Fractional real estate investments are not new. However, investors need to understand the concept clearly. Investors should be well-acquainted with aids like Strata, an asset manager, and Investing Preleased (IIPL), fractional advisors.
Fractional Real Estate Investing
Did you always wish for a stable monthly rental income from properties, and benefit from capital appreciation, but also didn’t want the hassles of shortlisting a property? If yes, then this article is for you. This article will help you in making sure you are buying the property with utmost diligence.
When buying a property, several factors need to be considered, like buying the property at the right price, getting a lawyer hired for the due diligence, then putting it on rent, managing the tenant and the property and choosing best asset managers. This blog focuses on one such asset manager Strata, which one of the best in market.
Besides, with property prices going exorbitant, how can one buy A-grade properties to invest in?
These are a few of the key questions a budding investor like Nilay has in mind when going for investments, especially in real estate.
However, with Fractional investments coming in, investors like Nilay can easily get into investments. Fractional Advisors like Invest in Preleased, and Asset Managers like Strata, become the aids for these investors for a smoother investing journey.
Let’s understand how Nilay got started!
Find out what Nilay did…
As the legendary investor Warren Buffett once said, ‘Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.’ And for Nilay’s big dreams but a modest wallet, those words couldn’t ring truer.
Nilay was looking for #TruePassiveIncome which he knew would only come from an A-grade commercial property (residential yields are only 2 to 4% net) rent-yielding and capital appreciating pre-rented or pre-leased property to an MNC or A-grade tenant. With a minimum of 5 to 7-year duration and at least a 3-year lock-in.
But MNC tenants he knew typically took larger properties worth upwards of 50 crores and he only had about 30 lakhs to invest.
That’s when he stumbled upon an Invest In Pre-Leased review video of a Strata opportunity in Bengaluru where an international sports brand was the tenant with a 15-year agreement and 5-year lock-in!
The best part, was the Strata who would manage everything for him – the asset, the tenant, and the SPV (Special Purpose Vehicle) that would own the property.
Why To Choose Strata For Fractional Real Estate Investment?
Nilay chose to invest through Invest In Pre-leased after thoroughly going through their recommendation for Strata along with a review of the opportunity.
Key Features of Strata that Nilay was Impressed with:
- Over 80,000 trusted users
- ₹1300+ crores in assets under management
- Offers world-class commercial properties
- Returns of 14-16% IRR
- Fractional ownership commitment
- Over 50,000 users and 2,500 active investors onboard
Now you might be confused with all these terms, who asset manager is? What do Strata do as an asset manager for investors like Nilay? What is fractional ownership? and so on.
Don’t worry! We’ll get all this clarified one by one as we move forward with the article.
So, what exactly is fractional ownership?
Let’s break it down!
What Does Strata Do as an Asset Manager?
To understand what is fractional real estate investing, let’s first understand what does Strata does as an asset manager.
An asset manager handles everything from acquisition within an opportunity to exit for investors.
From tenant management to property maintenance, Strata takes care of it all, allowing investors to sit back, relax, and watch their investments grow.
How Does Strata Helps with Fractional Investment Work?
Asset managers like Strata create a private limited company, called a Special Purpose Vehicle (SPV). This SPV then gathers funds from investors like Nilay, pooling them together to match the property’s value.
Once the funds are all in, the SPV buys the property. While the property gets acquainted with the SPV through registration, each investor gets a piece of the pie by becoming a shareholder in the SPV.
Let’s now understand how this shareholding works!
When investors pitch their money into the SPV, they get significant returns in the form of –
- Equity
- Compulsory Convertible Debentures (CCDs)
The amount of equity and CCDs is all proportional to the investment each investor makes in the SPV. So, the more you invest, the more share of equity and CCD you get.
That’s how investors like Nilay now become part-owners of a prime commercial A-grade property.
What Makes Strata Different?
There are certain factors that Strata as a fractional real estate investing asset manager has made super easy for investors.
- Streamlined Tech Process – Fully Online Process
Strata’s standout feature is its efficient tech setup. While many asset managers still handle background checks offline, Strata gathered valuable feedback from channel partners like Invest In Pre Leased to improve their online setup and to make the Know Your Customer (KYC) process well set up.They have everything fully online in place without any required paperwork! - Strong Financial Backing
Strata is supported by some of India’s largest venture capital and private equity firms, including Elevation, Mayfield, Kotak, Gruhas, and more. With over $8 million in funding, they have a solid financial foundation. - Affordability
You can start with just ₹25 lakhs. It’s a low-cost way to invest in real estate and make money. - Impressive Returns
With Strata, you can expect to make around 14-16% in profits. For example, Hinjewadi aims for a 13% profit. It’s like planting seeds and getting lots of crops. - Strata Handles everything for Investors
Strata handles everything – from buying to selling properties. You just sit back and relax while they take care of everything.
