Invest in real estate as a fractional or as a REIT? Choose the plan that best for you

Currently, Invest in real estate, what some of the new-age tech-empowered platforms in real-estate today claim to deliver is an already desirable asset class providing a source of passive revenue?

Commercial Real Estate (CRE) as an asset class, considering its profitability, has traditionally remained unavailable to institutional buyers due to factors such as high ticket costs, illiquid long-term deposits, in addition to challenges linked to the ownership and management of significant properties. But, thanks to many tech-enabled new-age channels accessible today, such walls have crashed down.

Invest in real estate

At a fraction of what it used to cost earlier, institutional investors can now create wealth by CRE. Currently, what some of the new-age tech-empowered platforms in real-estate today claim to deliver is an already desirable asset class providing a source of passive revenue. But how do they operate and what makes them so appealing? There are alternatives like REITs (Real Estate Investment Trusts) and fractional investment for those who want to invest in CRE without real estate and don’t want to sink all of it into one house.

REITs can help investors buy income-generating properties, such as commercial buildings and office spaces, much like mutual funds. Fractional Investing, on the other hand, helps you to invest in fractions of institutional grade-A assets and gain a monthly rental yield while still benefiting from long-term capital growth.

 


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Sudarshan Lodha, the co-founder of Strata, a fractional investment site, says, “Investing in commercial real estate has always been incredibly profitable and it can be a perfect way to invest in a fractional investment.” For instance, fractional platforms invest in high-quality rent-producing assets that would otherwise be exorbitant to a retail owner, in addition to being able to get all the perks of buying a property without the initial cost and recurring hassles. Investors will reap massive profits in the form of rental returns that are 3X higher than residential deposits, as well as long-term capital growth and portfolio diversification.”

The public problem of Brookfield (REIT) that came early this month was a big hit & brought up to Rs 3800 crore. It is the third trust to be effectively subscribed in India, closely on the heels of Embassy Office Parks & Mindspace Business Parks listings. In the middle of the COVID-19 pandemic, Strata, a fractional investment company, raised Rs. 140 crore for a partnership of three grade-A warehousing properties.

Although they tend to be identical, they are radically different and cater to different investment targets. A participant in a REIT does not have immediate exposure to a single property; instead, they invest in a fund of fund managers who determine how the money is invested and handled. Although a fractional network links you directly to CRE investing prospects, it helps you to spend and own fractions in your preferred land, while reaping over time the return and capital appreciation.

Fractional ownership is a perfect way to open up to investment in assets for higher and more secure returns, according to Manish Kumar, co-founder, RealX. While the property is generally regarded as a secure investment, some properties yield considerably better returns than others.

Many individuals were reluctant to invest in those assets because they were usually high-value properties such as a business office, a showroom in a shopping center, or even an industrial warehouse.

In terms of ownership, the REIT controls and controls the Special Purpose Vehicle (SPV), and in fractional ownership, private members are co-owners of the SPV. Until selecting properties, fractional platforms perform comprehensive due diligence, since there is no minimum valuation that a property needs to reach or any lock-in time involved.

This means that a fractional investment requires an investor to sell a percentage of his asset ownership to interested parties. REITs, on the other hand, must have a minimum asset threshold of Rs 500 crore, restricting the number of properties that they will take on. Furthermore, REITs do not have ownership transition or the option to sell the stake concerned.

As per the SEBI guidelines, at least 80 percent of the investments in the real estate portfolio owned by the REIT should be completed and must be revenue-generating properties. The fractional investing model, on the other hand, allows for the extension of investment structures across a variety of assets, from balanced to high income-generating assets, resulting in higher long-term returns. Furthermore, a steady supply of prime assets provides buyers with a range of investment opportunities.

In the case of REIT, the entry cost is very low and the units can be exchanged on the exchanges once listed, which lets you escape the problem of liquidity. In the other hand, in terms of the average ticket size, the fractional model may appear to be a little at the upper end. Although the minimum investment is fairly based on the listed asset and its location, it will be as low as Rs 5 lakh to Rs 25 lakh anywhere.

Due diligence is one of the most important factors to be taken into consideration when it comes to viewing real-estate as an investment class. Continuous analysis of the financial performance of portfolios, in addition to a solid due diligence approach, is what helps produce even greater results for portfolio growth. Although fractional provides constant tracking of asset valuations at regular intervals, in addition to half-yearly adjustments to the same, REIT conducts complete valuation once a year.

Invest in real estate

Here are some aspects that first-time investors can stop when it comes to investments.

The majority of young people are drawn to the stock market. Damage and return, on the other hand, go hand in hand, and capital markets are both volatile and difficult.

When anyone continues to gain money, the need to save and spend money for potential financial plans emerges. When it comes to investing, though, most young adults remain ignorant.

There are different financial options that can be looked at, such as mutual funds, securities, shares, fixed deposits, tangible gold, real estate, etc. Many of these items are correlated with differing degrees of risk and reward. In order to reduce costs and maximize gains, experts suggest one should diversify one’s portfolio.

In the shortest time available, everyone needs to earn sky-high returns. As a result, most young people are drawn to stock markets. Damage and return go hand in hand and it is costly and difficult for capital markets. People have historically felt that it is close to gambling and have refused to participate in the stock market.

“The situation has, however, evolved over time, and it has been recognized that taking measured chances after the careful analysis is potentially beneficial,” says Vineet Patawari, Co-founder and CEO of Stockedge.

 


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In order to stop causing mistakes, here are a few aspects that beginners in the financial markets should be aware of.

If you really want to invest in financial markets, then you have to save yourself from blindly pursuing the trading advice offered by unknown individuals. According to psychologists, this is where the bulk of people go wrong. Thousands of people have wasted money by mistakenly the following advice. As a result, no matter how lucrative the tip seems to be, you do not spend until you have extensively investigated it.

Fund all at once: Capital exchanges are a new outlet for new buyers and markets are volatile. “As a beginner, spend carefully and in small amounts,” Patawari suggests. If your corpus is Rs 1 lakh, then begin by investing Rs 10,000 claim and scale it up gradually. You’ll have time to learn about the mistakes and fix them this way.

Excessively intelligent – Industry analysts say the confusion surrounding it remains, no matter how many books or blogs one reads on financial markets. “Don’t be under the assumption that you know everything,” Patawari suggests. Awareness tends to impart acquired talents, but it’s not enough.

Investment horizon variable-Be aware of the investment horizon and make allocations accordingly. In the short term, it can happen that a stock fluctuates a lot, but ultimately brings decent returns in the long term. In certain cases, it is recommended to stop selling stocks out of fear of losing money and to adhere to one’s priorities.

Many buyers, analysts note, have the habit of varying strategies, playing with many strategies. This does not turn out to be fruitful. Patawari says, “They are really really close to making money most of the time, but they change tactics and have to start again.

In the stock market, the dangers are as high as the incentives. Identifying the right entrance and departure time of the business and book income is the whole concept. Experts claim this is achievable only through proper study and study of the company’s opportunities and through the implementation of tried and tested methods.

 

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