Fractional real estate investing allows you to own a small slice of equity in residential or commercial properties, such as apartments or business parks.
Fred Lum/The Globe and Mail
A back door has opened for young adults who want to own property, but find themselves priced out of the market.
Fractional real estate investing on platforms such as BuyProperly and Addy allows you to own a small slice of equity in residential or commercial properties, such as apartments or business parks. You can’t live in these properties, but you can benefit if they’re sold later at a profit and receive a little rental income while you wait. You could also lose money if a property is sold for less than the purchase price.
Investing fractionally is officially a thing. Wealthsimple Trade lets you do it with a growing number of stocks, and it’s also possible to buy part ownership of art, stamps and royalties generated by music. But fractional real estate investing is by far the biggest breakthrough, both in helpful and unhelpful ways.
The positives are as much emotional as financial. You can invest successfully over a lifetime without direct property holdings, but a lot of money has been made in real estate lately and those who cannot afford to buy in are feeling the burn. Fractional real estate investing addresses this frustration.
But it also feeds a trend called the financialization of housing, or homes being treated as commodities and investments. Along with low interest rates and pandemic-driven lifestyle changes, the financialization of housing explains why home prices have risen so much.
We see financialization in the growing number of people who own multiple properties. Why sell your starter home to move up when you can own two properties? Another example is a Toronto condo developer, Core Development Group Ltd., buying single-family homes to rent out. Canada Mortgage and Housing Corp. recently created a Financialization of Housing Lab to study the trend.
BuyProperly is a fractional investing platform where you invest a minimum $2,500 in a house or condo unit and receive both a quarterly flow of rental income and the potential to profit when the property is sold.
“Fractional real estate investing is about buying shares of a house like you buy shares of a company, basically,” said Khushboo Jha, founder and chief executive officer of BuyProperly.
BuyProperly makes money by charging a fee pegged at 2.5 per cent of your upfront investment. Ms. Jha said that after applying this fee against rental income paid by tenants, you’re left with a return of 1 per cent to 2 per cent a year while you wait for a property to be sold.
With Addy, clients pay a $25 annual membership fee that allows them to invest as little as $1 in commercial properties such as apartment buildings and business parks, with a limit of $1,500 per property.
“Let’s say there’s an apartment building available in a neighbourhood and it cost $1-million,” Addy founder and CEO Michael Stephenson said. “Addy will buy it and then we’ll issue a million shares, each for $1, and anybody, including tenants in the building, can own a piece of the building.”
Money invested through BuyProperly is technically locked in for five years, but the company maintains a secondary market allowing people to sell before that. Addy’s lock-up periods range from three to 10 years, and there’s no means to sell your holdings in advance.
BuyProperly has about 300 investors who have bought into 11 or so deals in the past year, while Addy’s 7,000 or so investors have a stake in about 15 properties. Fractional real estate companies aren’t yet buying up enough properties to stoke demand and, in turn, prices. But that’s where we may be headed if the financialization of real estate spreads – more buyers chasing a limited supply.
Ms. Jha of BuyProperly disputed whether real estate being treated like a commodity is anything new. “I would say that real estate has always been a financial asset,” she said. “It’s just that it wasn’t available to regular people.”
BuyProperly clients divide into two main groups – young people in their 20s who aspire to buy a house in the future and people who already have a house and want to invest in a second property without making a big financial commitment.
Properties for sale on the site have been largely located in Ontario – in places such as Hamilton, the Niagara Region, London and Ottawa. Perhaps reflecting the impact of the financialization of housing, there’s nothing for sale right now in Toronto.
“We haven’t been able to zero in on anything in Toronto,” Ms. Jha said. “We would love to and customers would want to, but it doesn’t make sense, returns-wise.”
Coming soon: An investor’s take on fractional real estate, including fees and risks.
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TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
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