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You Can Now Buy a Fraction of a House. Should You?

CEO Khai Intela
Investing in real estate has long been considered a lucrative venture, but for many people, the high upfront costs and extensive research involved make it a challenging prospect. However, a new trend in real estate...

Investing in real estate has long been considered a lucrative venture, but for many people, the high upfront costs and extensive research involved make it a challenging prospect. However, a new trend in real estate investment is changing the game and making it more accessible to everyday investors: fractional real estate. With platforms like Arrived Homes, investors can now buy a fraction of a single-family home, allowing them to dip their toes into property ownership without the need for a large down payment.

One investor, Joshua Heier, has embraced this new approach to real estate investing. Instead of purchasing an entire property by himself, he has opted to invest in fractions of homes through Arrived Homes. He sees it as a stepping stone towards eventually owning a full rental property. Not only does it give him a taste of being a landlord and the opportunity to understand the costs and processes involved, but it also allows him to start with a modest investment of just $2,900. Heier believes that fractional real estate investing can democratize an asset class that has traditionally been out of reach for many retail investors.

Fractional real estate investing platforms like Arrived Homes aim to remove the barriers that typically come with property ownership. They offer a simple and streamlined process, allowing investors to buy shares of homes in just a few clicks. The platforms handle the property management and fees, making it a seemingly passive income stream for investors. This model has attracted many renters, who are keen to invest in real estate without being tied down to a particular location.

Arrived Homes is not the only player in the fractional real estate market. Various other platforms, such as Fundrise, Lofty AI, Landa, and RealtyMogul, offer similar investment opportunities, each with its own unique features and minimum investment requirements.

However, while fractional real estate investing opens doors for many investors, it is not without its drawbacks. Fees associated with these platforms can be high, eating into potential profits. Additionally, the returns on investment can vary significantly, with some properties appreciating while others depreciate in value. It is crucial for investors to carefully assess the risks before diving in.

Moreover, the growing presence of investors in the real estate market has raised concerns about housing affordability and stability for renters. Investor-owned properties can drive up rents, worsen housing conditions, and increase eviction rates. Communities with high proportions of investor-owned homes, particularly in historically marginalized neighborhoods, may experience further wealth gaps and limited opportunities for first-time homebuyers.

Critics of fractional real estate investing argue that it may not offer significant benefits compared to other investment options, such as real estate investment trusts (REITs), which provide more diversification and potentially higher returns. They caution inexperienced investors to proceed with caution and build a strong foundation in traditional markets before venturing into alternative investment platforms.

The rise of fractional real estate investing is part of a broader transformation in the real estate industry driven by technology. Online platforms and automation have made investing more accessible and convenient but have also contributed to the financialization of housing. Housing has become a commodity for investors seeking high profits, rather than a basic need for shelter. This shift has further exacerbated housing affordability issues and widened economic disparities.

In conclusion, fractional real estate investing offers an opportunity for everyday investors to participate in the real estate market with a smaller investment. However, investors need to be aware of the associated risks and fees. Additionally, the impact of increased investor ownership on housing affordability and stability should not be overlooked. As with any investment, thorough research and a thoughtful approach are essential to make informed decisions. Fractional real estate investing may not be the ultimate solution to the challenges of homeownership, but it can serve as a stepping stone towards financial growth and wealth creation.