Fractional Real Estate Investing

By
Real Estate Agent with DeLex Realty

 

For those who do not know me well, I flip 10 homes per month currently, own other types of real estate investments and own a real estate investment school, called Pro Investor Education. Today I thought I would explain something that is rather new to the market, not well known and very exciting called fractional real estate investing. 

What is fractional real estate investing? Fractional Real Estate Investing is exactly what it sounds like, it allows many people to invest small amounts of money in one piece of real estate, much like a real estate syndication. Unlike a syndication which typically focuses on a larger commercial project, fractional real estate allows the buyers to pool to purchase a single family home. 

Can anyone sell a home fractionally? Well, yes and no. There still are many SEC regulations with regard to selling fractional real estate investments as they quickly become a security rather than a real estate purchase. However, with enough creativity (and normally money) there are ways around it. Our company works with a third party company to set up trusts, these trusts allow as many investors to buy in as many shares as they wish. Shares can be as small as $1. Imagine, buying a real piece of property for $1? 

The nuts and bolts. The fact is, if everyone only purchased a $1 piece the average house would have about 400K investors or fractional owners, not really realistic. However, it is very realistic for people to invest say $10,000 and have 40 different fractional buyers. 

Can agents be paid commission? Absolutely. Because of the way the transactions are structured, the SEC has allowed agents to be paid commission on the purchase of the property. Thus once the property closes escrow, the buyers agent can be paid a portion of the commission paid. Thus if your buyer paid $10K toward a $400K purchase price and that property paid 3%, you would be paid $300 for that transaction, if your buyer purchased $100K it would mean a $3,000 commission at close of escrow, through title like every other transaction. 

If you would like to learn more, i have created a video for fractional real estate and I would happily help you out to better understand. https://youtu.be/LWzfWpnsKN4 Recent studies have shown the younger computer savvy generation are very interested in this type of purchase, thus it ultimately could be the next wave for real estate!

Posted by

James (Jim) Lord

jim@jimlordregroup.com

www.jimlordregroup.com

480-648-3378

Comments (2)

Jim Lord
DeLex Realty - Phoenix, AZ

Sorry as this is a repost from earlier. Something happened to my post with font sizes and it made it look like a uneducated 3rd grader wrote it. 

Dec 12, 2020 11:43 PM
Sham Reddy CRS
H E R Realty, Dayton, OH - Dayton, OH
CRS

Great new concept, thanks for sharing James!

There still are many SEC regulations with regard to selling fractional real estate investments as they quickly become a security rather than a real estate purchase. However, with enough creativity (and normally money) there are ways around it.

Dec 13, 2020 03:50 AM
Jim Lord

Yes which is why the company we work with spent over $500K just on lawyers! That being said, there is a trend within the SEC to lessen restriction on fractional type investing, we will see if that trend continues with a new administration. I tend to think it will as the newer generation is really into it, they like the idea of beign able to buy a lot of different investments with little money rather than one larger investment with all of their money. 

Dec 13, 2020 09:46 AM

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