Fractional Real Estate: The New Passive Income?

Arrived, Fundrise, LoftyAi, these startups are reshaping real estate investing.

In the not-so-distant future, your landlord might be thousands of different people. Home ownership as we know it is shaping up to be a whole lot different and it's pretty concerning.

Various platforms, including Arrived, Fundrise, Lofty AI, and Landa all offer similar models of fragmented investing in different types of real estate markets. The popularity of fractional investing however has exploded as a passive income steam. Lofty AI sells fractional "property tokens" using cryptocurrency providing not only investment opportunities but also serves as a marketplace for home sellers.

Real estate investing has always been a key tool to building wealth and over the past couple of decades we've seen a dramatic rise of regular folks using the asset class beyond purchasing their own home. In the wake of the 2008 crisis and the now AirBnbust that many hosts are currently experiencing, it seems that the promise of real estate being a passive income stream for regular folks, hasn't always worked long-term. However, emerging start-ups backed by big names are challenging how retail investors approach real estate. The problem is that for retail investors, they are putting too much equity into one property and when things go south, they don't have the diversification to protect themselves. Another problem? Far too many people can't even afford one home. So how do these start-ups solve these problems?

Fractional Real Estate…

Fractional Real Estate is where you can buy a portion of a home instead of the entire thing. Depending on the platform, you could be a partial owner of a home for as little as a cup of coffee. Companies such as the Jeff Bezos backed, Arrived Homes, have raised over $76 million to purchase more than 200 properties. The company and its competitors all contend that what they offer is truly passive income, unlike other supposed "passive income" streams such as Airbnb that are a lot more work than you might think. With fractional real estate, the claim is that your investment is completely hands off as the management and fees of the properties are taken from your share of the rental income.