Fractional investment is becoming a more popular strategy in real estate—meaning a rental house or apartment can have hundreds or thousands of landlords earning returns.
Key Details
- Fractional real estate investing is becoming more popular and has been rising in recent years, with properties like The Brookwood in Atlanta and The Oasis in Nashville gathering hundreds of investors, The Hustle reports.
- The strategy requires little upfront investment, as low as $10, and can bolster investment portfolios with small but consistent returns, as firms can draw on rental income from hundreds of properties.
- The strategy is still relatively small in real estate investing, but it is growing. One firm—Arrived Homes—paid out $1.2 million in dividends last year.
Why It’s Important
The real estate market is changing and facing numerous challenges, from skyrocketing home prices to housing shortages. As we previously reported, the recent economic downturn has slowed the real estate market. Still, high demand in desirable markets has kept states like Tennessee and Texas from seeing depreciation as thousands of remote workers move from states like California, Illinois, and New York to the South.
Fractional investing offers investors the opportunity to take advantage of the current market, garnering passive income through a series of small returns. This benefits low-income investors, as the barrier to entry is low. In fact, 40% of investors are home renters themselves, Wired notes. It allows people who cannot afford to compete in the housing market to profit from the current market.
Alternative Opinion
The practice of using rent as an investing tool is not without critics. Among progressive activists, the term “landlord” has garnered a parasitic connotation, as individuals who profit off of the housing needs of others. This sentiment grew more popular during the COVID-19 pandemic as millions of jobs disappeared and the federal government stepped in to block evictions temporarily.
While fractional investing companies argue that they are creating opportunities for new investors, Center For Popular Democracy director Katie Goldstein argues that “housing really is being used for profit and an investment tool” first, coming at the expense of low-income inhabitants who could be priced out of their apartments or face difficulty finding a new one.
Notable Quote
“Maybe some people will benefit from it, maybe they will make money, [but more real estate investments may come] at the cost of housing stability, [potentially allowing investors to] wreak havoc on low-income residents,” Popular Democracy researcher Amee Chew tells Wired
