When we think and talk about investing, we tend to focus on stocks, bonds, and real estate. The ultra-wealthy talk about those as well, but they also include art, classic cars, yachts, jets, and Rolex watches in those discussions. Now, thanks to a Securities and Exchange Commission (SEC) rule change and the advent of fractional share ownership, seemingly everyone else can too.
Fractional ownership is simply a percentage ownership in an asset. Fractional ownership shares are sold to individual shareholders who share the benefits of the asset such as usage rights, income sharing, and more importantly for most investors, a chance to capture price appreciation.
In 2015, the SEC increased the amount that firms could raise in “mini” initial public offerings to $50 million. These are open to the public, not just “accredited” (high net worth) investors, granting all the opportunity to make seemingly anything investable.
If you've watched Jerry Seinfeld's Comedians in Cars Getting Coffee and thought it would be fun to own a classic car like one of the ones he drives, now you can. RallyRd created a trading platform that mimics the major stock market exchanges, like NASDAQ and the NYSE. It started with cars, but now offers all kinds of alternative assets, from an original Shakespeare text to a 1969 Apollo 11 crew-signed New York Times cover.
Each collectible purchased by Rally is placed in its own mini-company, which is split into equity shares. These shares are then made available for sale to investors. Rally investments are subject to Securities and Exchange Commission (SEC) regulations and are reviewed and vetted by a FINRA-registered broker-dealer to make transactions as transparent as possible.
Unfortunately, owners don't get to drive the cars or display the sports cards, but they can visit the showroom in NYC. And just in time for the Fourth, a current offering is an original copy of the Declaration of Independence at $25 share.
Masterworks has a similar model for art. Since its founding in 2017, Masterworks has bought more than $150 million in paintings by artists like Banksy, Kaws, and Basquiat. According to its website, blue-chip art has outperformed the S&P 500 by 180 percent from 2000–2018. Deloitte estimates the total value of art to be $1.7 trillion.
There are two ways an investor can profit on the platform once a share purchase is made. The first is to sell shares to another investor on an approved trading platform. The second is that an outside collector can make an offer to purchase a painting from investors, where they can vote on whether to sell.
If pop culture is more your style, look no further than Otis, which bills itself as the stock market of culture. The Air Jordan's Michael wore when he shattered a backboard on a dunk? Make a bid. A first issue X-Men comic book from 1963? It's here too.
Otis does all the work of maintaining, storing, sourcing, analyzing, and securitizing each investment in-house. All investments are stored in a museum quality storage facility at UOVO Fine Art in Orangeburg, NY, and insured by Aspen American Insurance Company.
Fractional ownership works well with real estate, where few have the large down payments available to access the real-estate investing game.
Most people think of timeshares as fractional ownership, but with a timeshare, you don't own the property, you just have use of it on a pre-determined schedule. With Roofstock One and Fundrise, you are an actual owner of the property garnering all the benefits (and potential pitfalls) of being a landlord.
Roofstock focuses on individual rental properties. For as little as $5,000, you can invest in residential rental real estate. Purchase shares in an individual rental home to collect rent without operating responsibilities. One of the best features of Roofstock One is the ability to diversify your rental house investments across multiple geographic areas with small initial investments. This concept is great because you gain access to a quality asset class without a significant financial commitment.
Fundraise focuses on commercial properties. Their website gives an excellent overview of different investor levels and plans. For $500, you can invest in the ‘Starter Portfolio’ and begin choosing your investments. They have three different plans, the Supplemental Income, Balanced Investing, and Log-Term Growth plan. These three plans are structured differently to offer varying degrees of dividends, appreciation, and total return.
The company has invested more than $2.5 billion in real estate around the country, from apartments to commercial property. It has returned anywhere from 8 to 12 percent annually going back to 2014. It would be almost impossible for a small investor to create this type of diversification on their own.
If owning a building seems like too much, Acretrader allows you to buy farmland. Investors purchase shares in the entity that owns a farm via the website. Each farm is divided into 1/10 of an acre. You can buy as many pieces of each farm as you like. Acretrader claims that alongside a rapidly growing global population and demand for food, farmland offers a truly diversified investment opportunity with attractive long-term returns.
Now some of you may want to invest in something and not have a partial ownership. StockX may be for you. It is an online marketplace and clothing reseller, primarily of sneakers, but they also have watches, electronics, and trading cards. Sellers send purchased items to StockX facilities for inspection and verification, then authenticated products are shipped to buyers. They feature a "stock market-like" variable pricing framework and discloses price histories for specific items.
I have my eye on the Nike x Drake Certified Lover Boy Hat.