Introduction
Trust us, this is worth bringing up in the group chat… Fractional ownership is becoming more mainstream! Investors globally are sharing in a piqued interest in the modern equity model, which has existed for quite a while. The concept behind fractional ownership has already been applied to popular asset classes including art, luxury cars, private planes, and you guessed it… real estate.
What do they have in common? Well, first off, they’re expensive to acquire as a single buyer or investor. Secondly, they’re largely inaccessible if you don’t have the know-how and connections to get you one step closer to the purchase phase.
If you’ve invested with Stake before, then you’re no stranger to the fractional ownership model, which in our case here, can be referred to as fractional real estate investing! If you haven’t set up an account with us yet, it’s never too late to get started 🚀
Through fractionally investing in real estate, prime and luxury properties that were once deemed out of reach due to capital restrictions compared to the demanded market prices, have now been made both accessible and affordable to a diverse pool of investors worldwide.
Disclaimer – we wrote this piece on an empty stomach!
Think of this model like a pizza – a group of people comes together to feast on it (correction, think of this model like a *very large pizza*) for which everyone pitches in to pay. However, the size of each pizza slice may not be the same for everyone. Why? It’s simple: you get what you pay for. Pay a small amount and receive a small slice of that delicious cheesy goodness. Others who decided to pitch in a little more got a bigger cut. Basically, your invested amount determines how much of the real estate property (or pizza) you own!
Still, many may get this approach confused with the traditional timeshare model, which we are here to clarify doesn’t work the same way. With a timeshare, you’re essentially paying to spend a certain period at the property you’re interested in. Through fractional ownership, you pay to own a part of a real estate property for a fraction of its full cost. This translates into ownership of equity, not time!
Some of the many benefits behind this model include a low buy-in cost, opportunity to diversify, and exert minimum effort! Let’s break down some of these pros before we dive into the cons.
Pros
You can start small!
Remember the pizza analogy? It perfectly sums up our point – opting for fractional real estate investing implies you are not purchasing the property at its full market price all on your own, you are covering its cost with a group of investors who share a similar interest in it! No downpayments or mortgages are required to get started, as opposed to traditional DIY real estate which calls for more aggressive planning.
With Stake, you can get started in real estate investing from only AED 500 (approx. $136)
Diversify, diversify, diversify
Every investor’s magic weapon is diversification! When you commit a lower amount than you would have otherwise allocated for full property ownership to a partial piece in prime real estate, you are allowing yourself the choice to use your available capital more wisely. How? By pooling your desired investment amount into more than one real estate property, you are spreading out your risk instead of betting on one singular asset which may not pay off as you’d expected.
By diversifying your portfolio, you can choose between different neighborhoods, different property formats like short-term rentals or long-term leases, and different categories like prime or luxury. Now doing that will definitely pay off.
Make money while you sleep
Buffet said it best… “If you don’t find a way to make money while you sleep, you will work until you die.” Building a passive income stream is easier than you think! Fractional investing in real estate is one way to get started. How about that, Buffet?
All you have to do is invest your capital, and the property management team on the other side will take care of the rest. Landlord responsibilities, paperwork, maintenance, and property upkeep got you down? Not anymore. That is why being selective and intentional with your platform of choice is key as they will be in charge of all the behind-the-scenes work to ensure your investment is taken care of efficiently and effectively.
How will you make money? It’s simple with 2 core streams: monthly rental payments which create a consistent flow of income on a monthly or quarterly basis in the form of dividends and long-term capital appreciation through which your investment grows as the property value appreciates.
Gain access to more means of liquidity
One of the main issues investors in DIY real estate face are related to liquidity as it is highly complex, in terms of time and effort, to exit a property investment. Ultimately, however, this remains a core element of any investment whose process must be made simpler and faster.
By engaging in fractional real estate investing with Stake, investors are exposed to diverse initiatives that aim to bring access and liquidity to the forefront, one step at a time like:
- The creation of a consistent flow of income for investors derived from monthly rental payments.
- The rollout of the “Sell with Stake” product – enables independent sellers to sell their properties through our platform, hassle-free.
- The launch of our “Exit Window” (in March 2023) provides a simple, fast, and easy way for investors to not only sell their shares in a property but also purchase stakes in funded properties!
Cons
You get a say… but so do the other investors
Once again, we revert to our pizza analogy. Assuming the money is collected before placing the order, we can imagine that there must be a selection process in place, right? Who gets to decide which pizza to order? There are so many flavors to choose from, which can be easily settled with a vote.
Investing fractionally in real estate and otherwise works that same way. With regards to any “material changes”, investors are prompted to vote on a way to proceed since they are the property’s owners at the end of the day. At Stake, we usually call for an investor vote in the following circumstances:
- To sell the property
- To convert the property into a short-term rental property
- To change the property manager
- To perform major maintenance of at least 5% or more of the unit value
As such, when you actively participate in a crowd-invested purchase, you are essentially consenting to share ownership and decisions.
So, we funded the property. What’s next?
The next steps are as follows and showcase exactly why this model works for investors seeking passive income!
