What Is Smart Ownership in Property?

In most cases, people refrain from entering the real estate market because of the high cost of properties. But what if there is a way for you to invest in real estate properties that are way beyond your financial capabilities? 

Yes, it is possible through smart property ownership. Smart ownership has allowed interested investors to invest in properties they could not afford alone. 

In this article, we’ll look at what smart ownership is, its types, benefits, and risks. This can help you make informed decisions regarding this type of investment. 

What Is Smart Ownership In Property

Smart ownership or co-ownership in property occurs when two or more investors come together to invest in a property. The co-owners have equal rights and access to the property, or they can have rights based on the percentage they have invested in it. 

This is a good investment method for buyers who cannot afford the property if they bought it alone. If the property is used for rent or other commercial purposes, the owners can get the income based on their investment in the property. 

With smart ownership, investors can get a favorable income source while also spreading the risks among the investors, thus lowering the impact a loss might cause if the property was bought by a single person. 

Types Of Smart Ownership

There are several types of smart ownership in property that you can use with your co-investors while buying a property. Understanding them can help you learn the benefits and reduce the risks of such an investment. 

1. Fractional Ownership

Fractional ownership is the most basic type of smart ownership. Here, you co-own a property with other investors. The property is divided into shares, and your rights over the property will depend on how many shares you own. 

It is like buying shares in a company. The more shares you have, the more say you have. 

Pros:

• Affordability: Get a piece of the luxury pie without the full price tag.
• Access to Prime Locations: Vacation where you might not normally be able to afford.
• Shared Costs: Maintenance, repairs, and property management are split.
• Potential for Investment: If the property appreciates, so does your share.

Cons:

• Limited Usage: You can only use the property for your allocated time.
• Decision-Making: Major decisions (repairs, selling) need group agreement.
• Potential Conflicts: Shared ownership can lead to disagreements.
• Less Flexibility: You can’t just use the property whenever you want.

2. Real Estate Investment Trusts (REITs)

REITs of real estate are much like mutual funds. REIT is a company that owns income-generating real estate properties. If you are interested, you can invest in the company, and they will invest your money in various properties. 

You will get the dividends on how much you have invested and how well your property is operating. This reduces the risk you might have if you personally own a single property. Your property portfolio is diversified, which can reduce the risks to a great degree. 

Pros:

• Affordable Access to Real Estate: You can invest in real estate without having to buy entire properties.
• Diversification: REITs typically own multiple properties, spreading your investment risk.
• Liquidity: REIT shares are traded on stock exchanges, making it easy to buy and sell.
• Professional Management: Experts manage the properties and make investment decisions.
• Regular Income: REITs are required to distribute most of their taxable income to shareholders as dividends.

Cons:

• Market Volatility: REITs are sensitive to changes in interest rates and the overall economy, which can affect their value.
• Limited Growth Potential: REITs are primarily income investments, so their capital appreciation might be slower than other types of investments.
• Taxes: REIT dividends are usually taxed as ordinary income, unlike qualified dividends from stocks.
• Lack of Control: As an investor, you have no say in the REIT’s property management or investment decisions.

3. Timeshares

Imagine owning a property for vacation purposes but not having to maintain them all year round. This is what timeshares are. 

As the name suggests, in a timeshare, you will own the property for a specific period of time, often for weeks or months. Once you leave, some other co-investor will own the property for a period of time. 

This is a great way to invest in properties you might only use occasionally. It also prevents the need to search for hotels or guest houses in the place you like to visit every year. 

Pros:

• Pre-Planned Vacations: You have a guaranteed vacation spot every year, often in desirable locations.
• Family-Friendly Amenities: Many timeshare resorts offer pools, kids’ clubs, and other amenities that appeal to families.
• Home-Like Comforts: Timeshare units are typically larger than hotel rooms and often have kitchens, making them feel more like home.
• Potential for Exchanges: Some timeshare companies allow you to trade your week for a different location or time, offering some flexibility.

Cons:

• High Upfront Costs and Ongoing Fees: Timeshares can be expensive to buy, and there are often annual maintenance fees.
• Limited Flexibility: You’re locked into a specific week(s) each year and may face restrictions on exchanging or renting out your time.
• Depreciating Asset: Timeshares rarely appreciate in value and can be difficult to resell.
• High-Pressure Sales Tactics: Timeshare companies are notorious for aggressive sales pitches.
• Potential for Scams: Be wary of resale scams that target timeshare owners.

