- Fractional ownership is an investment approach in which the cost of an asset is split between individual shareholders.
- All the shareholders split the benefits of the asset, such as income sharing, reduced rates, and usage rights.
- This type of investment split is common in the purchase of expensive assets, such as vacation homes, luxury cars, and aircraft.
Source: Fractional Ownership (Investopedia, Dec. 10, 2020)
Fractional interest ownership, once used primarily with commercial tenants-in-common, has recently blossomed in the vacation home market. Not to be confused with a time-share or a destination club, fractional interest properties can be a sensible and profitable alternative to owning a second home
“Fractional ownership” is used to describe shared ownership of a vacation or resort property by people in an arrangement which allocates usage rights based on time. This arrangement allows only one owner to use a particular home or apartment at a particular time.
Generally speaking, some pros to fractional ownership are affordability, limited vacancy, and divided responsibility among owners; whereas some cons are that selling isn’t straightforward, consensus can be tough, ownership is tied to one property, and it is subject to restrictions.
See References for more information.
NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require the member's nar.realtor login.
What is Fractional Interest Ownership?
Ask a REALTOR®: Is Fractional Ownership for You? (ColoradoBiz, July 22, 2020)
“…fractional ownership provides the added benefits of being able to trade your week(s) at premier properties around the world. The trend among hotels at most major resort areas, including those in the Vail Valley, is to market and sell a portion of their rooms as fractional units.”
Everything You Need to Know About Tenancy in Common Real Estate (Los Angeles Magazine, Dec. 31, 2019)
“Tenancy in common allows two or more people hold the title to a property, typically a multi-unit building, a home that’s been subdivided, or a bungalow court. Each tenant has their own loan, and shares of the property might vary (one person might hold 25 percent while another holds 50 percent), but the entire property is owned by all tenants, and property taxes are split.”
What Are Tenants in Common and Should I Arrange One? (realtor.com®, Jun. 19, 2019)
“The TIC agreement provides a legal framework for the tenants to structure how the tenancy will operate, from deciding how co-owners should split the purchase price to choosing which co-owners make major decisions about the property. So while each tenant will own a share of the property and may have tenancy rights to live in and use the property, tenants pay their share of the mortgage, taxes, insurance, and maintenance costs based on the tenant’s share of ownership.”Fractional Ownership – Answers to Frequently Asked Questions (SirkinLaw)
“The phrase “fractional ownership” is typically used to describe shared ownership of a vacation or resort property by people in an arrangement which allocates usage rights based on time. In other words, only one owner will be allowed to use a particular home or apartment at a particular time.”
Pros & Cons of Fractional Interest Ownership
Looking for a Golf Home? Consider Fractional Ownership (The New York Times, Sep. 10, 2021)
Fractional ownership means that buyers are investing in a part of the home’s equity and have an equity stake in the property, explained Jason Becker, the chief executive of the golf real estate matchmaking site Golf Life Navigators. Many fractional ownerships are part of developments or resorts; the number of weeks annually that buyers get to stay at their property depends on what percentage they own.
Fractional Ownership in Real Estate (millionacres, Feb. 4, 2021)
As a way of investing in real estate without borrowing money to buy an entire piece of property, fractional ownership has its upsides and is comparable to investing in REITs in terms of requiring a smaller up-front investment and less labor than purchasing an entire property.
Nashville planner Shaun Melby adds that investors who want passive real estate exposure might be better off with a traditional, exchange-traded REIT, which diversifies by investing in hundreds or thousands of properties, rather than in one specific property. 1031 exchange advantages Depending on the legal structure, however, a fractional ownership investment can do something a REIT cannot: fit the needs of investors who want a 1031 exchange
The Pros and Cons of Fractional Ownership (Equity Estates, Feb. 13, 2020)
Pros: affordability, limited vacancy, divided responsibility among owners; Cons: selling isn’t straightforward, consensus can be tough, tied to one property, subject to restrictions.
Industry-based association dedicated to furthering the vacation ownership industry in Canada and throughout the world.
Trade association established by representatives of timeshare resorts.
Fractional Ownership Resources and Articles (SirkinLaw)
As a law firm specializing in Fractional Interest Ownership, SirkinLaw provides detailed reference pages on a range of topics including Marketing and Selling Fractional Ownership, Operating and Managing Fractional Ownership Groups, and Fractional Ownership and Timeshare Law.
Independent publication for the timeshare and fractional ownership industry.
Keep up on the latest developments in the resort and second home market, earn the Resort and Second-Home Property Specialist (RSPS) certification, and network with other members who specialize in the buying, selling, or management of investment, development, retirement, or second homes.
NAR’s RSPS certification is for REALTORS® who specialize in buying, selling, or management of properties for investment, development, retirement, or second homes in resort, recreational, and/or vacation destinations.
European professional organization with members from all sectors of the industry across Europe, including resort developers, exchange companies, management and marketing companies, trustees, finance houses and resale companies.
Establishment to improve representation for reputable companies within the shared vacation ownership industry.
eBooks & Other Resources
The following eBooks and digital audiobooks are available to NAR members:
Buying a Second Home (eBook)
The Complete Guide to Buying a Second Home or Real Estate in Mexico (Audiobook, eBook)
Second Homes for Dummies (Audiobook, eBook)
Timeshare Vacation for Dummies (eBook)
Books, Videos, Research Reports & More
The resources below are available for loan through Member Support. Up to three books, tapes, CDs and/or DVDs can be borrowed for 30 days from the Library for a nominal fee of $10. Call Member Support at 800-874-6500 for assistance.
Vacation Nation: The Complete Guide to Timeshare Private Residence Clubs, Fractionals & Destination Clubs, (Elaine Joli, 2009)
Vacation Home Fractional Conversion (Fractional Retreats LLC, 2008)
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