Stake registers the holding company
We kick off the process of creating an SPV in the Dubai International Financial Centre (DIFC), which will hold the property on behalf of all investors.
The property will be registered under the SPV
We complete all the paperwork required to register the asset to the SPV and execute the transaction with the Dubai Land Department (DLD) in 2-3 weeks.
Investors receive the Title deed and Share certificate
Once this process is complete, investors will receive their share certificate and title deed via email, and these documents will also be attached to their Stake portfolio.
Investors will begin receiving rental payments
We will hand over the asset to our professional property manager and the first rental payment is expected to hit an investor’s Stake wallet at the end of each month!
What are you waiting for?
TL;DR | As prime real estate is expensive to own as a sole investor, the application of fractional ownership to real estate is rapidly gaining traction as it allows for:
- Access to high-quality assets that would have otherwise been unfit for limited financial bandwidth
- Reliance on the expertise of the company managing the asset on investors’ behalf
- Consistent dividend payouts
- Less administrative, landlord-like responsibilities
- More means of liquidity
- Fully transparent transactions
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23 replies on “Fractional Ownership: What you need to know”
Anyone who lives outside Dubai , can invest in this fraction of real state ownership business?
Hello Eyob, that’s right! Anyone from anywhere in the world can invest with Stake!
Can I sell my share in the property at the time I want?
Hi Abdullah, you can sell your shares during our bi-annual exit windows which occur over a 2-week period. You can list your shares at a discount on the secondary market for other investors located around the world!
Hello, please can you tell if the listed properties are already built and ready for rent or these are still under construction? If i invest Today, i still need to wait for the listed property to be funded 100% and only then the process of SPV and finding a tenant starts?
Hello Ivor, we only list properties that are ready to be rented out, not off-plan as per our regulation under the DFSA. If you invest today in a property that is not yet fully funded, you will have to wait until it reaches 100% after which the process of setting up an SPV in the DIFC will begin. The process of finding a tenant happens in advance to ensure that by the time all the regulatory steps have been completed, there is already a tenant in place. For any further clarification on this topic, please email us at contact@getstake.com
What are the fees I must pay on my monthly income? Does the country Dubai charge income tax? And why only Passport is allowed for verification?
Hi Frederick, since we are regulated by the DFSA, we are required to request all our users to upload a copy of their passports in order to pass KYC/AML checks. Otherwise, we cannot accept a new user on our platform – this is part of the mandatory onboarding process. For more information on the fees we charge please visit: https://help.getstake.com/en/articles/8259580-are-there-any-fees
Dubai currently does not charge income tax, but if you reside outside of Dubai, you must refer to your local taxation policies for further clarity.
سلام هل يمكنني الاتصال بشخص ما لبعض الاستفسار
مرحبا، نعم بالطبع. يرجى منك التواصل مع فريقنا عبر البريد الإلكتروني.
contact@getstake.com
Hi, if an investor has to leave UAE permanently, how the dividend payment is made to him? What are the steps required to make this change? Can he do these changes from outside UAE? Or needs to be in the UAE to make these changes?
Hi Imran, if your address were to change for any reason due to a move outside the UAE, you can always notify our team over email at contact@getstake.com or on Whatsapp (+971561317752) to support in updating your profile details. You will still receive your dividend payments as usual.
Can you transfer earned money from UAE account to bank in Europe?
Hi Imran, if an investor’s address were to change, they can simply notify our team so we can update their personal information. They can choose to connect a different bank account to withdraw their dividend payment into from their Stake wallet. The process is very easy!
Hello, so every month i should pay the same amount in case it is 500 aed ? Or i pay it once
Hi Raghida, your initial investment on our platform should meet the minimum of AED 500. You are then free to choose the amount you wish to invest and when to do so, there is no commitment to contribute monthly – it’s up to you!
Hi, can residents outside the UAE invest?
Hi Nour, yes! Anyone from anywhere in the world can invest with Stake.
Hi there, if I invest a minimum of 500 AED or more, how do I know what percentage my return will be?
Hi Agnese,
The returns on your investment are reliant on two aspects: the net yield generated by the property on a yearly basis (our properties generate somewhere between 5% to 8%) and the capital appreciation of the property over the holding period which is recommended five years.
If you’d like more information or help to visualize your investment gains, please use our investment calculator tool!
You can find it here at https://getstake.com/welcome
Hi Agnese,
The returns on your investment are reliant on two aspects: the net yield generated by the property on a yearly basis (our properties generate somewhere between 5% to 8%) and the capital appreciation of the property over the holding period which is recommended five years.
If you’d like more information or help to visualize your investment gains, please use our investment calculator tool!
You can find it here at https://getstake.com/welcome
What happens if the property is not rented ?? How do you guarantee the income
Hi Michel, a property comes with a rental guarantee once it already has a tenant in place and is generating a rental income. When a property is vacant at the time of acquisition, it will be shown as ‘Ready’ on the platform. Once the transfer of ownership to the investors is complete, Stake will appoint a property manager who will carry out the leasing of the property and ensure it’s rented out in the shortest time possible. We work with market-leading property managers to ensure all our investors’ properties are rented out, with very low to no vacancy, and always generating income.