New properties, NFT platforms drive increase in fractional investment

From the GameStop saga of 2021 to the massive swings in cryptocurrency during the pandemic, the early part of the decade has seen the rise of retail investors as a powerful force within the financial markets.

In almost all countries around the world, non-professional traders make up a larger proportion of speculative investors. According to Jefferies, retail has almost doubled over the past 12 years, accounting for 44% of transactions – up from 25% in 2009.

While retail investment had been growing for decades, the stimulus checks and free money issued by governments during the height of the Covid-19 lockdowns drove retail sales to new heights.

But the retail trend has also gained traction from another unlikely source – fractional investing. In recent years, new platforms have emerged that allow ordinary people to buy assets that previously seemed unattainable.

From real estate, to digital assets, to art, fractional trading is reshaping entire industries and revolutionizing the way the world invests.

What is Fractional Investment?

Fractional ownership is a process where investors can buy a percentage of an asset. Although these assets are usually physical objects, they can also be extended to non-physical objects such as NFTs or shares of stock.

Through fractional ownership, unrelated parties can share the benefits of high-value elements such as rights of use, revenue sharing, priority access and reduced prices (in the case of real estate).

Finally, fractional investing is less expensive and offers less risk, but also comes with less reward.

Partial investment in property

Fractional ownership in property has been in place for the past 30 years, supported by the development of timeshare in the 1970s.

With a timeshare, also known as a vacation ownership, willing buyers can pay a lump sum up front (plus annual maintenance fees) to use a property for a pre-selected time of their choosing.

Timeshare grew in popularity until the 1990s, but demand for the properties declined with the rise of home-sharing platforms such as Airbnb ( ABNB ) and Vrbo ( VRBO ).

Arrived home

New technology has since revived the practice of fractional ownership. In 2021, a new real estate investment platform called Arrived Homes was launched, allowing buyers to purchase shares of rental homes and vacation rentals.

Once these shares are purchased (minimum investment is $100), investors can earn rental income and appreciation from the properties – all while the actual landlord responsibilities are handled by the Arrived Property management team.

Arrived differs from a timeshare in that buyers own a share of property himself and is issued a deed for the property, not one time that they can use the home.

At the appropriate time, Arrived sells the property and distributes the proceeds to the fractional owners.

So far, Jeff Bezos-backed Arrived Homes has currently fully funded 179 properties worth an estimated $65 million.

Fractional investment in NFTs

Non-fungible tokens (NFTs) have also benefited from the rise of fractional investments. When the NFT market first started to take off around 2020, many NFT enthusiasts felt priced out of top collections.

All this changed in early 2021 when Fractional.art was founded with the goal of democratizing the NFT process and allowing small and medium-sized investors access to high-profile NFT series.

Currently, Fractional serves as a protocol that enables the collective ownership and governance of NFTs ranging from CryptoPunks to the Bored Ape Yacht Club.

The company recently announced that it is rebranding to Tessera, and it also disclosed a $20 million funding round led by crypto-native investment giant Paradigm that closed earlier this summer.

Doge meme

One of the most famous examples of a fractional NFT occurred after a buyer under the name PleasrDAO purchased the iconic “Doge” meme which led to the creation of the meme cryptocurrency Dogecoin.

After purchasing the NFT for $4 million in June 2021, the buyer immediately fractionated the piece on Fractional.art, sharing the original 17 billion times.

Today, NFTs are valued at several hundred million dollars, with individual slices selling for pennies.

Cryptocurrency

Cryptocurrencies such as Bitcoin and Ethereum can also be fractionated. Although these assets are fungible, meaning each token is the same and therefore fungible, major crypto exchanges such as Kraken and Coinbase allow investors to buy fractions of an individual coin.

Partial investment in art

For centuries, the art world has seemed impervious to fractional investment due to the exclusivity of the space, the low resale rate of purchased artwork, and the lack of technology that can make the process achievable.

Indeed, investing in art has largely been a pastime for high-net-worth individuals who can afford to take huge risks, with most experts advising retail investors to steer clear of the space.

However, the rise of companies such as Masterworks and Otis has allowed consumers to purchase shares in works of art or unique collectibles in a way that was never before available.

Like Arrived Homes, these sites have acquisition teams that find and select the best examples of artwork to offer their members.

After paying the site an administration fee (usually around 1.5%), users are free to buy and sell shares of artwork much like on a stock trading platform.

Partial investment in shares

Previously, traditional stock market investments were limited to whole shares in companies. Blue-chip stocks such as Google, Apple and Microsoft were off limits to retail traders because the individual share prices of these companies could often reach thousands of dollars.

Today, many online brokerage platforms sell fractional shares, including Fidelity, Charles Schwab, and Robinhood. Other investment apps such as Stash, Cash App Investing and SoFi Invest also offer fractional shares.

Even a few robo-advisors, like Acorns and Betterment, can buy fractional shares for users’ portfolios.

While fractional share trading is now widely available, most sites have a minimum purchase amount to fractionalize shares. Depending on the brokerage, it may be necessary to purchase at least $1 or up to $5 worth of fractional shares to complete the transaction.