What is fractional ownership in real estate Understanding fractional ownership

Fractional ownership in real estate is when individuals own a percentage of a property and share usage rights. Fractional ownership splits the cost of an expensive purchase among several people.

Fractional ownership is commonly used for buying vacation homes or luxury items like boats or planes, but is also used for other types of assets such as art, stock and fashion items. Owners are issued a deed representing their fraction of the property.

Fractional owners also take on the benefits and losses that come with ownership: If a vacation home grows in value over 10 years, individual shares appreciate, too. Co-owners share usage rights, income and access to their shared property proportionate to the percentage of the asset they own. Unlike a timeshare, fractional ownership means you own part of the second home itself, not just the time you can use it.

There are a few common fractional ownership structures that we’ll dive into later. One is called tenancy in common and another is via an entity, like an LLC.

Example: Sophie lives in Detroit, Michigan, and wants to buy a second home so she can winter on the West

Coast. Her budget is $110,000, so she’s able to become a 1/4 fractional owner of a beach house valued at $440,000. The home has two other owners: James, who owns 1/4 and the Jones family who own 1/2 of the property shares. A local management company facilitates their renovations and property maintenance.

Takeaways

Fractional ownership is:

• A more accessible way to buy and own than purchasing alone

• When the cost of an asset is divided into percentage shares

• Property that’s owned and shared by multiple unrelated parties

What are the pros and cons of fractional ownership?

The pros include each owner has express ownership of part of the property. Your capital goes further as a part of a collective buying power. You have

Written by Kayla Moss. Images from Pacaso

greater control over when and how you stay than a timeshare and there are typically fewer owners to share with than a timeshare. You can sell your shares in the property whenever you want and your shares can appreciate over time. The cons are that you aren’t the sole owner of the property. You pay management fees, if you choose an external manager. Your shares can depreciate over time and it can be difficult to sell shares versus a whole property.

What is tenancy in common?

With tenancy in common (TIC), each tenant holds an individual deed for a fraction or percentage of a commercial or residential property. There is one key difference between tenancy in common and fractional ownership: No one person or company is in charge. To be a TIC, individuals must own different percentages of the property while sharing the whole and managing it themselves.

What is fractional ownership through an entity?

Some properties split ownership via a structural entity like an LLC (limited liability company) or LLP (limited liability partnership). Since a separate legal entity defines the ownership, it’s no longer a tenancy in common. It’s not necessary to have an LLC to make a fractional owner ship purchase.

Can fractional ownership apply to any purchase?

Many major purchases can be purchased via fractional ownership: luxury cars, yachts and boats, aircraft, recreational vehicles and, of course, real estate.

Theresa sells fractional properties

Don’t let your dream of owning a vacation home remain just that. Take the first step towards a life of luxury and contact Theresa at 647-2980997. With her guidance and Pacaso’s innovative co-ownership model, you can start living your best life now. For more information or to see some of the properities available for sale, visit www.theTBrealtygroup.com/fractional_ownership

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