The term fractional ownership is nothing new. Popularized by business jet company NetJets, the concept allowed companies to purchase shares in a jet to reduce their costs of having to purchase a jet outright.
The practice of fractional ownership continued to grow during the recession of 2008, which saw homeowners splitting up and sharing properties they could no longer afford, or teaming up with friends to purchase vacation homes.
Who hasn’t been offered the opportunity to get in on a timeshare by now? What was once only a privilege for jet-setters and homeowners has transformed into a new model that’s taking the real estate market by storm—fractional interest.
Not sure what fractional interest really means? You’re not alone. Here is your beginners’ guide to the world of fractional interest.
Everyone gets their fair share
Let’s say that you and a group of friends go to the movies. Everyone in the group wants popcorn, but no one has brought enough money to buy a large popcorn.
Maybe a few people in the group have enough money to buy their own small popcorn, but the large popcorn is a much better value for the price.
So you decide to pool your money and purchase the large popcorn together. When it comes to actually splitting up the popcorn, you decide to be fair—the amount of popcorn each person gets is based on how much they paid.
Finally, to make sure everyone is agreeing to the same deal, you create a contract that for every X dollars each person put in to buy the popcorn, they get Y popcorn pieces in return.
This is a simple example of fractional interest in action. When using this metaphor to understand the New York City Real Estate Coin (NYCREC), the large popcorn is actually a high-yield piece of New York City real estate, and the popcorn pieces are the fractional interest you are paid in the form of Ethereum (ETH) airdrops .
Why sharing is better than owning
You might wonder why you, as an investor, would choose to share a New York City investment property instead of owning it.
Well, because it’s really expensive, for starters.
In our popcorn metaphor, no one person in the group of friends actually owns the large popcorn—but any one of them could have bought it themselves. This is not usually the case with even the cheapest NYC real estate. It will cost you millions on a good day.
Let’s not even get into all the barriers, hurdles, and middlemen unique to the NYC real estate market.
That’s why we think a fractional interest model makes the most sense. Once a high-yield New York City investment property is purchased (B5) by NYCREC, none of our token holders will actually own the building. But all our tokenholders will be entitled to their fair share of the regular dividends from the cashflow the building generates.
While owning interest in a building instead of owning it outright might seem like a disadvantage, the opposite is true in the NYC real estate marketplace. NYCREC investors will benefit from most of the advantages of owning long-term property, with none of the day-to-day burdens of actual ownership.
The burden of ownership
Owning property comes with many responsibilities and downsides. To name a few:
- The burden of maintenance: as a property owner, you are in charge of keeping up your building. This means being at the beck and call of your tenants for every broken appliance. It also means dealing with the consequences of major damage either from tenants or other factors out of your control, such as flooding or a fire.
- Tenant risk: if a tenant fails to pay their rent or breaks their lease, you as the owner must be prepared to bear the cost of this loss.
- Concentration of assets: as the sole owner of a building, the value of the building most likely represents a significant portion of your net worth or a significant loan. This is a serious concentration of assets and less diversification can mean greater risk.
- Taxes and insurance: as a building owner, you are responsible for the taxes and insurance for that property, which can eat into your profits.
The BIG advantages of fractional ownership and interest
Fractional ownership, and subsequently fractional interest, on the other hand, relieves the burden of ownership while still offering most of the benefits:
- No maintenance: as a fractional owner with interest in a property, you are not responsible for the upkeep of the building.
- Less risk: as a fractional owner rather than a sole owner, you are also not on the hook for lost rent.
- Flexibility of assets: instead of tying your life savings to a single asset, you have the option of choosing how much to invest in real estate. This offers greater flexibility for keeping your investment portfolio diverse and secure.
- Dividends from rent and property value growth: the biggest benefit of fractional ownership is of course the fractional interest itself—you’ll have a stake in a real world, appreciable asset that generates dividends. You’ll get these dividends in the form of ETH airdrops.
A reliable return on your investment
How much fractional interest can you expect to make on your investment in NYCREC?
To give you a sense of the high-yield history of the New York City real estate market, consider this statistic: From 1974 to 2006, average real estate values across NYC increased by 250%.
Currently, the average price of a New York City apartment building is $2.2 million. Building values have nearly doubled in price from the average $1.4 million in 2007, an increase of nearly 60%.
For example, owners of Manhattan condos from 2010 to 2017 collected 2.5 to 3.9 percent of their purchase price in rental income annually. And that’s just for a single condo unit, minus the fees and property taxes that owners must pay.
As a fractional owner in an entire building, you won’t have to worry about taxes—but you will have a stake in a real world, appreciating asset purchased by the NYCREC team, a group of professionals with a track record of billions in real estate transactions.