There’s an adage that ”the rich get richer” and like all sayings there is some truth in it.
Partly it’s about knowing what they know to get money working for them and mostly it’s about being able to access some of the most lucrative investments in the world, that have to date, only been available to individuals with substantial amounts of capital to invest or those called accredited (also called sophisticated) investors.
Consider owning commercial and high end luxury residential properties.
These are the kind of assets that are now skyrocketing in price in the US, Canada, Australia and many parts of Europe and the UK. Largely due to the unprecedented money-printing that the various reserve banks (exchequers) have been doing as part of Covid relief and the inflation that is rapidly following these actions.
Or what about being the banker and providing funding to developments and getting great returns, multiple times higher than you can in a bank savings.
Most people without a lot of money (and knowledge of how to access these deals) have been unable to participate and benefit. Hence why the rich get richer.
After all, how is the average investor with limited capital amounts to invest supposed to buy a luxury house in the South of France , a commercial medical building in Florida, a retirement and aged care facility in Scotland or a multi family apartment building in Sydney?
And how do you spread your risk and create a diversified portfolio of properties with limited capital?
Well, today I’ll tell you how…
And no, this isn’t about Real Estate Investment Trusts (REITs). While REITs have a role in your portfolio and continue to be a great way to invest in large diverse property portfolios, this is something completely different…
It’s called “fractional ownership and syndicated investing”.
It’s a game-changer.
In the USA, the JOBS Act of 2012 originally paved the way for this opportunity because it allows small businesses to raise up to $50 million online from the public.
Then, in 2015, the Securities and Exchange Commission (SEC) pushed this into action by allowing small businesses to raise funds outside of wealthy, “accredited” investors and institutions.
Previously, if they wanted to raise public funds, they went through a lengthy and expensive IPO (initial public offering) process.
Similar legislative changes happened in the UK, Europe, Canada, Australia and pretty much around the world enabling small businesses to raise funds from investors like you and me via fractional investments.
Which paved the way for everyday investors to get access to very lucrative real estate investing deals.
How Do You Invest In Real Estate / Investment Properties?
The three traditional ways of accessing investment property markets outside of REITs costs big moola…
- Direct purchase: If you’re a DIY investor, minimum deposits for a mortgage range from 10–30%. The median home price in the U.S. is around $200,000. Most people don’t have a spare $20,000 or $40,000 sitting around. In the UK , Australia, Canada and Europe median prices are even higher.
- Real estate investment groups: This method involves pooling your money with other like-minded investors to invest in rental real estate. Most local clubs require minimums of $5,000 and up.
- Private equity real estate funds: These funds are reserved for accredited investors and typically require a $100,000 minimum.
That’s why fractional investing is such an incredible opportunity for the everyday investor.
With fractional investment, the owner of an asset can list that asset on a platform… and offer shares (fractions of the asset) to investors.
Think of fractional investing as a type of crowdfunding.
Crowdfunding is a way to raise funds online for a specific cause from hundreds, thousands, or even millions of people.
Crowdfunding allows ordinary people to pool their money and invest in real estate projects – just as the wealthy have been doing for years.
In some ways, crowdfunding investment property is similar to investing in a REIT.
Let’s say you buy 100 shares in a REIT. That means you own a piece of that company and therefore a proportional piece of all the properties that fund owns and the same piece of all the income those properties earn.
With crowdfunding investments, the assets are divided up in much the same way.
The difference is these “shares” (and the perks of owning them) could be for anything – even a single property as opposed to a whole portfolio of buildings.
Thanks to digital access and digital efficiencies, the entry and ongoing costs of these types of investments are also comparatively low.
Many crowdfunding platforms don’t charge fees to their investors at all, only to borrowers.
It also doesn’t take much to get started, with minimum investments coming down the whole time.
While most private real estate equity funds charge a minimum of $250,000, on some fractional property investing platforms you can buy fractions of properties for as low as $10. And you can open and fund an account online. You just need a smart phone, laptop, or PC.
One example is a South African platform called Easy Properties where you can invest from just R10 (less than 1US$).
Other platforms to explore include Wealth Migrate for South Africans, Europeans and UK investors, Realty Mogul and Crowd Street for those of you in the USA, Shojin in the UK and BRICKX in Australia.
Better Still… Become the Banker
In every board or card game I played as a kid – it always seemed like the banker won. That’s because lending money is a big, lucrative business and now thanks to crowdfunding and fractional investing you can be the banker.
Fractional investing platforms like the US platform Groundfloor and PeerStreet, UK platform Crowd Property, SA platform Opportunity capital enable investors and lenders to work together in creating real estate / investment property loans backed by (secured against) the property.
Property development companies take out these loans to cover new construction, buying, renovating, renting, and refinancing of investment properties.
You become the banker, providing the finance together with a whole group of other investors).
You can pick specific loans to invest in. And a year later (or whatever the loan term is), you’ll receive your principal back, plus interest (a fixed rate of return
You can earn significantly higher interest rates with this type of loan instrument than you will get by lending your money to a bank.
The great thing about these loan investments is that you can invest in multiple loans, thereby spreading your risk. Plus your money is in different loans with different terms so it isn’t all locked in one deal.
And if you want to diversify even more, there are fractional investing opportunities in other assets like collectibles such as art, classic cars, baseball cards, comics, watches, and fine wine.
But the overall point is simple…
- You must get your money working for you and it must work at a rate that will beat inflation and get you to your financial freedom
- You must have a diversified portfolio of assets growing your wealth. This must include your base equity investments through index trackers, investment property, fixed income investments like these crowdfunded loan instruments, and some alternatives like crypto’s collectibles and precious metal.
October is Syndicated Investing and Fractional Investing Month in the Wealth Builders Club.
The October masterclass is on How to Invest in Syndicated Investment Opportunities. I’ll be doing a deep dive into these investment opportunities. Showing you what platforms are available, how to evaluate deals and where they fit into your portfolio and your wealth strategy.
Go here to secure your place in this upcoming masterclass.
P.S. If you can’t make the masterclass training live, it will be recorded and you will get the recording, the slide deck and the transcript.