How fractional ownership has made investing in commercial real estate easy
It is important to remember that fractional property as a concept is still fairly new in India as it has been introduced in the nation over the past five years.
Three to four years ago, most Indians didn’t see commercial property as a practical investment and chose to invest their money in residential property only. Commercial real estate (CRE) – with a high ticket price of tens of millions – was simply inaccessible to most people. With the introduction of fractional or shared ownership, CRE has become both accessible and lucrative for the majority of Indians.
Commercial real estate is a whole different ball game, however, and an investor’s lack of experience could actually cost it. The best way to fill this gap is to partner with a partial ownership platform that has the experience to navigate the CRE market.
Not all sub-companies are created equal
For those new to the concept, fractional ownership allows investors to pool their money and collectively buy Class A commercial property. For example, suppose an office building worth 100 rupees can now be bought jointly by a group of people, with each person billed for 25 rupees or more. This was made possible by fractional real estate platforms that pick lucrative properties, do the due diligence and paperwork, and then bring investors together and facilitate the sale. However, not all sub-companies are created equal.
It is important to remember that fractional property as a concept is still fairly new in India as it has been introduced in the nation over the past five years. There are currently a handful of companies offering partial real estate in India. Most of them are start-ups that have recognized a great opportunity and are struggling to establish themselves in this new market.
The trick is to look for a company that is already established and has the knowledge and network to help investors get the best deal possible. Here’s how choosing a company with a good pedigree can make a difference to your investment:
# Get the best price: This is one of the most obvious ways that experience comes into play. While anyone with access to the internet can learn how to look for properties with high rental returns, only an experienced gamer knows how to accurately appraise the property and measure its correct price so that the investor does not overpay. This ensures that the investor really gets the best deal.
# Big profits for customers: All real estate should be viewed as an investment, including planning an exit point in the future (the only exception is buying a home). Only when the investor pays out and receives the capital gains back is the investment life cycle considered complete. Seasoned businesses always have this long-term perspective and focus on maximizing capital gains rather than just rental returns. Ultimately, if a wise investment decision is made, the investor can make more wealth from capital gains reselling than from rental returns, which should be viewed more as passive income.
# Not about individual transactions: Unlike many startups that focus on getting as many transactions as possible to keep funding going, an established business that is completely debt free can focus on building a long-term relationship with the customer. This includes facilitating the sale of real estate, assisting the client in tracking their assets, and finally reselling them as well.
# Long-term channel partner: Needless to say, the longer a real estate company is in the game, the stronger the network is.
Commercial real estate can be a very profitable investment provided it is done wisely. There aren’t many Indian investors who are that familiar with this type of asset, but in such cases it can make all the difference simply by partnering with a company that has experience.
(By Shiv Parekh, founder of hBits)
Get live stock quotes from BSE, NSE, the US market and the latest net asset value, mutual fund portfolio, read the latest IPO news, best performing IPOs, calculate your taxes with Income Tax Calculator, you know them Top gainers, top losers and best equity funds in the market. Like us on Facebook and follow us on Twitter.
Financial Express is now in the telegram. Click here to join our channel and stay up to date with the latest news and updates from Biz.