The Luxury Fractional Guide Blog

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What Is Fractional Ownership?

This is an addition to of a previous article titled “What is fractional ownership?”.

For those of you who aren’t sure what fractional ownership is, you’re going to love it.

Fractional ownership is when several unrelated individuals agree to purchase and share ownership of a tangible asset through a third party. For example, with real estate, this type of ownership allows everyone to hold a percentage of the title everyone pitches in to cover a percentage of the fees for maintenance and upkeep.   Property owners then visit the property for fun, vacations, or hold it as an investment.

When purchasing a percentage (in most states), you become tenant-in-common with the other owners. This gives each owner an “interest” in the same real property. This provides more buying power at a much lower cost and allows each person the ability to sell their share of the ownership without needing permission from the rest of the owners.

Vs. Timeshares

Chances are you or someone you know owns a timeshare. With the ability to enjoy a fun place to stay for vacations, without the added cost of a full mortgage, it’s no wonder that this option is so popular.

While timeshares have their perks, there are also some drawbacks. The main issue timeshare holders express is the consistently increasing cost of maintenance fees and the new point system many companies are now using in lieu of the traditional deed.  This means you own points, not property.   The points can also be complicated to understand and many timeshare owners do not get the vacation weeks they desire at their property.

Previously, the timeshare deed dictated when and what times the holder could occupy the timeshare. Now, however, more corporations are moving toward a system where each holder is provided a set number of points. They are then able to cash in to pay for days in the timeshare and other amenities. This switch is causing planning issues, as this method does away with pre-assigned occupation periods.

These issues, along with a few others, are why more people are choosing fractional ownership as opposed to a conventional timeshare.

Since you are an owner of the property itself with fractional ownership, rather than simply a guest with the ability to use the luxury goods, you can use it for much longer periods and have more say in how the property is run, the interior design, how often you go, and more.  A prime example is that in most timeshares, guests purchase accommodations for anywhere from 1-3 weeks per year, yet fractional owners can occupy their vacation homes for anywhere from 1-6 months per year.

Vs. Full 2nd Home Ownership

People love to vacation and travel, but with the average person only using their vacation home 17-30 days every year, it hardly makes sense to purchase the home as its sole owner. By allowing a partnership to buy the property, and sharing in its occupancy and upkeep, you get all the perks of a relaxing vacation home with less personal expense. In addition to lower costs, as an owner, you are also entitled to your percentage of any appreciation the item may garner.

Unlike with a timeshare, there is no set amount of time you must occupy the property per year, nor is there a limit on the time you can spend visiting or using the item you hold partial ownership in. If you’d like to use an item, like a vacation home or yacht, you only need to check the occupation schedule to ensure it’s not currently in use.

Renters Not Required

Not only does is this type of arrangement work perfectly for those looking to diversify their portfolio, but it can also be done at a fraction of the cost. Unlike a traditional vacation home, these do not need to be rented out to vacationers in between visits to help offset costs – since the costs are shared, they are low for each owner.

Vacation Home Ownership Diversification

If you’re looking for a potential return on your investment, plus the added benefit of multiple vacation homes, having fractional ownership  in different locations is an excellent way to make your dollars stretch. Since each person is only paying a percentage of the purchase price of each piece of property, there is ample room to expand your return by taking extra allotted funds and investing those in separate items or homes as well.

By having different types of places in desirable vacation locations, you can vacation for weeks on end in a variety of locations each year.

Final Thoughts

Fractional ownership is a great way to help offset costs if you are considering purchasing a vacation home. With the tremendous rental potential and the ability to sell your fraction later makes this option perfect for investors looking for something fresh and new.

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