Fractional Ownership: How To Use Your Friend Group To Get Rich

How to Invest With Less Risk

Investing can be intimidating, especially if you're just starting out and don't have a lot of money.

Fractional ownership offers a way to make money with less risk by pooling resources with friends or acquaintances.

This method allows you to share in the ownership of high value assets like real estate, vacation properties, or even expensive equipment.

Here’s how you and your friends can get started.

What is Fractional Ownership?

Fractional ownership is when multiple people own a fraction, or a part, of a high value asset.

This means you don't need to come up with a huge amount of money to buy something valuable.

Instead, you and your friends can each contribute a smaller amount of money to collectively own the asset.

For instance, instead of needing $100,000 for a property, ten people can each contribute $10,000.

Also, since putting all your money into one thing can be risky, fractional ownership lets you spread your money across different investments, reducing your overall risk.

How to Get Started

1. Identify Interested Parties:

Begin by identifying a group of friends or acquaintances who share an interest in investing.

Look for individuals who are financially stable, trustworthy, and have a similar investment philosophy.

Diversifying the group with members who have different expertise (e.g., finance, law, real estate) can be beneficial.

2. Align Goals and Investment Amounts:

Hold a series of meetings to discuss and agree on the group’s investment goals.

Are you looking for long-term capital appreciation, regular income, or a combination of both?

Once the goals are clear, determine the amount each member is willing to invest. Ensure transparency in these discussions to avoid future conflicts.

3. Set Up Communication Channels:

Establish regular communication channels and meeting schedules. Use tools like Slack or WhatsApp for ongoing discussions and Zoom for detailed meetings.

Document all decisions and agreements to maintain clarity and accountability.

Identifying the Right Investment

1. Decide on the Investment Type:

The type of asset you choose will depend on your group’s goals. Popular options include:

- Real Estate: Residential or commercial properties, vacation rentals.

- Alternative Investments: Items like expensive equipment (e.g., batting cages, yachts), collectibles (art, wine), or other income-generating assets.

2. Utilize Fractional Ownership Platforms:

Leverage platforms designed for fractional ownership:

- Fundrise: Specializes in real estate investments, offering a range of options from residential to commercial properties.

- Yieldstreet: Provides access to various alternative investments, including real estate, art, marine assets, and more.

3. Conduct Thorough Research:

Investigate the potential asset thoroughly. For real estate, consider location, market trends, and property management requirements. For other assets, understand the maintenance costs, potential income, and resale value. Use resources like market reports, expert opinions, and financial analyses to inform your decision.

Structuring Your Investment

1. Draft a Partnership Agreement:

Create a detailed partnership agreement that outlines:

- Investment Contributions: Specify the amount each member is investing.

- Ownership Shares: Define how ownership is divided based on contributions.

- Roles and Responsibilities: Assign roles such as managing the property, handling finances, and making investment decisions.

- Decision-Making Process: Establish a process for making decisions, such as requiring a majority or unanimous vote for significant actions.

2. Consult Professionals:

Engage a financial advisor and a lawyer to ensure that your setup is legally sound and financially prudent. They can help draft the partnership agreement, set up a legal entity (e.g., LLC), and provide advice on tax implications and liability protection.

3. Open a Joint Bank Account:

Set up a joint bank account for all transactions related to the investment. This ensures transparency and accountability. All income from the investment should be deposited here, and all expenses should be paid from this account.

1. Case Study - Real Estate:

According to a report by Fundrise, fractional ownership of real estate has seen an average annual return of 8-12% over the past five years.

Consider the example of a group of friends who pooled their resources to purchase a vacation rental in Florida.

They used Fundrise to identify a lucrative property and worked with a local property management company to handle day-to-day operations.

This investment not only provided them with a steady income but also gave them a vacation spot they could use.

2. Fractional Ownership of a Yacht:

Another example is a group of 5 friends who bought a small party yacht together.

They used a fractional ownership platform to manage the purchase and maintenance.

Each member is responsible for the yacht for two months of the year, and they share the revenue from renting it out during peak seasons.

The BMM Takeaway

By carefully selecting your group, thoroughly researching potential investments, and setting up a solid legal and financial framework, you can successfully engage in fractional ownership.

This method of investing allows you to access assets that might otherwise be out of reach, diversify your portfolio, and potentially achieve significant financial returns.

Taking these detailed steps ensures that your investment journey is well-planned and executed, providing value and security for all involved.

With the right approach, fractional ownership can be a rewarding venture, both financially and personally.