Why Fractionals?
Fractional ownership can be understood as owning a portion of a property, not the right to stay there for free. While a timeshare gives you a set amount of time that you can stay at a property, it does not give you an ownership interest. Fractional ownership, on the other hand, is a growing trend in vacation property purchasing that delivers to you not only a set amount of time at a property, but also a fractional deed to it.
Fractional ownership is often entered into between compatible people, and probably started when two people liked the same property, but wanted to stay in it at opposite times of the year - one in winter, one in summer. By agreeing to purchase the property together, they were able to both have what they wanted, but at half the cost. While this is a growing individual choice, there are also some corporations investing in fractional ownership properties in preference to time-shares; for instance, the Disney Vacation Club uses the time-share concept of allowing you to use multiple properties for vacation living, but gives you a fractional deed to a specific property.
While the concept sounds approximately the same as ordinary time-share, it is not. Fractional ownership delivers to you a financial interest in the property that you can sell, a physical deed and not just the right to use. While a corporate fractional ownership contract may require you to sell that deed back to them if you decide not to keep it in preference to selling it to someone else, they still will purchase it from you. This makes fractional ownership very different from time-shares, and a more fiscally responsible approach to vacation living overall.
Why Fractional Ownership Works
Real estate studies examining how homeowners use their second homes for vacation living have found that only about 17-30 days a year are spent in them. This means that for eleven months out of the year, that second home sits vacant. Some homeowners rent them to others during that period, but having cash flow from the vacation living choices of other people is generally an iffy proposition. It also increases some liability concerns - who knows who the property is being rented to?
By working a deal with fractional ownership, the prospective vacation homeowners are able to do a number of things. First, they are less vested in a home, so if something does happen to it, the loss is proportionately less catastrophic. If the deal is with individuals, then losing 1/15th of a house is much easier to deal with than losing a whole house, and if the deal is with a corporation, you may be fully compensated anyway, as they are more likely to have all the insurance coverage necessary without you having to think about it.
Fractional ownership also allows the prospective owner to buy much more house than they would have purchased by themselves. Instead of a little two-bedroom bungalow, you can own a piece of a mansion on the beach, with commensurately more flexibility in how you spend time there. In addition, houses need people to stay in them; if you didn't have someone checking on your house during the eleven months you weren't there, it would be liable to break-in, squatters, and general deterioration due to lack of heat, etc. A small problem, like a broken window, could turn into a very large problem. A fractional ownership encouraging multiple owners to use it for vacation living transforms a home that could be a liability into a much smaller share of something that is a genuine asset.
There are drawbacks to fractional ownership as well. If you don't choose your location carefully, you may find it difficult or even impossible to sell your interest in the house should you choose to do so. If you do not own property through a corporation but rather are doing it yourself, you may find that the paperwork - taxes, bill paying, and maintenance - is not being fairly distributed or compensated. And you have less control over how other people use the property; one slob could lead to a home infested with roaches, which ruins everyone's vacation living experience. For this reason, most people investing in fractional ownership choose to have professional management of their property, even if they don't own the property through a corporation.
Other Applications of Fractional Ownership
Though fractional ownership is primarily a vacation living phenomenon right now, it has some real potential for other applications throughout the real estate industry. For instance, it could be an excellent way to sell real estate in Manhattan, where even lofts can be into seven figures; fractional ownership of lofts can be used to allow people to have an occasional weekend in the city, or stay there during the week for special projects. This could even be a good corporate ownership concept, allowing smaller companies to share condos and save money on travel expenses while giving their executives and others a better place to stay for business in the city.
Or it could be applied to commercial ventures. Many companies have empty space in warehouses or other buildings. If a business has too much warehouse, it could be subdivided into storage space, and the extra area sold to other businesses in a fractional ownership scheme. This concept could be applied to office space, industrial space, and many other types of commercial real estate. All it takes is a little creativity.
Tell others about
this page:
Comments? Questions? Email Here