How Does Fractional Ownership Work?
Fractional ownership is when an investor owns just a portion of an asset. The fractional ownership shares are sold to a group of investors who will then share any profits or benefits the asset provides; other benefits include, usage rights, priority access, reduced rates. Any usage benefits would be similar to that of a timeshare investment.
Fractional ownership is mainly common with high valued assets such as planes, sports cars and properties. The main difference between a fractional ownership agreement and a timeshare is that the fractional ownership investor owns part of the title and not units of time. As the value fluctuates on the asset, so do the fractional shares.
A fractional ownership would be classed as a collaborative consumption, this is where the costs of a property get split among the group of owners. The upkeep of the property would be overseen by a property management company.
What is Tokenized Ownership?
Similar to fractional ownership, tokenized ownership is equity provided in the form of digital tokens or cryptocurrency, each token will represent a share in the asset, or business. This was a popular method of capital fundraising for ICO projects (Initial Coin Offering).
The same goes for fractional NFT ownership, you’ll pay for a piece of an NFT and in return you’ll receive what’s called an ERC-20 token, this will track the price of the original NFT – ERC-721 token.
In the case of real estate tokenization, you’d invest a customized amount into the property, you’d then receive daily rental payments in the form of cryptocurrency and a bundle of tokens linked to the property value, essentially providing you with two ways to profit.
Tokenized ownership compared to present day equity share ownership is cheaper, and more democratic in its way to realistically value the asset or business on market value alone and not the value of the investors.
The Pro’s and Con’s of Fractional Ownership
Regardless of what asset has been fractionalized, there are basic benefits and pitfalls of investing in a fractionalized asset. In the section below, we’ll briefly cover some of those.
Con’s
- Limited Investments – Not everyone is completely sold on fractionalizing their assets such as NFTs, finding investors willing to do this isn’t easy. Any asset that is fractionalized is bought up fairly quickly.
- No Promise of Affordable Investments – When people think of fractional ownership, they believe they’ll get the full benefit of an asset at a huge discount, this isn’t the case. A fraction of a bored ape could be $100 to $10,000, it all depends on the owner of the NFT.
- Smaller Returns – As you’ll only own a small fraction of the asset, the returns will also be in proportion to the initial investment, making small investments return smaller profits.
- Limited Investments – Not everyone is completely sold on fractionalizing their assets such as NFTs, finding investors willing to do this isn’t easy. Any asset that is fractionalized is bought up fairly quickly.
Click here if you want to learn more about the cons of fractional ownership.
Pro’s
- Better Liquidity – If you’re selling fractions of a high value collection, people will swarm at the chance to own a piece of this. It’s easier to sell fractions of an NFT for $100, than it is to sell a full NFT for $100,000.
- Levelling The Playing Field – Creating the ability to invest in large collections through fractional ownership makes investing in NFTs fairer.
- Customised Equity Release – With fractional NFT investing, you can list 49% of your NFT on a marketplace like The Piece, and make a huge profit, whilst still having a majority share.
- Better Liquidity – If you’re selling fractions of a high value collection, people will swarm at the chance to own a piece of this. It’s easier to sell fractions of an NFT for $100, than it is to sell a full NFT for $100,000.
Click here if you want to learn more about the pros of fractional ownership.