The Bite-Sized Approach to Real Estate Investing

Fractionalization Could Be Poised To Revolutionize And Democratize Real Estate As An Investment Vehicle  

 Investment-grade real estate—buildings, houses, or even vacant land—are commonly used by professional asset managers to diversify the investment portfolios of high-net-worth individuals and institutional investors. Moreover, companies like Airbnb ABNB and HomeAway have proved to be excellent platforms for real estate investors who have enough money to purchase properties upfront and time to rent them to guests.  

While real estate has been an investor-accepted asset class for some time, there have traditionally been certain constraints when compared to investing in public companies. Unlike shares in publicly traded companies, investment-grade real estate is not offered and sold in a centralized marketplace, has a speculative value that is subject to estimation, requires large initial investments, and is difficult to liquidate. In short, there are high barriers to entry and significant ongoing costs related to investing in real estate through historical investment vehicles. These high barriers to entry have limited investment-grade real estate from becoming as commonly adopted as equity securities (for example).     

 Fractionalization has the potential to disrupt the investment-grade real estate market as it exists today because it lowers barriers to entry and sets up investment-grade real estate for widespread adoption among mainstream investors. Real estate fractionalization is the process by which a piece of real estate is broken up into shares and sold to investors. For example, a commercial building worth one million dollars can be fractionalized through the issuance of one hundred thousand shares worth ten dollars each. Through fractionalization, mainstream investors can now gain exposure to investment-grade real estate for (hypothetically) as little as ten dollars. Consequently, there has been a rise in investors looking to own shares of fractional real estate.  

Trading Platforms For Fractional Shares Of Real Estate  

The fractionalization of real estate has arguably changed the dynamic in the real estate space by significantly lowering barriers to entry. However, fractional ownership of real estate is also positioned to potentially disrupt and democratize real estate investing because fractional shares of real estate can be traded in a marketplace such as the alternative trading systems (ATS) offered by Templum Markets. Secondary marketplaces for fractional shares of real estate allow investors to purchase shares at any time (not just at the initial offering) and provide a common arena for buyers and sellers to meet, which could create greater liquidity and price transparency when compared to traditional real estate investments.   

Several companies have been working to make real estate available to investors through fractionalization. Platforms like Here and Fintor allow investors to create accounts and purchase shares of fractionalized real estate properties. Investors can then choose unique projects that fit their risk, return profiles, and curate their own real estate investment exposure. This means that investors are no longer restricted by typical barriers to entry and can now control the process of building their portfolio of real estate holdings. Moreover, Here and Fintor have partnered with Templum Markets to provide their investors with opportunities to buy and sell fractionalized real estate in a secondary marketplace and further take control of their portfolios.    

Templum Markets is powered by software offered through Templum, Inc. This award-winning cloud-based capital market infrastructure company specializes in issuance and secondary trading technology for alternative assets and private securities, including fractionalized real estate securities. It prides itself on offering innovative trading and issuance technology and data analytics for comprehensive market experiences.  

To learn more about Templum Inc., visit its website.    

Featured photo by Tierra Mallorca on Unsplash   

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