What is Fractional Ownership of Real Estate?
A vacation home is an ultimate dream for many people, but with rising house prices and soaring interest rates, it’s becoming increasingly unattainable for most Americans. Fortunately, there are other options. If you’re considering fractional ownership, learn more about what it means, the advantages and disadvantages, and what legal concerns you should think about.
Looking for a real estate lawyer? Evans Law is here to help. Call our firm at 410-626-6009 to get started.
An Overview of Fractional Ownership
Basically, fractional ownership means owning a portion of a piece of real estate. This makes property ownership more accessible, as rather than absorbing 100% of the expenses, you share them with multiple other people.
You might wonder how this is different from a timeshare. While the usage benefits of a timeshare are similar—using the property at certain points of the year, enjoying shared upkeep expenses, and easy booking—the ownership model is entirely different.
When you purchase a timeshare, you are purchasing the right to use the property for one or more weeks per year, depending on the deal you sign. You never actually own part of the property, nor does your share of it appreciate with time. With fractional ownership, you do own a percentage of the property.
The Benefits of Fractional Ownership
There are numerous benefits you enjoy when you choose to enter a fractional ownership agreement. They include:
- Ownership: Unlike timeshares, you actually have deeded ownership of the property when you opt for fractional ownership. While multiple other people also own the property, your share is an asset that you can include in your estate planning and benefit financially from.
- Fewer owners than other shared arrangements: Timeshares often allow users to visit one week per month. This means that the same property may have 52 “owners.” Most fractional ownership agreements limit the number of owners to make it easier to negotiate important decisions and allow all owners substantial access to the property.
- Flexible usage of the property: Rather than only being allowed one preselected week per year, you can probably spend multiple weeks per year at the vacation home. This depends on the number of owners and the agreements that you sign.
- Value increases with the real estate market: Timeshare value does not fluctuate with the market, and in fact, timeshares tend to be incredibly difficult to sell or offload. When you actually own part of a property, your investment increases and decreases with the market.
- Property expenses split amongst owners: Cleaning, food storage, security, and other ownership expenses are split between the owners. This preserves the property’s value at a minimal cost to the owners.
- Grants access to expensive vacation areas: Fractional ownership allows many to own property in a place that would otherwise be completely inaccessible to them. You get to enjoy your favorite vacation destination without the burden of full ownership of a property.
- Potential for income stream: If there are weeks that the owners do not want to use the property, they may use a property management team to rent it out. All of the owners can earn a little extra income from these arrangements.
Drawbacks of This Arrangement
No real estate deal is without its disadvantages. The drawbacks of fractional ownership include:
- More expensive than other options: While fractional ownership offers more benefits than timeshares, it is also much more expensive than a timeshare/
- Costs can be excessive for some: The annual upkeep costs are split among owners, but they still might be too high for some owners to afford. This is something to consider when budgeting for a vacation home purchase.
- Shared ownership can be difficult: Decisions regarding decor, renting out the property, and allowing family members to use the property must be agreed upon by the owners. The more owners you add to the equation, the more difficult this is.
- Selling your share can be challenging: There is less of a market for partial ownership of a home than for entire homes. If you opt to sell, you may be waiting a while for the right buyer.
Contact Evans Law to Discuss Your Real Estate Legal Needs
Whether you’re considering purchasing an entire vacation home or exploring fractional ownership options, you must protect yourself legally throughout the process. Let us help. Call Evans Law at 410-626-6009 or send a message online to get started.