Fractional ownership refers to the practice of sharing the expenses of a valuable asset with other individuals while still maintaining partial ownership and the right to use the asset.
Although the concept of fractional ownership may seem straightforward, there are advantages and disadvantages that make it more complex. Before entering into a fractional ownership agreement for a second home, there are several factors to consider.
Rental income generation:
A fractional ownership property has the potential to generate rental income through short-term or long-term rentals, owners will receive a portion of the rental income earned which will help reduce their share of the running costs of the property.
Minimising upkeep and maintenance:
Reducing the burden of upkeep and maintenance is a common benefit of fractional ownership agreements. These agreements typically provide for long-term property management, with owners collaborating to determine the best solutions for addressing any major problems that arise.
Fractional ownership of second homes grants co-owners the usage rights to a portion of the property, unlike short-term vacation rentals. Essentially, you own a percentage of the property and have the right to use it for a specific period based on your ownership share.
Fractional ownership differs from a timeshare in that it provides genuine ownership for a portion of the property, known as a fractional interest, resulting in true ownership rights. The value of the owner's share in the property fluctuates with the real estate market, meaning any change in value is divided equally among all fractional owners.
Limited financing options:
There are limited financing options available for fractional property ownership, as only a few banks offer mortgages for such purchases.
Although it's possible to have partial ownership in multiple properties located in different places, it requires a significant financial investment for each one. Unlike staying in a hotel or renting a property for a short period, fractional ownership might limit your travel options to just one or two favorite places.
For more about buying a fraction in a Fractal home, check out answers to some frequently asked questions here.