The Ins and Outs (and Ups and Downs) of Fractional Ownership
Remember when timeshares were a thing? You would get invited to a “free” overnight stay or weekend getaway, the only catch being that you would have to sit in on a presentation about the property and then be pressured to buy. Today, fractional ownership has taken the place of the timeshare as a way to own vacation property. Is fractional ownership worth it?
What is fractional property ownership?
To determine whether fractional ownership is worth it, you have to learn more about what it is as well as the advantages and disadvantages. With fractional ownership, you own just a part, or fraction, of a property. You are one of several owners on the same property. There can be two part-owners or as many as 10 partial owners.
Fractional property ownership is different than timeshares because, with a timeshare, you own time that you can use at a property. With some timeshares, you’ll get the same week every year for your investment, while others will give you points that you can use at a number of different properties. Selling a timeshare is nearly impossible, which many people who got sucked into buying one eventually found out.
Purchasing a fractional share of a property is a real estate transaction. Fractional ownership is primarily used in vacation properties because it offers a more affordable alternative to owning a vacation property than if you were to own the whole property yourself. For example, a $1 million home on the beach may be out of your price range, especially for a vacation property that you would only use a limited amount of time each year. But if you were to buy a fraction of the property with five other investors, the $200,000 may be a more affordable price tag.
As with traditional homeownership, you’re responsible for the maintenance, utilities, and property taxes, but you are also only responsible for part of those costs as a fractional owner.
Does fractional ownership appreciate?
Because fractional property ownership is a real estate transaction, you would expect your investment to make money as the property appreciates, but unfortunately, that isn't the case. Fractional ownership rarely appreciates. Investing in a fractional property share should be considered a way to save money on vacationing rather than an investment that will make you money.
What are the pros and cons of fractional property ownership?
As with anything, there are pros and cons to fractional property ownership. The advantages are:
It’s more affordable to own vacation property.
You share the costs for upkeep and taxes.
It could provide possible rental income.
Some of the disadvantages of fractional property ownership can be:
You need to share the property. You’ll have to cooperate with the other owners on decisions regarding the property, such as who gets it when.
You’re tied to one place. If your idea of a vacation is to visit different places, you don’t want to invest in fractional ownership that binds you to just one location.
There are limited financing options. Not all banks and financial institutions offer mortgages for fractional property ownership.
It’s hard to resell.