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There is cold comfort when your portfolio has lost 20% or 30% of its value in a stock market crash. Just look at the market after the Russia-Ukraine war, or think back to early 2020, when the Covid-19 pandemic began. Market crashes are unavoidable, and they are extremely painful. So, how should you brace yourself for the next market downturn? How can you protect your portfolio from risk? Through fractional real estate ownership.
The stock market is as volatile and erratic as the weather. When retail investors lost money during the pandemic’s arrival in 2020, and now with the Russia-Ukraine War, the financial markets’ volatility got highlighted. The stock market is simply impossible to predict (and foolish).
The US stock market has been free-falling since the beginning of the year. The market’s woes got exacerbated by Russia’s escalating conflict with Ukraine. In less than an hour, Indian benchmark equities fell, sending stock markets into a tailspin and causing investors’ wealth to plummet by more than Rs 10 lakh crore. Sheesh! The investor must get prepared for any unexpected situation.
So, what should investors do? Should you sell, buy, or hold? Consider diversifying your investments and changing your investment strategy. To what, you may wonder. Real estate. The concept of fractional ownership is particularly noteworthy. It is a low-risk investment with little volatility.
Real estate is a more stable investment when faced with uncertainty. Real estate investing was also less risky when the economy struggled to recover from the Covid-19 outbreak. It was a strategy employed by investors for more secure and wealth-building assets in the market. Real estate returns are also much more predictable.
However, one big myth about real estate investing is that you need a large bank account to begin. But, building a real estate portfolio starts with a few thousand, if not a few hundred dollars. Assetmonk, for example, has a ticket size of INR 10 lakhs. It is a WealthTech Platform that offers asset-backed CRE fractional investment opportunities with IRRs ranging from 14 to 21 percent in Hyderabad, Chennai, and Bangalore. Real estate has always been a haven for the wealthy. It, however, is no longer the case. An aspirant Joe does not now need a large sum of money. With the advent of modern investment strategies such as fractional ownership, anyone can now invest in real estate on a relatively small budget.
But why should you diversify?
The current bull run gets disconnected from economic realities on the ground. So, one of the questions weighing on investors’ minds is how long it will last. It emphasizes the importance of diversifying your investments. Diversification ensures that a market downturn will only affect your equity holdings and not your entire investment. Assets like real estate will be unaffected by the move.
But why should you pick commercial real estate?
Real estate investments have several advantages over investing in stocks. It generates consistent cash flow, appreciates in line with inflation, provides a higher return due to positive leverage, and allows for equity development by reducing debt. Many investment alternatives, such as commercial real estate, have a low correlation with the stock market and can protect your portfolio from economic swings. CRE is a stable and physical asset class compared to other volatile investment products. Investors have chosen real estate as a haven for their spare cash to achieve consistent returns that at the very least outperform inflation. Many people, however, are unsure how much money to invest and what options are available within their financial constraints.
Stock investing is uneasy and can be daunting. Outperforming the market is also extremely difficult. But, CRE investments are simple to make with the assistance of real estate platforms. Assetmonk, for example, is a trustworthy real estate platform that can help you choose stable and high-quality properties. It also ensures a smooth property selection process and a trouble-free experience for all investors. So, how can you invest in real estate for stability and high returns on a limited budget? Through fractional ownership, the investment is made more affordable. Assetmonk selects investment opportunities in strategic locations to maximize the micro-market advantage based on personal financial goals such as capital appreciation and monthly passive income.
So, what is this fractional ownership of CRE?
In India, fractional ownership is a relatively new concept, whereas it is a well-established and successful concept in the West. A potluck is a gathering where each guest or group contributes a unique, often homemade, dish of food to share. Similarly, fractional ownership is the passive ownership of high-value real estate property through a group of like-minded people who own the asset in pieces as fractional owners. Furthermore, investors can divide the revenue generated by this asset in proportion to their investment.
Investors can diversify their portfolios by owning a portion of assets such as commercial office spaces, warehouses, and industrial floors. According to his budget, an aspiring Joe can own commercial property.
How can fractional ownership risk-proof your portfolio?
- Rental returns: CRE fractional ownership provides an annual rental yield of 8-10%, capital appreciation of 5-10%, and rent escalation of 15% every three years, making it one of the safest investment options with higher returns than many of its competitors. A Rs 25 lakh investment in fractional ownership will yield Rs 10 lakh in rental income over five years (2 lakh x 5 years at 8% rental yield). As a result, your investment will yield a total return of Rs 16.9 lakh and a maturity amount of Rs 41.9 lakh.
- Capital Appreciation: CRE fractional ownership offers a capital appreciation of 5-10%. It has given a 16 percent CAGR over the last five years. Your capital will grow by Rs 6.9 lakh (at an assumed capital appreciation rate of 5 percent annually). Aside from the increase in capital value, if you invest with credible tech-enabled real estate investment platforms like Assetmonk, you can expect a 15% increase in rental returns every three years. It is incorporated into the rental agreement to protect against future inflation, ensuring that your investment remains consistent over time.
- Fixed lease agreement: One of the main reasons fractional ownership gets considered safe is that tenants sign a five- to a seven-year lease agreement. It helps insulates your portfolio from market fluctuations and economic cycles. It ensures consistent rental income and capital appreciation for investors. Tenants in Grade A properties have large budgets and are large multinational corporations, banks, or information technology firms; such tenants do not default on rent but pay on time. Their fractional portfolio’s investment in rent-generating assets generates a consistent, long-term income stream. This long-term investment can provide investors with enough stable income to become financially independent.
- Hard asset: Commercial real estate is a hard asset with consistent returns that do not fluctuate with the market, making it a safe and secure investment. Furthermore, according to experts, the investment in fractional ownership is not locked in, and investors can exit whenever they want.
Fractional ownership is the best investment for you in 2022. It will assist you in diversifying your portfolio. Furthermore, it will also help grow your wealth and protect your portfolio from market fluctuations.