.
Both Flywheel and fractional investing aim to make real estate more accessible, but they can work very differently when it comes to returns, risk, and involvement.
What You're Investing In
As a refresher, fractional real estate investing doesn’t just mean owning part of a property. It can also mean owning a share of a real estate-backed loan. In the traditional model, you might invest in a slice of a vacation rental or commercial building and earn returns through rental income or property appreciation.
But with loan-based fractional investing, you're acting more like a lender. You invest in portions of real estate loans and earn interest as those loans are repaid, similar to Groundfloor’s Flywheel Portfolio, without the responsibilities of property ownership or the unpredictability of the housing market.
Diversification
With traditional fractional models, you might invest in a handful of properties. Flywheel automatically spreads your investment across 200–400 loans, giving you broad diversification without having to lift a finger.
Management Style
Fractional property at times can be more hands-on. You choose the properties, review offering documents, and monitor performance. Flywheel is fully managed and automated. Once you invest, Groundfloor handles everything, including reinvesting your earnings for compounding growth.
Fees
Fees for fractional investing vary widely and can include platform, property management, and asset fees. Flywheel keeps it simple with a 1% fee applied to each disbursement, based on the full amount distributed. Fee structures are subject to change.
Here’s quick breakdown for your reference:
|
Aspect |
Flywheel Portfolio |
Fractional Investing |
|
Investment |
Real estate backed loans |
Shares of a property or stake in a loan |
|
Returns |
Interest from loans |
Rent or appreciation |
|
Diversification |
200 to 400 loans auto-spread |
One or more properties* |
|
Management |
Fully automated |
You select and manage |
|
Fees |
1% per disbursement** |
Varies by platform |
* Diversification across one or more platforms depends on the terms of the fractional real estate agreement and varies by offerings.
** Groundfloor fees are subject to change. Always read the latest fee disclosures before investing.
The Future of Real Estate Investing Is Flexible
The real estate investing world is changing, lightening fast. Traditional models that required deep pockets and years of experience are giving way to more accessible, alternative approaches. From fractional ownership to real estate debt investing, these methods are opening doors for a new generation of investors.
This shift isn't just about convenience. It's more about redefining who gets to build wealth through real estate. By lowering barriers to entry, alternative investing platforms are transforming how people perceive ownership, risk, and opportunity and enabling more individuals to participate in markets that were previously out of reach.
Remember, fractional investing applies to more than ownership of a property. It also applies to having a stake in a loan. Groundfloor’s Flywheel Portfolio can help you start your fractional journey, by diversifying your investment in up to 400 real estate loans.