Pros of Investing with Strata
For investors like Nilay, investment isn’t just about returns – it’s about finding a trusted partner who shares his vision and values.
Invest In Pre Leased has rated Strata as a trusted platform after their careful evaluation. Here are the advantages of investing in with Strata.
Data-Driven Approach
- The Strata team uses data analytics and real-world experience to find top-notch commercial properties. This means they don’t rely on guesses but on evident information to pick the best investments.
- One of the opportunities they are well-known for is the Jaipur warehouse. This opportunity was acquired in 2021 for ₹20.09 crore, which was the initial acquisition cost of the asset. At the time of sale, the warehouse’s valuation reached ₹23.25 crore. As evident, this opportunity grew in value by around 5.72% CAGR each year.
- Now, that’s the amount of ground research Invest In Pre-leased puts in. This is the data they analyse when evaluating an asset manager’s reliability.
Complete Transparency
- Strata allows complete transparency when it comes to investors. Investors get clear reports and updates on how their investments are doing.
- Regular updates on property maintenance, rental incomes, and other details are shared with the investors time-to-time.
End-to-End Asset Management
- Strata handles everything from buying to selling properties. That means investors like Nilay can relax while it takes care of managing tenants, collecting rent, and keeping the property in good shape.
Fully Digital Experience
- Strata handles everything from buying to selling properties. That means you can relax while they take care of managing tenants, collecting rent, and keeping the property in good shape.
Protecting investors’ interests with trustee supervision
- Strata makes sure investor’s money is safe by using a trustee company to handle the funds. They keep the money in a secure account until it’s time to buy a property.
- This way, the investor’s money never goes through Strata directly, which lowers the risk of anything going wrong.
Diversification Opportunities
- With Strata, one can invest in different commercial properties, like offices, warehouses, or shops. This helps spread the risk and gives you exposure to different parts of the market.
- This means, if one area struggles, investors like Nilay can profit from another property type.
Liquidity and Exit Options
- Strata allows buying and selling quickly through their secondary market. This gives investors flexibility in cashing out their returns.
- For instance, if Nilay wishes to sell his share in a tech park after a couple of years, he can do it easily through Strata’s platform.
- However, if you take it from fractional advisors like Invest In Pre Leased, they usually recommend to better wait a few years for better returns.
Cons of Investing with Strata
What Happens If the Tenant Leaves?
Sometimes, tenants might miss paying rent or leave before their lease ends. This means investors, like Nilay, might miss out on rent for a while until a new tenant moves in.
As Rishi Dedhia, partner Invest In Pre-leased says, this is an inherent risk all properties carry, even your own property (fully owned) runs this risk. At such times you won’t get rent, asset management fees won’t need to be paid but property taxes and maintenance would have to be paid.
According to Invest In Pre Leased, asset managers like Strata carefully check the financial health and basic credibility of the tenant companies.
They also avoid properties in areas where many buildings are empty or rents are too high. This helps mitigate potential risks, keep rental income steady, and reduce worries about your investment.
AMC fees and their impact on the net returns of the investment
When you own a fraction of a property, you share costs like upkeep and management. Asset Management Company (AMC) like Strata, handles these expenses, but it comes with fees. These fees, called AMC fees, can reduce your overall returns.
However, Invest In Pre Leased explains the other side of the coin. Even though you, as an investor have to pay a certain fee, you need not have to take care of other property management stuff, which you would have anyways had to if you owned the property all by yourself.
Therefore, if all the property issues, like say maintenance, etc. are taken care of by Strata for a small price, it is still worth it.
Tax Implications
With fractional real estate investment, rental income is taxed like interest at slab rates. Profits from selling property are treated as capital gains.
It means, that if you hold onto your investment for two or more years, you’ll pay a 20% tax rate on those gains. If you decide to sell earlier, you’ll be taxed at slab rates.
Understanding these tax implications is important to plan investment strategy better.
Why Team Up with Invest In Pre leased?
As we have already seen above, it’s your -the investor’s, hard-earned money at stake, and with fractional investment, taxes, and asset management fees to companies like Strata, it’s always better to have support like Invest In Pre Leased. It’s like having trusted advisors or having your personal real estate guru, helping you make smart, strategic moves every step of the way.
You get the straight facts, no bias, no fluff. By teaming up with Invest In Pre leased, investors like Nilay can totally rely on these reviews, to spot potential risks, crunch the numbers on returns, and get guided towards decisions that make sense for the investors.
