B
enzinga and Yahoo Finance may earn commission or revenue through links below. Traditional rental home buying requires significant cash, a mortgage, and tenant management. Fractional real estate investing offers an alternative model, allowing investors to buy small shares of a property and receive a portion of the rental income and appreciation in value over time, according to Forbes.

    Platforms like Arrived Homes purchase single-family homes using funds from multiple investors, handling all property operations including tenant screening, rent collection, and maintenance. Investors simply own shares and receive their portion of the income, similar to how robo-advisors transformed stock investing by automating research and management.

    Fractional investing lowers the barrier to entry for real estate, allowing investors to participate with less money than a down payment or mortgage. They may also receive tax benefits like depreciation and expense deductions proportional to their share. However, investors should consider key factors before choosing this approach.

    Returns from fractional ownership are typically similar to savings accounts or treasury bonds, requiring long holding periods of five to seven years, according to Strand Capital's Daniel Erb. Fees can be significant, including asset management and acquisition costs that reduce returns. Critics argue that fractional platforms add competition for single-family homes, driving up prices in certain markets.

    Fractional real estate investing works well for patient investors who want to diversify beyond stocks and bonds without landlord responsibilities. As Harmer Wealth Management's Chad Harmer notes, "You get to brag about being a landlord without ever fixing a leaky faucet."