Fractional and its users find investment properties, create public proposals for like-minded group members and assemble a team of investors to purchase them.
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Fractional is a platform for facilitating co-owned real estate investments
Platforms: Browser
Ideal for: Agents; first-time investors
Top selling points:
- Fully transparent investment proposals
- Educational resources/coursework
- Agent-specific workflows
- Management of LLC creation
- Flexible share volume
- Consistent buyer engagement
- NAR REACH participant startup
Top concern:
Traditional investors or agents may have trouble overcoming the idea of investing with people they only meet and coordinate with through an online community. However, that mindset is not shared with younger, motivated demographics, and the company has a number of parameters in place to address such concerns.
What you should know:
In some ways, Fractional is a social media community about real estate investing. It’s also an investment coach and educational resource. All told, Fractional is a lot of things, and it’s all about real estate investing.
Fractional and its users find investment properties, create public proposals for like-minded group members and assemble a team of investors to purchase them.
The process involves extensive supporting information, multiple Zoom meetings and communications to ensure the team is aligned, an operating agreement, creation of an LLC and collection and processing of deposits and investment oversight.
Fractional created what it calls an accelerator program, Elevate, to educate aspiring investors and help create “matches” between people and properties. It’s 12 weeks total, five of which are curriculum-focused, and its goal is to take accepted participants from “interest to investor” in 90 days. This is only one way in which Fractional’s mission to diversify the economies of investing is carried out.
Groups can come together around a specific type of property, location or mission. For example, single-family rentals in Iowa, vacation communities in Texas, long-term holds, small multifamily, properties that cash-flow, women-only, etc. This is a great way to incorporate the mission of investing altruism with ensuring investors are co-owning with similar mindsets.
You don’t have to have a property in mind to join a group, as the goal is for members to align, then peruse the market. However, the person who starts a group has a say in membership and inclusion in an investment. Individual members can submit proposals for discussion, and each is given its own landing page on which all of its content, data and communications will be housed.
Initial discussions are scheduled to serve as an introduction for which members who want to participate. Some may feel it’s not the best match; however, if enough parties want in, then 10 percent deposits are collected and an offer moves forward.
The group works together on business documentation using templates and resources Fractional provides and once settled, funds are settled and it moves into escrow. Groups also decide on local property management partnerships.
The company sets up the LLC in the property’s state, coordinates property bookkeeping, K1s and any legal services that may be needed. Unlike Pacaso, Fractional does not buy then transfer the LLC in members’ names.
Group members have an exit strategy. Fractional allows LLC members to sell shares back to their community and in some cases, the company will buy them.
Fractional asks that agents identify themselves if presenting properties as an agent. You can certainly participate on a personal level, and save on fees.
The company will pay a 3 percent commission, and offer equity based on its 3.5 percent transaction fee, based on property price, as well as savings benefits when part of group. It’s a good deal, and a solid marketing effort for those who have experience guiding commercial transactions.
An agent’s local knowledge is a great resource for group members participating from afar, and, Fractional can provide agents with their own education on what the investor market is seeking, what its collective concerns are, what property types attract them and what markets present opportunities. In short, Fractional is a much, much better way to spend time in a social environment than monitoring a Facebook listing post for likes.
Keep in mind though, Fractional places additional scrutiny on agents, as it should. The company will not allow fishing efforts, lead gathering or any half-hearted attempts to participate. It wants agents to be active members of its community.
Fractional has an array of private lenders to whom it can refer to groups moving forward with a property, and it also underwrites buyers, using data supplied upon registration. Naturally, it has to ensure it’s not allowing too many tire-kickers into the platform.
As of this writing, Fractional is working on a more sophisticated presentation method for property financials, which are very detailed and unambiguous, but a little Excel-like in their current form. That’s fine.
Fractional, a member of NAR’s 2022 REACH class, is one of a number of new, very smart solutions arising from young property investors, who see their models as a reaction to their inability to enter homeownership. In fact, I can envision a world, not too far off, in which renters do indeed own property, simply not the one they live in.
Check out Fractional. It might be the future.
Have a technology product you would like to discuss? Email Craig Rowe
Craig C. Rowe started in commercial real estate at the dawn of the dot-com boom, helping an array of commercial real estate companies fortify their online presence and analyze internal software decisions. He now helps agents with technology decisions and marketing through reviewing software and tech for Inman.
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