Fractional real estate investing has emerged as a popular and cost-effective approach to real estate investment in Canada.
This investment strategy allows you to collectively invest in high-value properties, thereby breaking the barriers to entry that traditionally limit real estate investment opportunities.
By pooling your financial resources with others, you can access premium real estate assets, diversify your portfolios, and potentially generate attractive returns.
As the Canadian real estate market continues to evolve, fractional real estate investing offers a compelling opportunity for both seasoned and novice investors.
But this is not without some drawbacks which you need to know before engaging.
In this article, I explain all you need to know about fractional real estate investing in Canada to determine whether it’s suitable for you.
Table of Contents
What is Fractional Real Estate Investing?
Fractional real estate investing is an investment strategy that allows individuals to collectively invest and own real estate properties.
Instead of purchasing an entire property on your own, you can buy a fraction of a property alongside other investors.
This approach makes real estate investment more accessible and affordable for individuals who may not have the financial means to buy a property outright.
In Canada, fractional real estate investing operates through specialized platforms or companies that facilitate the process.
These platforms curate a selection of properties, such as residential apartments, commercial buildings, or vacation homes, and divide them into smaller ownership shares.
As a fractional real estate owner, you have the potential to earn rental income and share in any appreciation of the property’s value.
Additionally, fractional real estate investing allows you to diversify your portfolios by owning shares in multiple properties across different locations.
Unlike traditional real estate investments, where it can be challenging to sell a property quickly, fractional ownership provides more flexibility.
Overall, fractional real estate investing offers Canadians an opportunity to generate returns in real estate without full property ownership.
How Does Fractional Real Estate Investing Work?
Fractional real estate investing works by allowing multiple investors to pool their resources and collectively own a property.
Here’s how the process generally works in Canada:
- Platform: Investors typically engage with specialized platforms or companies that facilitate fractional real estate investing. These platforms curate a portfolio of properties and handle the legal and administrative aspects of the investments.
- Property Selection: The platform selects properties that meet specific criteria, such as desirable location, potential for rental income or appreciation, and market stability. These properties can range from residential apartments to industrial and retail properties.
- Fractional Ownership: The property is divided into smaller ownership shares or fractions. Investors can choose to purchase a fraction of the property that suits their investment budget and objectives. Each fraction represents a specific percentage of ownership.
- Investment and Management: Once investors purchase their fractions, they become fractional owners of the property. The platform manages the property on behalf of the investors, taking care of maintenance, tenant management, and other operational aspects.
- Potential Returns: Fractional owners can benefit from potential returns in two ways. First, they can earn rental income from tenants occupying the property. Second, they can potentially profit from the appreciation in the property’s value if it is sold in the future.
- Liquidity: Fractional real estate investing offers greater liquidity compared to traditional real estate investments. Investors can sell their shares on the platform or to other interested investors. The platform facilitates the buying and selling process, making it easier for investors to access their investment capital when needed.
Pros of Fractional Real Estate Investing
Fractional real estate investing in Canada offers several advantages for investors. Here are some notable benefits:
1. Access to High-Value Properties
Fractional real estate investing allows individuals to invest in high-value properties that may otherwise be unaffordable or out of reach for individual investors.
By pooling resources with other investors, fractional ownership provides access to premium real estate assets that can potentially offer attractive returns.
Investing in this allows for easy diversification of your investment portfolio.
Instead of putting all your capital into a single property, you can own fractions of multiple properties across different locations and types.
This diversification helps spread the risk and reduces the impact of a downturn in any one specific property or market.
3. Lowers Entry Barrier
Naturally, real estate is not for everyone due to its high capital requirement but has lowers the entry barrier.
It enables individuals with limited capital to participate in the real estate market and potentially benefit from property ownership.
You can start with a smaller investment amount and gradually increase your exposure over time.
4. Professional Management
Fractional real estate investments are typically managed by specialized platforms or companies.
These professionals handle property management, maintenance, and tenant-related tasks, relieving investors of the responsibilities and time commitments associated with owning and managing a property directly.
5. Potential for Rental Income
Fractional owners have the opportunity to earn rental income from the property.
Rental proceeds are distributed among the investors based on their ownership percentage.
This passive income stream can provide regular cash flow and potentially contribute to overall investment returns.
6. Greater Liquidity
Fractional real estate investments offer greater liquidity compared to traditional real estate.
You can sell your ownership shares on the platform or to other interested investors, providing an avenue to access your investment capital more easily compared to owning a whole property.
7. Risk Mitigation
It allows you to mitigate risks through shared ownership.
As each investor holds only a fraction of the property, the financial impact of potential risks — such as property vacancies, maintenance costs, or market fluctuations — is spread across multiple investors.
Cons of Fractional Real Estate Investing
While fractional real estate investing in Canada offers several advantages, there are also disadvantages that you need to be aware of. This includes:
1. Limited Control
As a fractional owner, you have limited control over the property and its management decisions.
The platform or company handling the investment typically makes decisions on your behalf including property management, tenant selection, and maintenance.
This lack of control may not align with the preferences or objectives of individual investors.
2. Potential for Conflict
When multiple investors are involved in a property, conflicts of interest can arise.
Disagreements may occur regarding property management, rental income distribution, or decision-making processes.
Resolving conflicts among investors can be challenging and may affect the overall investment experience.
3. Market Volatility
Real estate markets can be subject to volatility and fluctuations.
Changes in market conditions, such as economic downturns or shifts in demand, can impact the value and performance of fractional real estate investments.
While fractional real estate investing offers more liquidity compared to traditional real estate ownership, it is still not as liquid as other investment options like stocks or bonds.
Selling your ownership shares may take time and be subject to market conditions and investor demand.
As such, it may not be possible to access your investment capital immediately when needed.
It is important to carefully weigh the above advantages and disadvantages before engaging in fractional real estate investing in Canada.
Seeking professional advice from your financial advisor can also provide valuable guidance in making informed investment decisions.
Best Fractional Real Estate Investing Companies in Canada
The success of fractional real estate investing relies heavily on the platform or company facilitating the investments.
As a result, you need to ensure that you’re investing through one of the best fractional real estate investing companies in Canada. Below are some of them:
1. addy Invest
addy Invest was launched in 2018 to provide Canadians access to real estate crowdfunding or fractional real estate investing.
The company is open to both accredited and non-accredited investors. You can start fractional real estate investing with the company with as little as $1.
However, addy charges a $25 to $500 membership fee in compensation for its services.
This company was founded in 2017 and it’s available for the residents of:
- British Columbia
- New Brunswick
- Prince Edward Island
Fundscraper allows accredited and non-accredited investors to invest in fractional real estate starting with $5,000. The trading fees range from 0.5% to 2%.
Founded in 2015, NexusCrowd provides Canadian investors access to real estate investing.
Although only accredited investors and the residents of AB, ON, and BC can invest with NexusCrowd.
Also, the company has a relatively higher minimum investment of $10,000. This is an indirect restriction to some investors.
Launched recently in January 2022, Willow is another fractional real estate investing platform in Canada that allows accredited and non-accredited investors to invest in real estate starting with 10% of the total property amount.
Using the PropSharing investment strategy, Willow provides you with the opportunity to own units of income-generating properties such as:
- Residential properties
- Office properties
- Retail properties
- Industrial properties
Equivesto is a no-fee real estate crowdfunding platform that allows accredited and non-accredited investors to invest in fractional real estate starting with C$100.
This platform is unique in the sense that it doesn’t charge any fee — be it trading fees, management fees, or annual fees.
However, only the residents of AB, ON, BC, and NS can invest with Equivesto.