Real estate, art, and collectibles are often seen as worlds reserved for the ultra-wealthy. However, that has been changing over the years thanks to fractional ownership. This investment model allows different investors to own a piece of a larger investment, and it’s powered by tokenization.
Owners of an investment are said to hold tokens that stipulate their rights and shares, as well as other details such as maintenance costs. In this guide, we’ll look at fractional ownership in detail. You can also check out nyala.de/en for more in-depth articles about tokenization.
What Exactly is Fractional Ownership & How Does it Work?
In simple terms, fractional ownership is an investment model that allows multiple investors to own shares in a high-value asset such as a real estate building. If an item costs millions of dollars, it can be divided into shares that hundreds, thousands, or even millions of investors can buy.
When you buy a token, you legitimately own a fraction of the asset, along with the rights and responsibilities that come with it – share of profits, maintenance costs, and voting rights for key decisions, among others. However, fractional ownership is not limited to real estate. It’s also used in bonds, company shares, art, luxury cars, and even sports teams.
All this is made possible by tokenization. A property is tokenized by converting it into a digital item and subdividing it into tokens. The tokens are stored on a decentralized ledger or blockchain to ensure everything is transparent, secure, and immutable. All transactions are then controlled by a smart contract that handles automated payments, which means you won’t need to involve third parties such as lawyers and banks.
Why Fractional Ownership is a Game-Changer
Fractional ownership has become quite common as it changes the traditional way of investing in various ways.
Access to High-Value Assets and Markets
Many people would like to own a skyscraper, private jet, thoroughbred horse, and other high-value assets. However, only a few investors can afford to do so due to the huge investment and maintenance costs needed.
Fractional ownership changes this by dividing such assets into smaller, affordable shares. Multiple investors can then buy shares and legitimately own a piece of an item they could otherwise only dream of. This democratizes access to traditionally exclusive markets.
Greater Portfolio Diversification
Since most investments require huge sums of money, most investors have traditionally been limited to stocks, bonds, and mutual funds. However, due to the low entry barriers, it’s now possible to diversify to other investments like real estate and rare art without being super-rich. You can now own a slice of a Manhattan penthouse or a private yacht.
This is great as it allows investors to minimize risk – the more the investments are spread, the less the risk. Even if you only want to invest in real estate, you can buy tokens in several vacation rentals instead of just one.
Liquidity and Flexibility
One of the biggest challenges of traditional investments is that you can’t easily access your money – it can take months or even years to sell an asset you own. Fractional ownership and tokenization make liquidity more accessible. When you want to sell your shares, you only need to go to the platform where the asset is traded and sell your shares in real-time. One of the best aspects of these marketplaces is that they operate 24/7 since everything is online and controlled by smart contracts.
Is Fractional Ownership Right for You?
High-value investments and big portfolios aren’t just a preserve of the wealthy anymore. If this is the type of investment you are looking for, fractional ownership opens the door to you and others from all financial backgrounds. However, like any other investment, it’s good to understand the risks and do your homework. You can then judge based on your investment strategies and make the right financial decision.
