What Happens If I Want to Get Out of My Fractional Ownership?
By Karla Jones | Owner, Luxury Fractional Guide
Today’s Question
“What happens if I buy a fractional ownership share and someday want to get sell?”
It’s one of the most important questions to ask before buying a fractional.
Most buyers start with the fun stuff. How many weeks do I get? Who gets the holidays? How does the reservation system work? What will my annual expenses be?
But if you’re considering putting $100,000, $200,000 or considerably more into a vacation home, you want to know what happens when life changes and you either need to sell or want to reduce your ownership stake.
I know this firsthand because it happened in my own 30A, Florida co-
ownership.
My 30A Co-Ownership Faced a Real-Life Exit Test
In 2021, five of us purchased a four-bedroom vacation home together on Florida’s 30A for $1.125 million. Each of us initially owned a 1/5th interest through an LLC.
My life partner and I owned one of the 1/5th interests together. After he passed away from cancer, I found myself looking at our share very differently. The home had been something we owned and enjoyed together, and I decided I no longer wanted to keep the entire 1/5th interest on my own.
That created a very real question: What happens when life changes, but you don’t necessarily
want to sell your entire interest?
In my case, I wanted to keep part of my ownership while selling the other half of our share.
Fortunately, there was a natural buyer within our existing group. Another couple who owned a 1/5th interest had a family member who wanted to join the ownership. The owner’ s sister and her
husband purchased half of my interest, effectively turning my original 1/5th ownership into two 1/10th shares.
At the time, the home was valued at $1.4 million. Ten percent of $1.4 million is $140,000, so they paid $140,000 for their 1/10th interest.
It was a good outcome for everyone. I reduced my ownership rather than leaving completely, they became owners in a home and group their family already knew, and the other owners didn’t have to sell the property because my circumstances had changed.
Understand Your Exit Strategy Before You Buy
My experience reinforced something I think every fractional buyer should understand before purchasing: your exit strategy matters just as much as your entry strategy.
Start by finding out what kind of exit structure you’re buying into. Does the co-ownership have a defined term and an eventual plan for selling the entire property? Or does the ownership continue indefinitely, with each owner responsible for selling their individual share when they’re ready to leave?
And what happens to your share if you die? Can your ownership be transferred to your spouse, children or other beneficiaries through your estate plan, and what do the governing documents require?
My own 30A, FL co-ownership has an eight-year term. At the end of that period, our governing documents establish a process for the owners to decide whether to continue the co-ownership or
sell the home, with each co-owner receiving their proportionate share of the proceeds.
We also have the ability to sell an individual interest before then. That’s what allowed me to sell half of my 1/5th interest while keeping a 1/10th share for myself. Not every co-ownership will allow an owner to divide a share that way.
Many established fractionals and residence clubs don’t have a predetermined end date. Instead, the ownership continues and shares are resold as individual owners decide to leave. Many of these resales are handled by local real estate brokers familiar with the property.
So don’t stop at asking, “Can I resell my fractional?”
Ask how the resale process actually works. Can you sell whenever you choose? Can you sell only part of your interest? Do the other owners have a right of first refusal? Who typically handles resales? Is there a defined date when the entire property may be sold?
These questions aren’t nearly as exciting as choosing the home or figuring out which weeks you’ll get each year. But when life changes, they may turn out to be some of the most important questions you asked before buying.
What Will My Fractional Share Be Worth?
This is another question where buyers need realistic expectations.
In my 30A, FL transaction, the math was straightforward. The home was valued at $1.4 million and the new owners paid $140,000 for a 10% interest.
I wouldn’t assume every fractional resale will work exactly that way.
A fractional share still needs a willing buyer. The value of the underlying home certainly matters, but so can the desirability of the destination, annual operating expenses, condition of the property, reservation system, remaining ownership term, governing documents and demand for that particular fractional.
That’s one reason I don’t recommend buying fractional real estate primarily because you expect it to appreciate. You’re buying real estate, but you’re also buying years of use and enjoyment of a vacation home.
If the property appreciates and that appreciation is reflected when you eventually sell your interest, that’s a nice benefit. I just wouldn’t make appreciation the reason you buy.
What About Reselling a Private Residence Club or Developer
Fractional?
The resale process can be different when you’re buying into an established residence club or developer fractional rather than a small private co-ownership.
Some properties have an established resale process. Others require the owner to find a buyer, often with the help of a local real estate broker. There may also be transfer fees, rights of first refusal or other restrictions.
When possible, I’d ask about actual resale history. Have shares resold? How long have they taken to sell? What have recent resales sold for compared with their original purchase prices?
Those answers tell you much more than simply hearing, “Yes, you can sell your share.”
What Should You Ask Before Buying?
Before I purchased a fractional interest, I’d want clear answers to these questions:
- Can I sell my interest whenever I choose?
- Can I sell only part of my ownership?
- Do the other owners have a right of first refusal?
- Are there restrictions on who can buy my share?
- How is the value of my interest determined?
- Who is responsible for finding a buyer?
- Are there transfer fees or other costs when I sell?
- What happens to my ownership if I die?
- Does the co-ownership have a defined end date?
- What happens when that date arrives?
- What percentage of owners is required to sell the entire property?
Most importantly, I want those answers in the governing documents. A verbal explanation of how an exit is supposed to work isn’t enough when you’re making a significant real estate purchase.
The Bottom Line
I still own a 1/10th share of our 30A, Florida home today.
When my life partner passed away from cancer, I wasn’t thinking about an “exit strategy.” I was dealing with the loss of someone I loved and figuring out what I wanted my life to look like going forward.
I ultimately realized I didn’t want to own our entire share by myself, but I didn’t want to give up the home either. Fortunately, our co-ownership structure gave me another choice.
That’s why my advice to fractional buyers today comes from more than simply reviewing operating agreements or studying resale provisions. I’ve lived through a life change that required our ownership structure to work when we needed it to.
Before you buy, understand how you can sell your share, whether you can sell only part of it, what happens to the property eventually, and what happens to your ownership if you want to leave it to your family through your estate plan.
You may not need any of those provisions for years. But life changes, sometimes in ways we never expect. A well-structured co-ownership should have a plan for when it does.
If you’re considering a fractional and aren’t sure what the resale or estate provisions actually mean, I’d be happy to help you think through the questions you should be asking before you buy.