4. Property Crowdfunding

Property crowdfunding is an innovative way to raise funds through online platforms for buying, renovating, or developing real estate. Interested investors can search for listed platforms on the website and invest a certain amount in the property. 

They can allow property owners to pool a large amount of money in a short time and also allow investors to benefit from it. 

Pros:

• Low Barrier to Entry: You can start investing with a relatively small amount of money (sometimes as low as $500).
• Diversification: You can invest in multiple projects, spreading your risk across different types of properties and locations.
• Potential for High Returns: Crowdfunded real estate projects can offer attractive returns compared to traditional investments.
• Passive Income: Many platforms offer investments that generate regular rental income.
• Access to Expertise: Platforms often partner with experienced real estate developers.

Cons:

• Illiquidity: Your money is tied up for the duration of the project, which can be several years.
• Risk: Real estate investments are not insured, and there’s always the risk of losing money if the project fails.
• Limited Due Diligence: You may have less information about the project and its risks compared to traditional real estate investing.
• Platform Fees: Crowdfunding platforms charge fees for their services.
• Regulatory Uncertainty: The regulatory environment for crowdfunding is still evolving.

5. Smart Contracts And Blockchain

Smart contracts and blockchain are a powerful combination that has been trending in the real estate industry. 

A smart contract is a property agreement written in code. It is a type of blockchain advancement that ensures a secure transaction and that no fraudulent activities happen in between. 

It also eliminates the need for a third party in the transactions. That is, once an action that has been noted in the contract has been completed, the amount will automatically be transferred to the other party, eliminating the need for a bank or other intermediaries. 

Pros:

• Trust and Transparency: Transactions are recorded on a public ledger, ensuring transparency and reducing the need for intermediaries.
• Security: Blockchain’s decentralized nature makes it difficult to tamper with data, enhancing security against fraud and hacking.
• Efficiency: Smart contracts automate processes, eliminating manual paperwork and reducing the time and costs associated with traditional contracts.
• Accessibility: Anyone with an internet connection can access and participate in blockchain networks.
• Innovation: Blockchain technology has the potential to revolutionize various industries, from finance to supply chain management.

Cons:

• Complexity: Understanding the underlying technology and its implications can be challenging for non-technical investors.
• Regulatory Uncertainty: The legal and regulatory framework surrounding blockchain technology is still evolving, creating some uncertainty.
• Volatility: Cryptocurrency prices, which are often associated with blockchain projects, can be highly volatile.
• Scalability: Blockchain technology is still relatively new, and issues with scalability and transaction speed need to be addressed for widespread adoption.
• Security Risks: While blockchain is generally secure, smart contracts can have vulnerabilities that hackers can exploit.

Benefits Of Smart Ownership

Below are some of the benefits you can get through smart ownership.

• Diversified investment portfolio. This reduces the risks you might experience in sole ownership of property.
• Passive income stream. Investing in smart ownership can give you a regular passive income stream besides your job, and you don’t need to fork out your entire money for it. 
• Asset appreciation. Your real estate property will grow in value over the years, yielding you a better income. 
• Investing in real estate can give you ample tax benefits. 

The Risks Of Smart Ownership In Real Estate

Smart ownership has several benefits for the investors. However, it also has some drawbacks. Here are some risks you might experience if you get into smart ownership in real estate.

• Limited control over the property. You co-own the property with other investors. So, you don’t have full control to do something on the property. 
• Liquidity issues. Unlike sole ownership, you can’t sell your property anytime you wish in smart ownership. 
• There might be some hidden costs or complex agreements in smart ownership. You need to evaluate it carefully before agreeing. 
• Risk of depreciation. If the property value decreases, your share value will also inevitably decrease. This can be a huge loss to you. 

Conclusion

Smart ownership is an effective way for you to share and own a property that is far beyond your financial capabilities. It is also a way for you to earn a regular source of income and reduce risks that are associated with sole ownership. 

As discussed above, there are both benefits and risks in this type of real estate investment. Read the ownership agreements thoroughly before you commit to it.