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What is Fractional Interest Ownership?
Is ‘Fractional Ownership’ an OK Homebuyer Option? (Florida REALTORS®, Jul. 24, 2023)
“Fractional ownership, also known as shared ownership, allows multiple owners or families to acquire high-value assets like a house, a vacation home or a condo. Each party owns a portion, or “fraction,” of the property, matching their share of the purchase price. This allows buyers to maximize their purchasing power, without having to pay the full cost upfront. The value of each party’s share changes as the asset appreciates or depreciates.
“It can also take several forms: joint tenancy, which gives all parties an equal interest and rights to a property; or tenancy in common, which gives each owner a partial interest in the property.”
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.”
Fractional Ownership – Answers to Frequently Asked Questions
“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
IRS Provides Guidance on Using Tenancy-in-Common Interests in 1031 Exchanges (CCIM, Mar. 19, 2023)
Rev. Proc. 2002-22 provides guidance on the use of fractional interests as replacement properties in 1031 exchanges. Although the IRS did not provide the ultimate safe harbor blessing for these investments, it outlined 15 minimum standards tenancy-in-common interests must meet to be considered as potential replacement property. A few of the key criteria are:
- the number of tenants-in-common cannot exceed 35;
- the sponsor of the interests may own the property (or an interest therein) for only six months before 100 percent of the interests are sold;
- any decision that has material or economic impact on the property or its owners must be approved unanimously by the owners; and
- the management agreement must be renewable annually and must provide for market rate compensation.
For the complete listing of requirements, visit the IRS Web site at http://www.irs.gov/. Investors should seek private-letter rulings on specific offerings for more concrete assurance that their fractional interest meets the specified qualifications.
You can now buy a fraction of a house. Should you? (Vox, Mar. 3, 2023)
“The basic pitch of fractional real estate platforms is that in just a few clicks, you can buy a share of a home (or shares of many, many homes) and then kick back and relax as rental profits roll in. So much of what’s billed as passive income isn’t actually passive, but fractional real estate companies contend that property ownership can genuinely require no hustle.”
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.
The Drawbacks of Fractional Real Estate: This Investment Offers Multiple Options, but Clients May Pay a Premium for the Access and Convenience (Financial Planning, May 2020) E
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.
Canadian Vacation Ownership Association (CVOA)
Industry-based association dedicated to furthering the vacation ownership industry in Canada and throughout the world.
Cooperative Association of Resort Exchangers, Inc. (c.a.r.e.)
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.
Resort and Second Home
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.
Resort and Second-Home Property Specialist
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.
Resort Development Organisation (RDO)
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.
Vacation Ownership Association of Southern Africa (VOASA
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)
How a Second Home Can Be Your Best Investment (eBook)
The Complete Guide to Buying a Second Home or Real Estate in Mexico (Audiobook, eBook)
Second Homes for Dummies (Audiobook, eBook)
The Everything Family Guide to Timeshares (eBook)
How to Invest in Real Estate & Pay Little or No Taxes: Use Tax Smart Loopholes to Boost Your Profits by 40% (eBook)
The Tax-Free Exchange Loophole: How Real Estate Investors Can Profit from the 1031 Exchange (eBook)
Timeshare Vacation for Dummies (eBook)
Books, Videos, Research Reports & More
As a member benefit, the following resources and more are available for loan through the NAR Library. Items will be mailed directly to you or made available for pickup at the REALTOR® Building in Chicago.
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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