There can be several risks when investing, especially regarding high-value assets, such as property. Finding ways to mitigate this can be challenging, but one clear solution is fractional ownership. Fractional ownership is an increasingly popular investment model that allows multiple investors to own a share of a real estate asset as a collective. Rather than buying a property outright, investors, companies, trusts, or pension schemes can acquire a fraction of a property and, in turn, benefit from rental income and potential capital appreciation. This approach allows access to opportunities with a lower financial commitment, whilst reaping the benefits of property ownership. It also offers the chance to diversify investment portfolios by spreading risk across several assets, rather than being concentrated in a single property which creates a larger risk.
Leaders in Fractional Ownership
TAB, a real estate finance and investment platform offering property finance solutions is helping lead the way forward in fractional ownership. Founded in 2018, they were initially focused on providing flexible lending solutions for property projects that did not fit the criteria of traditional lenders, but over time expanded its services, building on its expertise in the market and developing investment opportunities, which of course include fractional ownership. The company allows investors to participate in institutional-grade property investments, which might otherwise be inaccessible due to high costs.
One of the most notable features of TAB’s fractional ownership model is the ability to invest in premium properties without the requirement for large sums of capital. Via fractional ownership, TAB investors can own shares in high-value real estate assets, benefitting from rental income and any capital generated by the property. With over 350 properties evaluated, worth a combined £1bn, TAB’s stringent property selection process ensures a strong balance between potential returns and managed risk.
How the Model Works
TAB’s approach to fractional ownership provides investors with several advantages. First, it allows for greater diversification of investors’ portfolios. Rather than placing all their capital in one property, they are able to spread investments across multiple properties, minimising the risk by reducing the impact of poor performance on any one asset. Additionally, TAB offers this type of ownership in institutional-grade properties that would normally require millions to buy outright, making these high-value assets more accessible.
The list of benefits continues, however, through TAB’s hands-off management approach. Unlike direct ownership, where tenant needs must be catered to, TAB instead looks after the property management aspects, allowing for a passive income. The potential for capital appreciation could also prove to be a draw, where investors can benefit from increases in property value over time. The flexibility of this model additionally allows an easy exit of the investment through TAB’s exchange or at the end of a five-year term.
As another form of protection for their investors, TAB sets aside a reserve fund for each property. This fund covers repairs, maintenance, and any unexpected costs, ensuring that no one is caught off guard by unexpected or sudden expenses. While debt can sometimes boost returns, TAB’s fractional ownership model is equity-only, minimising the risks that can crop up with high-interest debt.
Case Study: Travelodge Chigwell
A standout example of TAB’s successful fractional ownership model is its recent investment opportunity in Travelodge Chigwell. This commercial property, located in Greater London, is let to Travelodge, the UK’s second-largest hotel chain. The property provides stable income and excellent capital growth prospects, making it an attractive investment.
With an initial net yield of 7.62% per annum, investors benefit from strong monthly rental income from a nationally renowned tenant. The projected capital growth of 2.50% per annum further enhances the returns, whilst inflation-linked rent reviews ensure that the rental income remains protected against inflation, offering a hedge in a volatile market. Travelodge Chigwell is strategically positioned in Greater London, with excellent transport links, which adds to the asset’s long-term value and success.
TAB raised £3.68 million to acquire the property, covering all fees and taxes. The net rental income is projected to be £280,529 per year, making this a lucrative opportunity for investors. TAB’s careful management and oversight ensure the property is well-maintained and positioned for continued success in the tourism sector.
Fractional ownership is a way forward for investors looking to mitigate risks often associated with their line of work, diversifying their holdings, and preventing any issues associated with ‘putting all of your eggs into one basket.’ TAB offers investors a unique way to participate in the real estate market, providing access to high-value, professionally managed properties, allowing individuals to enjoy stable rental income, and potentially benefit from capital appreciation. With the added security of reserve funds and hands-off management, TAB’s model offers a flexible and low-risk entry into the property market for new and old investors alike.