Key Considerations Before Investing
Alright, let’s break down some key factors to consider before jumping into the world of fractional investments. Think of it as your roadmap to financial success.
Know Your Situation Inside Out
Start by taking a good look at your finances. How much money do you make? What are your monthly bills? Are any debts hanging over your head? Are you comfortable with taking risks? Understanding your financial situation helps you make smart investment choices.
Set Your Sights on the Long-Term
Think about your goals for the future. Are you saving for retirement or a big purchase like a house? Having clear long-term goals helps you plan your investments.
Count the Costs
Consider how your investments fit into your overall financial picture. Can you easily access your money if you need it? Will your investments affect your budget? Making sure your investments align with your financial plan keeps everything running smoothly.
Play the Long Game
Investing is a marathon, not a sprint. Instead of chasing quick wins, focus on steady, long-term growth. Patience is key to building wealth over time.
Keep an Eye on
With fractional ownership, you’ll share expenses like maintenance and management fees. These can add up, so make sure you understand how much and how often you’ll need to contribute. Being clear on these costs helps avoid surprises later on.
Case Study in Point
Recently in 2023, Randox Laboratories India’s Mumbai Asset
Randox Laboratories, a renowned health and toxicology company, made a strategic move by securing a whopping INR 76 crore for its largest asset in Mumbai.
The property spans over an impressive 39,000 square feet in the bustling Mumbai Metropolitan Region.
Its prime location is within the heart of Seawoods Grand Central, one of India’s premier transit-oriented developments.
Gross Entry Yield
The property boasted an impressive gross entry yield of 9.1%. This yield represents the initial return on investment based on the property’s purchase price.
Internal Rate of Return (IRR)
Randox set its sights on an ambitious IRR of 12.7%. The IRR reflects the overall profitability of the investment, considering both rental income and property appreciation.
Potential for Investors
- Doubling Investment
Projections indicate that investors could potentially double their initial investment over the investment term. - Rental Income and Appreciation
This growth is fueled by a combination of rental income from the property and the expected appreciation in its value. - Pre-Leased Property
Adding to the appeal, the property was already pre-leased for a solid 6.5 years, with committed tenants for 5.5 years.
Randox’s success serves as a clear indicator of the growing interest in fractional ownership. Investors can participate in high-value assets without the need for full ownership.
Expert Insights
Sudarshan Lodha, CEO of Strata
According to Sudarshan, when you invest with Strata, your investment is secure. All investors become shareholders in a Special Purpose Vehicle (SPV) under the Companies Act 2013, ensuring the safety of your investment, even if Strata were to close.
Easy Exit Strategy: If you ever want to sell your investment, Strata has you covered. They’ve created a resale market where you can list your holdings for sale. Additionally, when the property finds a buyer, you have the opportunity to cash out.
Transparency and Control: At Strata, transparency is paramount. Before investing, they provide all property documents for your review, ensuring you have all the information needed to make informed decisions about your investment.
Fair Fees: Strata stands out by charging performance fees only if your investment achieves k and puts investors’ interests first.
Conclusion
Nilay, just like many of us, dared to dream big in the face of financial constraints. Thanks to asset management platforms and fractional advisors like Strata and Invest In Pre Leased, those dreams no longer seem out of reach.
These platforms offer transparent investment opportunities and ensure investor protection, raising the standard for fractional ownership. With access to top assets and expert management, fractional investment is not just a platform but a path to a better financial future.
Investors like Nilay see the potential in fractional investment, making the future look brighter. Who knows what opportunities lie ahead? It’s time to seize them and turn dreams into reality. Happy investing, everyone!
FAQs
The main advantages of investing in strata properties include affordability, shared maintenance costs, access to premium assets, and potential for high rental demand and capital growth.
Yes, your investment is secure as it is in the form of equity shares and compulsorily convertible debentures in a Private Limited Company, specifically created to acquire and own the asset. Holding equity shares in the SPV means you directly own the asset, and the SPV complies with statutory requirements independently. This ensures that even if Strata is not functional, your ownership and control of the asset remain unaffected.
Disadvantages of strata investment may include high strata fees, limited renovation flexibility, complex decision-making processes, potential mismanagement risks, and impact on property values.
Strata fees cover shared expenses such as maintenance, management, and common amenities for the property.
Due to community rules and regulations, renovation options for strata properties may be limited.
Before investing in a strata property, it’s essential to consider factors such as personal financial circumstances, long-term goals, financial impact, and understanding of strata levies and community rules or just watch an Invest In Pre-leased video review of the opportunity.
Strata investments may not be suitable for all types of investors, particularly those seeking high liquidity or greater control over property management decisions.
