Real Estate Investment Trust vs. Fractional Ownership

There is a general consensus within the investment world that assets in commercial real estate are a great option to diversify a portfolio of investments beyond bonds and stocks. However, commercial properties can be expensive and require considerable know-how and experience. This means that the direct purchase of one is unlikely to be feasible for the majority of investors. There are, however, alternatives.

The article discusses two alternatives are discussed: REITs and fractional ownership. In this article, readers discover the pros and cons of each as well as its pros as well as cons and how they compare with the various types of private equity investment that we provide.

What is a Real Estate Investment Trust?

Real Estate Investment Trust (REIT) is a business which buys, sells, manages, or funds commercial real property. REITs can be privately traded, meaning that they are available to investors who are accredited and satisfy certain net worth and income requirements. Additionally, they are publicly traded, meaning that their shares are able to be traded on major stock exchanges for any person with an account with a brokerage.

Since every type of commercial real estate (CRE) asset has its particular operational nuances, REITs typically specialize in certain kinds of properties such as office buildings, data centres, healthcare facilities, self-storage facilities, multifamily apartments and retail shopping centres. For instance, Prologis is a major REIT traded that manages industrial and warehouse properties. American Tower is a REIT traded on the public market which specializes in communications infrastructure such as cell towers.

If an individual buys shares in a REIT, they are purchasing shares of an entity that is owned by a diverse collection of properties for commercial use. In this way, they have the right to a percentage of the profits and cash flow they generate. However, while it’s not clear, there’s an essential distinction between REIT and fractional ownership of property.

What is Fractional Ownership?

It is precisely what it is referred to as. In it, investors join together to create a “special purpose vehicle” or “SPV” through which they buy commercial properties. Through the SPV, the threshold “ticket size” is established that reflects a proportion of control over the house. Every investor is able to purchase the number of “tickets” as they wish. In exchange, each investor is paid a pro-rata proportion of the rent and profits.

In comparing fractional ownership with REIT investments, the main distinction is this. The REIT investment involves the acquisition of securities from a corporation which owns commercial real property. Fractional ownership doesn’t involve securities. Instead, it is direct fractional ownership of a physical asset. Pros and Cons for each method.

REITs vs Fractional Ownership: Pros and Cons

To thoroughly consider the benefits and drawbacks of REITs, as well as the advantages and disadvantages of fractional ownership, it is very beneficial to draw a clear comparison of both of the main selling factors.

Property Type

In accordance with REIT operating rules according to REIT operational rules, at minimum, 80% of REIT’s portfolio of investments must be invested in income-producing properties. This means that they must buy assets that are already in place.

In a fractional model, there is no limitation. This is why the fractional ownership model permits to purchase of both existing properties as well as those that are in construction.

Property Selection

REIT investors are not able to participate in the selection of properties. This is up to the manager of investments.

In the case of fractional real estate investment, the participants in the SPV’s ownership enjoy total control over the real estate properties they buy.

Lockup Period

REITs that are traded publicly don’t have a predetermined lockup time, which means that investors can sell their shares any time they’d like. This provides a REIT’s investment with an adequate level of flexibility. However, investors are limited by changes to the value of their investment and will only be able to make profits if shares are sold for a price greater than the amount the price paid.

Fractional ownership isn’t subject to any lockup periods or a time frame. Investors can sell shares in their property at any time they want. There may be some effort required to determine the value of the stake held by the investor.

Earnings Potential

REITs must distribute at the minimum of 90 per cent of the tax-deductible income in the form of dividends. This happens regularly and gives investors an income stream that is passive.

In the model of fractional ownership that is used, the revenue generated by the property is given to investors in regular intervals, generally each month or quarterly. However, the fractional ownership model does not require investors to pay a large proportion of their earnings as dividends. This means that dividends could be a bit irregular based on the capital requirements of the investment.

Both options could be a source to increase the capital value to appreciate through modifications in REIT share price or in the value of the property.


REIT investors don’t own actual property. Therefore, they cannot transfer ownership of property. However, they can sell their shares any time they’d like.

In the case of fractional property investment, investors are able to transfer their ownership stakes in fractional shares.


REIT investors can diversify their portfolios by buying shares. According to the definition of REIT portfolios, they are diverse by the real estate market and the real estate industry, so investors aren’t actively involved in the construction of portfolios.

By investing in fractional funds, investors are in control of the process of diversification. They are able to choose which asset classes and properties to invest in on their own.

Investment Minimums

REITs traded on the public market don’t have minimums set by law. Investors need only enough funds to buy one share.

In a fractional-based model, the price of entry can be higher based on what “ticket size” determines. The typical minimums range between $25,000 and $100,000 or more.


REITs must have property valuations at least once a year. Furthermore, the price of shares for REITs traded publicly fluctuates regularly and can be found by examining the ticker symbol of the REIT.

When a fractional ownership investment is made, the property is appraised on a regular basis so that shareholders are aware of the worth of their investment. This is particularly useful in the event that unit owners need to sell their investments.


The price of shares of REITs that are publicly traded is subject to significant variations, as can the stock market in general during times of economic stress with no significant change in the fundamentals of the properties they are based on.

In a fractional ownership model, the property is appraised over a longer period of time, typically every month or once a quarter. This means that values tend to be more stable.


REITs traded on the public market are usually open-ended, which means that investors are able to sell their shares at any time they want.

Fractional ownership is a long-term investment that is more likely to have a predetermined timeframe for its holding, generally 5-10 years.

Which Is The Better Investment?

With all the differentiators between the two options for investing in real estate, It is only natural to ask: which is the more profitable investment? In reality, neither of them is better than one of them. Both have the potential to generate profitable returns.

However, every commercial real estate property investor has their personal preferences as well as risk tolerance and time period. Therefore, one of the two choices could be more suitable to the individual’s requirements. This is the reason it’s crucial that investors conduct their own due diligence and select the option most appropriate to their specific situation.

How Do These Compare to Private Equity Deals?

In a sense, the varieties of syndicated deals we offer are a combination of both alternatives. Private Quity deals are similar to REITs in that shares are offered in real estate investments in order to fund buying a home. However, they are comparable to a fractional investment with respect to the way that shares aren’t publically traded and are one property only.

With a syndicated private equity deal, commercial property investors have the advantage of the experience and networks that are provided by the private equity company, which is charged with choosing the right properties and directing them effectively. This is why (and other reasons) an individually syndicated deal could be a compelling alternative to REIT and Fractional ownership models.