Looking back around 50 years to the 1970s and 1980s, timeshares were booming. People around the world wanted to have all of the luxuries of a vacation home, but without the lofty costs associated with purchasing a second home. This is where timeshares made their name. Hotel-esque quality for a fraction of the price, but with the caveat of only being able to visit at certain times of the year.
Fast-forward to the mid-2000s onwards, home-sharing giants such as Airbnb, VRBO, and HomeAway enter the fold. These businesses sought to help people leverage their assets in the form of their own homes, allowing homeowners to use their family homes to create additional revenue. That said, the greatest profits are made when a second property is listed through a home-sharing site with the average second property owner in North America making $41,026 a year.
In the present day, fractional ownership is the new entrance into vacation home ownership
What Is Fractional Ownership?
Fractional ownership is a type of property ownership where rather than owning time at a property you own a small part of the actual real estate itself. Overall purchase and maintenance costs are lower as you are one of many owners sharing the cost. As you have the title deeds and therefore genuinely own your portion of the property, you are free to do as you wish with your share. You might choose to sell it at a profit should the market move in that direction, or leave it to your family in the future.
Time-sharing Vs.Fractional Ownership
The key difference between time-sharing and fractional ownership is what you are actually paying for. In a time-share, you’re paying for access to a property at certain times over the course of the lease. With fractional ownership, you’re paying to own a portion of the property.
Time-shares tend to have a fixed cost for the term of the lease, including maintenance costs, and, for all intents and purposes, act as a type of hotel for you to visit. Fractional ownership comes with associated costs, you’ll be responsible for your share of upkeep and maintenance plus any rises that they may incur.
The biggest difference between the two is that fractional ownership is seen as more of a financial investment that is likely to pay dividends in the future. Whereas when the lease is over with a time-share there is no profit or loss to be dealt with.
The Benefits Of Fractional Ownership
It Costs Less
If you’ve got your eye on the house of your dreams, but don’t have the budget to match, fractional ownership is a great opportunity to own part of it. Plus, you’re only having to pay a fraction of the upkeep and maintenance.
It Gets Looked After When You’re Not There
When using fractional ownership on a vacation property, chances are that you’ll only be there for 4-6 weeks of the year. For the remaining time, the property can be maintained and loved by the other owners or managed by an Airbnb management company.
It’s Not All On You
If something goes wrong with a property you solely own, the burden is on you. Through fractional ownership, the burden, responsibility, and cost are shared with the other owners. That means that they also share maintenance responsibilities, making the whole process far more palatable.
The Drawbacks Of Fractional Ownership
It’s Not Always Easy to Sell
Selling a time-share is well known to be a nightmare of a task, and unfortunately selling fractional ownership isn’t that much more straightforward. It’ll depend on the initial agreement with the other parties, there are often specific restrictions in place that limit how you and when you can sell.
Decision by Committee
As you only own a fraction of the property you only have a fraction of decision-making capabilities. All major decisions need to be made as a committee of owners, this can cause friction, and delays and generally be uncomfortable. Especially when at loggerheads with other owners.
It’s Only in One Location
Seeing as you own that one particular property, that is the property that you’re able to visit. If you’d prefer to visit lots of different towns, places, countries, then you’re less likely to see the benefits of fractional ownership.
Is Fractional Ownership Right For You?
There are a few elements that you should consider before beginning your journey into fractional ownership:
- Cost: Beyond the initial purchase price, you also need to factor in maintenance costs. Beyond that, you’ll also need to be sure to pay tax on the property as a second home.
- Legalities: Getting the assistance of an attorney is a smart move, there are many potential legal pitfalls associated with fractional ownership. Getting them to read over any agreement before signing is a must.
- The Market: Remember that you are owning a portion of a property and your investment is therefore at the whim of the property market as a whole. Be sure that you understand the local market before purchasing. Use sites such as Getaway for more information.
Key Takeaways
Fractional ownership is an efficient and potentially lucrative method of purchasing part of a second home. The modern-day version of time-sharing has a number of benefits associated with it, just be sure to understand the long-term implications before signing any agreement.
- Hiring legal assistance will save you from any hidden issues before they arise.
- Fractional investing is just that, an investment, it is more than just a vacation home.
Disclaimer: This content does not necessarily represent the views of IWB.