Fractions Are Not Enough of an Answer to Divisions

Fractions Are Not Enough of an Answer to Divisions

I reported about Fractional’s debut last week, a firm that aims to make it simpler for friends (and strangers) to co-own real estate. While working at Affirm, the buy now, pay later behemoth, Stella Han and Carlos Trevio connected over their similar heritage of growing up in real estate families. 

The duo’s firsthand knowledge of the arduous time commitment and significant expenditures that come with owning real estate, however, conflicted with Affirm’s aim of “pay at your own speed,” which sparked the concept for Fractional.

In my article, I go into further detail about Fractional’s product and recent fundraising, but today I would want to focus on a portion of my conversation with Han, the co-founder, that has resonated with me. During our phone conversation, we discussed how the future of alternative investment would build on on-ramping people into long-exclusive asset classes, such as private equity, art ownership, and now real estate. 

While decreasing the entrance check size is important – it is one of Fractional’s selling points — the social side is also important. Can you effectively teach a group of people about the benefits of investing in a house rather than an index fund? Is it possible to “disrupt” the hesitancy to start a business with friends?

Can you plan for life’s unexpected twists and turns, such as a member of your investment group who wants to liquidate their holdings sooner rather than later? These are all far more intriguing and difficult problems to address than the practical issue of making house ownership more accessible. I am hoping that fractional will make it more collaborative.

So far, Fractional’s approach to planning for the unexpected appears to be typical curating. Han added that they are forming investing communities around certain properties in order to bring like-minded people together. “It makes no sense for someone who wants to sell a house in a year vs someone who wants to hold for five years,” she explained. 

The business is beginning to assuage early worries by removing key fundamental differences up front and then enlisting the help of attorneys. Still, like with any firm giving access to a new asset, the startup’s biggest challenge will be governance and setting clear expectations.