Fractional Ownership in Real Estate

What is Fractional Ownership?

Fractional ownership is a way of buying real estate which includes many buyers. It involves purchasing a part of property with other buyers. Each and every buyer will have an equal access of the property. It is a best option for those people who like purchasing vacation homes. It deals with that issue where people spend only 2 or 3 months in property and don’t want to pay the mortgage for the entire whole year.

Fractional ownership provides a better way to buy vacation homes. All buyers involved in this deal can divide the months in a year equally by paying only their part of staying in the home. You can also sell your share or you can gift your shares to others, if you want to end fractional ownership of a property.

Fractional ownership industry was developed in United States in early 90s. It addresses the real issue where people were hesitant to buy homes where they could only spend some part of the year. In other countries a fractional ownership is existed in a non commercial form in which several unfamiliar and unconnected people are connected to form a fractional ownership of vacation homes.

According to a Ragatz Associates, a research company, in 2006 there were more than 250 fractional ownerships in North America.

Fractional ownership is very affordable because it divides property into several affordable segments. Some management companies have organized a very good schedule and a usage allocation schemes which makes fractional ownership more flexible. In commercial fractional ownership schemes, the main relation is between the owner and the property developer where as in usage allocation schemes the agreement is in between the multiple buyers.

Management Responsibility

These vacation homes are managed by several companies and they took the responsibility of managing those homes on the buyer’s behalf. These companies will arrange the time schedule according to their owner’s schedule which makes it more attractive and suitable for the buyers.

Difference between Time Shares & Fractional ownership

Many people confuse fractional ownership with Timeshares but Fractional ownership is quite different from Time shares because in Time share you are not able to visit as much as you can in Fractional ownership. With Time shares you can only visit once or twice a year but in Fractional ownership you have complete access to the property according to your demand and in total you will get 14 or more weeks in a whole year.

From investment point of view fractional ownership is better investment as compare to Time Shares. In fractional ownership property prices usually increases over time which helps you in getting loan, where as with Time Shares property value depreciates over time which makes it difficult to obtain mortgage on this type of property. In Time shares, buyer will have to pay more interest and that’s why Time share is considered as more expensive as compare to Fractional ownership.

The best thing that attracts people to go for Fractional ownership is its property and bedroom units. In Fractional ownership, you will have big homes with 3 to 5 bedrooms. Fractional ownership can also be used for smaller properties.

Benefits of Fractional Ownership

Fractional ownership in real estate has many benefits. Some of them are discussed below.

Management Responsibility

Fractional ownership has proved itself to be a best option for various buyers and companies. It gives the best solution to have an ownership of a property without getting worried about the property management and other expenses.

Lower Costs

In fractional ownership, buyer will pay only a part of the cost of the whole property. All renovating, maintenance, furnishing and other expense will be shared. It gives a good option to the buyers who don’t want to take a responsibility and don’t want to put an effort to furnish the property.

Bigger Properties

Fractional ownership provides a huge benefit by giving you an opportunity to purchase expensive properties even if you have not enough resources to purchase it. In case of other ownership you might buy a relatively small house bearing all management responsibilities, but you would not have a good house with good features that you can find in fractional ownership. It provides you better properties because when several other buyers are putting their money together it will enable them to purchase bigger and better properties.

Arranged Vacation Homes

Fractional ownership provides you a vacation home or a resort that will be available to you on your desired schedule. As all the management responsibilities will be on the management company, that’s why you will get a well prepared and organized home without spend anything. There are several companies who took all the responsibility to manage vacation homes for you by putting an extra effort for example arranging beds and lawns before your arrival date. Fractional ownership provides you a home to organize your vacations without paying anything for the house that can only be used in 2 to 3 months in a year.

Draw backs of Fractional Ownership

Fractional owner ship has some drawbacks that may be a major concern for many people. These are discussed below.

Management Fees

The major drawback in fractional ownership is its management fees. In fractional ownership all buyers are required to pay a management fee on a regular basis which is collected by them to pay expenses, repair & maintenance costs, utility bills and other property expenses.

Sharing with Unknown People

Sharing the property with other people who will be completely unknown is the also a main drawback of fractional ownership. Although it’s not that bad to share ownership with other people but the sharing a same property may cause some future issues. For example if any owner of the property cause damage to the property then the cost will be shared by all owners and this will further increase the maintenance fee. In a sole ownership there is no such issues as you are a sole owner of the property that’s why you don’t have to pay someone else expense.

Conclusion

Fractional ownership is a best option and a solution for various reasons; it provides you an opportunity to own a vacation house or a resort without getting worried about the expenditures and maintenance charges. All management of property, paying utility bills and other expenses are a complete responsibility of a management company. Like other real estate options it also has some drawbacks but unlike Time shares you don’t have to be worried in obtaining mortgage which means that your interest cost will be less as compared to ownership in Time shares. Fractional ownership in a real estate is a best investment and a better option.