What is Fractional Real Estate?

Building graphic on the left transitions to smaller pieces in the middle with a single brick on the left.

The possibility of property ownership for many Canadians seems increasingly unlikely, with daunting prices, fierce bidding and a scarcity of available options. However, not all hope is lost, as fractional ownership offers an accessible and affordable means to still achieve the dream of property ownership and the chance to potentially earn passive income. Here’s how it works.

What is fractional ownership?

At its most basic, fractional ownership is when more than one individual or entity shares ownership of something. Fractional ownership can apply to a lot of different items or assets, but it most often comes up with investing. As a fractional owner, an individual has access to the asset and may earn income proportional to their investment.

Though it’s similar to a timeshare in principle, with fractional ownership, cost is split among several people. With a timeshare, as the name suggests, time is split among owners.

Fractional ownership is often used in contention with pricey investment, such as vacation properties, luxury vehicles and other expensive assets. It can also be applied to stocks and cryptocurrency, with some platforms offering partial investments for those popular assets. For our purpose, we will focus on fractional ownership in real estate and how addy is breaking down traditional barriers.

Fractional real estate benefits

The main allure of fractional ownership is simple practicality. If something desirable, in this case real estate, is too expensive for one single person (or a couple) to purchase on their own, a group of people can pool their money together to make the purchase. The result is fractional, or partial ownership.

Through fractional ownership, financial thresholds can be surpassed. What’s more, risk is mitigated. Instead of being 100% responsible, an individual is only fractionally responsible. So if, for example, maintenance is required on a property, the expense for each individual person is less.

The biggest benefit of fractional ownership is access. Ownership doesn’t have to be an all-or-nothing proposition.

Fractional real estate drawbacks

Just as the risk is spread out across multiple individuals, so too is the reward. Fractional ownership means sharing in the success and/or use of the asset. It is not entirely owned by one person, so it can’t entirely be enjoyed by one person.

In the case of real estate, while fractional ownership gets you access, the benefit still might be small, particularly if your fraction is quite low.

Crowdfunding and fractional real estate

Fractional ownership is on the rise due to crowdfunding real estate platforms. Increasingly, Canadians are shut out of the property ownership in both the residential and commercial market. With the price too high for a single individual or couples to achieve on their own, multiple individuals can amass money together.

addy crowdfunds commercial real estate properties, allowing members to invest anywhere from $1 to $1,500. Such properties have long been inaccessible due in part to their staggeringly high price tags, which may be as low as 3 million or as high as $100 million or more.

Fully funded addy properties may boast hundreds of invested Canadians, with some exceeding 1,000. These investors are participating in fractional ownership together, having pooled money towards a common goal.

When an Owners’ Day or exit rolls around, members earn passive income proportional to their investment. If sole ownership is not a viable proposition right now, fractional ownership with addy busts those barriers and opens up new and exciting opportunities for all Canadians looking to invest in this asset class..

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