Five Disadvantages of Fractional Ownership
Fractional ownership is what we do best, and our mission is to offer an equal investing opportunity to the masses, and if that means breaking up large collections in smaller, cheaper pieces, then so be it.
However, we won’t lie to you and tell you this will be the holy grail of investing strategies, because it ain’t. There are a few pitfalls when it comes to fractional ownership of assets, not just NFTs, but assets such as real estate, precious metals and more.
So, let’s jump into it, here are five drawbacks of investing in fractional assets.
Assets that can be fractionalised exist everywhere and there is no shortage of real estate, precious metals, or NFTs. But, it’s finding people willing to sell fractions of equity in their assets that’s the problem, not only that, many people don’t know that fractional ownership exists.
Fractional home ownership has been rising in popularity the past few years, resulting in an increase of fractional property marketplaces, with this saturation there are even fewer options for investors on a single platform, making it harder to track investments over several platforms.
No Promise Of Affordable Investments
To an extent, fractionalising an asset will make it significantly more affordable for investors. But, this doesn’t make it cheap. Sure, it’ll cost less, but the original owner sets the price and for one fraction it could cost whatever they deem fair, from $100 to $10,000 per piece.
Fractional ownership does help level the playing field, but, as most investors know, nothing good comes cheap and if you really want to invest in huge projects, build up that war chest.
As you’re typically investing in just a fraction of an asset, you’ll never benefit from the full profit, it’ll be all proportioned to your initial investment. The perfect example of this is the current craze of tokenized fractional ownership, utilising cryptocurrency tokens and blockchain technology to make fractional ownership cheaper, faster and easier.
The way it works is you find a property you want to invest in, choose your customised exposure and you’re now an investor.
You can use crypto to invest and each day you’ll receive your share of the rental payment in crypto, you’ll also receive a token that represents your stake in the property, this can either go up or down in value.
But, the returns will be incredibly small as with most tokenized ownership companies, there will be a maximum investment amount, which makes it possible for many other investors to get involved.
In short, it’s great to gain exposure to different markets, assets and spread out that risk, but it won’t make you a millionaire. Maybe a few hundred thousand dollars closer though, which is good enough for most.
Must Hold For Many Years
NFTs are different and most marketplaces don’t really require this. But, in other assets such as real estate, some platforms require the assets be held for up to 90 years!
However, this is mainly because you don’t tend to fractionalise property into thousands or even millions of pieces, it’s mainly between 10-100 people.
This is different for tokenized property, which can sometimes be fractionalised over 1000 times, with smaller holding time requirements for investors.
Limited Places To Sell Your Stake
Most platforms that fractionalise traditionally will require you to sell your stake in an asset on their platform. More modern, tokenized ownership platforms have the ability to be interoperable due to them using blockchain technology.
There are plenty of platforms to choose from, whether you’d trust them, or if they have reasonable terms and conditions when selling or buying assets such as real estate, NFTs or precious metals.
Thankfully, with The Piece, you’ll have everything you need to fractionalise your assets or buy up pieces of others.