Frequently asked questions

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About Fractional

What services does Fractional provide?

A. Co-owner matching:

  • Fractional matches you with other compatible investors to co-purchase a property.
  • B. Entity formation:
  • Fractional sets up an LLC in the state of the property. Fractional handles filing of paperwork, obtaining an EIN, and issuing K-1s.
  • C. LLC Operating Agreement:
  • Fractional’s governance model aligns all co-owners on handling scenarios such as ownership transfers, voting procedures, repairs, and expenses.
  • D. Financing:
  • Fractional’s lending partners provide short-term and long-term loans for LLC-owned property.
  • E. Banking:
  • Fractional creates a bank account for the LLC and supports deposits, rental distributions, expense withdrawals, and a reserve for the property.
  • F. Property closing:
  • A Fractional agent partner will make an offer, work through the due diligence process, and successfully close the property.
Who is Fractional for?

Fractional is for everyone - from novice investors to real estate gurus and everyone in between. Fractional is designed to make real estate investing intuitive, inclusive, and collaborative.

Co-Management

How much will I need to interact with other co-owners?

As little or as much as you'd like to. Some investors have a hands-on management style, while others take a more relaxed approach.

What happens if co-owners have differing opinions for repairs and remodels?

Fractional appraises the increase in home value and rent for optional and expensive repairs and remodels. Co-owners who choose to fund repairs and remodels will receive more upside based on the appraisals.

Fractional Vs. Other Options

Fractional vs. Organizing your own group

Fractional saves you money: on average, we save investors 25% of their normal costs. We also save you time: our investors automatically access the best real estate agents, attorneys, and property management companies. Lastly, Fractional guides you through the entire investment and ownership process.

Fractional vs. REITs and Crowdfunding Platforms

Fractional gives you all the benefits of direct ownership. At Fractional, investors have ultimate control and can sell on their own timeline. We provide higher returns through significant tax benefits and no annual fees. Private REITs and crowdfunding platforms lock you in for long hold periods. You can lose 40% or more of your annual rental income due to annual fees and taxes on other platforms. Lastly, dividends distributed from REITs and crowdfunding platforms are subject to ordinary income tax and cannot be written off with expenses and standard rental property depreciation deductions

Group Formation

Can I use Fractional to invest with my own group of family and friends?

Absolutely! If you invest with a pre-formed group, we will provide a 25% discount on all Fractional fees.

Do I have to come to Fractional with a group formed?

No! We will use data collected from the onboarding process to match you or your group with other like-minded investors

Mortgage Financing

Can I get a mortgage for purchasing a fraction of a property?

Yes! Fractional’s lending partners can provide mortgages for LLC-owned rental properties. Interest rates and required down payment amounts will vary based on the location, property type, and loan type.

Can I get my own conventional loan if I co-purchase with family and friends?

You’re welcome to bring your own conventional lender. However, note that all co-borrowers on the mortgage are wholly responsible for the entire debt. For example, even though you only own 25% of the property, you are still responsible for 100% of the debt.

Offer, Due Diligence, Negotiation Process

Are Fractional offers guaranteed?

Like any traditional or corporate buyer on the market, Fractional offers are not guaranteed. Don’t fret, our modeling strategies create competitive, appealing, and fair offers. We haven’t had issues finding our customers the perfect investment property!

Are properties on the Fractional Marketplace vetted?

Our users and real estate partners submit properties onto the Fractional Marketplace. Then, we leverage multiple data providers to present financial estimations and risks (hazard, flood, earthquake zones, vacancy rates, etc.) on each property.

Pricing

Does Fractional’s monthly service fee include property management?

Fractional’s service fee applies towards the banking, ledger, and distribution services provided. It does not include property management.

  • However, Fractional's property management partners provide discounts for all Fractional users. They only charge 6% of the monthly rent instead of the standard 8-12%. Our partners also offer a year of eviction services for free.
How does Fractional make money?

Fractional charges:

  • A. One-time fee - 3.5% of the property’s closing price.
  • B. Recurring monthly service fee - 2% of the rent. Purchasing a short-term rental or larger portfolio of more than 20 units? Contact our team for our commercial pricing package.

Property Types and Markets

Can I use Fractional for a property that is not on the Marketplace?

Yes! You can submit properties to be added to the Marketplace through https://www.fractional.app/marketplace. If the property is in an area we do not currently support, you will need to choose a realtor and property management company to invest in the property.

What types of real estate does Fractional support?

Fractional currently supports residential and multi-family commercial real estate, from a single-family, to a duplex, up through a multi-hundred unit apartment building.

Qualifications

Do I need to be an accredited investor to use Fractional?

No.

How do I qualify for Fractional?

We consider your income, assets, credit score, and debt in our qualification process. We only perform a soft credit check, which will not impact your credit score.

  • Our process adds assurance to all co-owners that they are only investing with equally qualified individuals.

Rental Income

How much will I be paid?

Your rental income amount is based on your percentage ownership of the property. For example, if you own 10% of the property, you will receive 10% of rental income less expenses.

How will rental income be distributed to investors?

Rental income distributions are directly deposited via ACH transfers to your bank account.

Risks and Liability

What happens to my investment if Fractional shuts down?

Your investment will not be impacted as you are the true owner of the property. Co-owners can choose to continue managing the property together, or sell the property to unwind the investment partnership.

What types of insurance are acquired for the property?

Standard property insurance acquired will cover the most important liability-related aspects and provide coverage for damages caused by fire, flooding, theft, weather, and other risks.

  • Renters insurance will be required for tenants

Selling

How are my shares priced when I sell?

We use a third-party appraiser and leverage comps from multiple data sources to determine the fair market value of the property at the time you wish to sell your shares.

  • Your shares’ worth are pro-rata to the fair market value of the property.
How can I sell my shares of the property?

There are three ways you can sell, any time you want:

  1. Sell back to Fractional at 80% of fair market value at that time. For example, if you owned 25% of a property with a FMV of $200,000, you can exit at $200,000 x 25% x 80% = $40,000.
  2. Sell to other investors on the Fractional Secondary Marketplace with a 5% transfer fee.
  3. Sell the entire property upon approval from co-owners.

Taxes

Do Fractional investments have greater tax benefits compared to REITs?

Absolutely. Fractional’s direct ownership model enables all co-owners to defer their taxable income (through expenses and standard rental property depreciation deductions) and defer their capital gains taxes (through the 1031 Exchange).

  • With REITs, you are unable to leverage any of the above tax benefits
Do Fractional investments qualify for the 1031 Exchange?

Yes! This allows you to defer paying capital gains taxes when you sell an investment property if you reinvest the proceeds from the sale in a property of equal or greater value within a specific time period.

Title

How is title held?

An LLC in the state of the property is set up to hold title to the property. Co-owners are members of the LLC, with Fractional as an administrator.