Fractional real estate investing—owning slices of properties through platforms like Arrived, Fintor, Landa, or tokenized platforms like RealT and Lofty—exploded in popularity between 2023 and 2025. Retail investors can now buy shares of single-family rentals or commercial buildings for as little as $100, receiving pro-rata rent and appreciation. The marketing is seductive: “own real estate without the landlord headaches.” But after fees, illiquidity, and hidden risks, the math is far less compelling than advertised for most investors.
The primary appeal is accessibility and diversification. Traditional real estate required $50,000–$200,000 down payments plus ongoing management. Fractional platforms let you build a geographically diversified portfolio across dozens of properties with minimal capital. Rent is deposited quarterly or monthly, and some platforms handle all tenant issues, repairs, and even eventual sale.
However, fees erode returns significantly. Typical structures include 0.5–2% annual management fees, 1–3% acquisition fees, 8–20% carried interest on profits, and sometimes 1% disposition fees. A property returning 8% gross (5% cash-on-cash + 3% appreciation) might deliver only 4–5% net to investors after all layers. That barely beats inflation and lags broad stock market returns.
Liquidity is the second major drawback. Most platforms promise secondary markets or quarterly redemption windows, but these routinely restrict or suspend redemptions during downturns—exactly when investors want out most. Tokenized platforms using blockchain offer better transferability, but regulatory uncertainty (SEC scrutiny of many real estate tokens as unregistered securities) creates overhang.
Property selection bias is rampant. Platforms showcase trophy properties with polished pro formas, but the average quality is often lower than institutional buyers would accept. Many fractional deals are properties that couldn’t sell traditionally or were rejected by larger investors. Underwriting standards vary dramatically between platforms.
Tax treatment is another gotcha. Unlike direct ownership or REITs, many fractional investments are structured as LLCs flowing K-1s with depreciation, creating complexity and sometimes phantom income. Tokenized properties may trigger self-employment tax on rental income in certain structures.
Sponsor incentives are frequently misaligned. Many platforms earn most revenue from transaction fees rather than long-term performance, encouraging high turnover. Carried interest structures mean sponsors only make big money if properties are sold at huge profits, creating pressure to flip rather than hold through cycles.
Direct comparison to alternatives is damning. Publicly traded REITs offer daily liquidity, professional management, and similar yields with no K-1 hassle. A $100,000 portfolioody into Vanguard’s VNQ REIT ETF historically returned ~9% annualized with lower volatility than direct real estate. Private REITs like Fundrise or RealtyMogul charge lower fees and provide quarterly liquidity.
The exception where fractional shines is ultra-high-net-worth diversification into property types otherwise inaccessible—Class A office, luxury vacation rentals, or industrial warehouses. But for 99% of retail investors, the combination of high fees, poor liquidity, and mediocre underlying assets makes most fractional platforms a marketing triumph rather than an investment one.
Savvy investors who still want real estate exposure are better served house-hacking a duplex, partnering with experienced operators on syndicated deals with transparent terms, or simply buying leveraged physical property in appreciating markets. The landlord headaches are real, but so are the returns when you control the asset directly.