Is Fractional Ownership Right For You? | Propertylogy

Is Fractional Ownership Right For You?

By on June 3, 2019

Fractional ownership is a method for several unrelated parties to share the risks involved with owning highly valuable assets such as real estate.

This enables each owner the use of the tangible asset for short periods of time without needing to buy it outright.

This is why some of the most common items with fractional ownership structures are:

  • Vacation homes
  • Private planes
  • Super yachts
  • etc

Each owner is allocated a particular amount of usage depending on the amount of shares they have.

Somewhat similar to a time share.

The main difference between this form of ownership and timeshare is that in this case, each investor owns part of the title.

For resort holiday homes for example, a property with fractional ownership would enable owners shared usage of the property while not having to worry about the maintenance of it as management companies would take care of them.

So if the property on a beautiful beach resort cost $1m, a group of 10 owners would mean that each investor would only pay $100,000 (10%) for a share. This can be an ideal situations as this is only a place they spend a week in each year.

The costs of repairs and maintenance would of course, be borne by the owners.

When the vacation property is not scheduled to be used by any of it’s owners, it can rented out and collect rental income just like any investment property.

And when there is value appreciation, the owners with fractional interest would split the capital gains should the property be sold.

Because the owners’ names are on the tile, it can be passed on to their heirs as inheritance as well.

Problems with fractional ownership property

A big problem with such property investment opportunities is that a lot of them never complete construction.

Builders often stop construction halfway due to a lack of funds. Investors are then left holding the bag.

And because vacation properties offering fractional ownership are often located in secluded beach resorts, there is no guarantee that the resort would be great success.

You need that success so that it continues to be your holiday destination for years to come.

Surely you don’t want to arrive for holiday and find out that the resort is closed.

The management company has to be put under the spotlight as well.

Because they have the complete schedule of owner usage, they would be able to rent out the units and pocket the revenue themselves when there is a lack of oversight.

This is why overseeing and monitoring operations can be a huge challenge.

What if accidents or damages occur during one of those rouge rentals? Who is going to pay for repairs?

Vacation properties are often overvalued. That is why they often go overseas to seek uninformed investors.

So please do your research before putting your money into them.

In many sense, these investment opportunities are carefully crafted schemes that are only meant to make the project starter rich.

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