Home : What is Fractional Real Estate Ownership?

What is Fractional Real Estate Ownership?

Posted by Tina Merritt on 9/23/2009 at 5:50 AM
Posted in Real Estate Investing

Blog Image Have you ever gone on vacation and said, "I would really like to own a place here"? Have you ever rented a large beach house with family members and/or friends? Do you prefer to take a family trip within a one day drive of your home?

If you answered "yes" to any of these questions, the concept of fractional ownership may appeal to you.

As second home buyers are looking for more affordable ways to acquire their vacation home, fractional ownership has seen an increase in exposure. Fractional ownership is, simply put, a group of friends, relatives or investors pooling their resources to buy a second home.

Arrangements usually divide the ownership into 4ths, 8ths or 12ths; however, can be customized for the group's needs. Each owner then has an equal share of the property. Fractional shares can be sold separately, apart from the other owners as fractional ownership is deeded ownership. This also means that your heirs can inherit your fraction of ownership.

The concept is very similar to time shares; however, there usually are not nearly as many owners. Because of this, administrative and maintenance expenses are much less. You also tend to see fractional ownership in properties that are more luxurious than time shares and valued at over a million dollars.

Tina Merritt is an 11 year veteran Real Estate Agent and Trainer based out of Virginia Beach, Virginia. She holds a degree in economics from Virginia Tech and post-baccalaureate from Virginia Commonwealth in real estate and land development. As an avid social networker and internet marketer, Tina helps real estate agents, loan officers and affiliated industries embrace technology. As a real estate agent, Tina primarily deals with marketing and selling properties deemed "hard to sell" and also works with real estate investors helping them build and/or liquidate their portfolios for maximum profit.

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6 Comments

Posted by member1982261 on 09/23/2009 10:51 AM

There can be many problems with fractional real estate ownership, for example who and when uses the property, and what happens if one or more of the owners want out?

John,
http://www.canadabanks.net/default.aspx?article=Bank+of+Montreal

Posted by member11019217 on 09/23/2009 6:33 PM

John - ever heard of a fractional ownership usage plan??Pretty commonplace already and an easy solution, not a problem.
For more detailed information on fractional real estate check out http://www.fractionallife.com

Piers

Posted by user28112 on 09/25/2009 10:08 PM

Tina. Greetings and happiness to you and yours. Your articles are always very good. Thank you.

Interesting information. Peace of mind and profit are my objectives in any endeavor. Even if I have to slay dragons. Fractional Real Estate Ownership has to be looked at with intense scrutiny. Mainly what is the thinking, personalities, business and credit liabilities of those you include? Will they enhance your peace? If they sell their share, will the people they sell to compliment your peace of mind? Will those who inherit shares be up to paying the necessary upkeep, etc.? The more is not necessarily the merrier. Other fractions can give your fraction a fever. Do due diligence. Of course there are many positives. But as Trump teaches, be aware of the down side and deal with it, and the up side will take care of itself.

Keep your great articles coming Tina.

Sincerely your friend and "Revolutionary Entrepreneur"
Nimrod

Nimrod Erech M. Christ Nimrod, Ph.D.

Posted by member11020620 on 09/26/2009 8:19 PM

Thank you Piers, took the words right out of my mouth. And we wonder why more banks are not financing fractional buyers. Simple lack of awareness. For answers feel free to contact me through http://PierceGroupLLC.com

Posted by member11020797 on 09/27/2009 2:59 PM

There are a lot of misunderstandings about fractional ownership. When organized well, it works very much like a condominium complex with a home owners' association. Each "share" is under separate deeded title, just like each condo would be. If one share owner defaults on his, or her share, only that share is affected. If that share has a mortgage, then only that share is subject to foreclosure by the bank. Not the others! Likewise, if one share owner fails to pay his share of the HOA expenses (taxes, insurance, maintenance) then the HOA may foreclose on that share. This could, in fact, be a windfall for the other share owners, wherein they could retire that share for pennies on the dollar.

However, a poorly organized, or managed fractional property can be a nightmare. Think of it like a bunch of friends getting together to buy a cabin in the mountains. They typically can do it with a handshake. Strangers cannot! The key to fractional success, security and peace of mind is with a properly organized, managed, marketed, and financed vacation property. And, yes that includes a well structured reservation system, that predetermines the rotational usage and priority policy, years in advance.

This is the wave of the future and a great opportunity to own a slice of heaven, without waiting for your ability to fully afford it. Often, that wait extends past your limited opportunity to enjoy a dream second home with your family and friends.

Here's a company that has been doing all of this for years, with one of the best brands: http://www.fractionalvillas.com

Posted by Darren Lai on 09/28/2009 9:14 AM

This is a good advice and I have been doing it with my brothers.

Can you share some of the tips when drafting the agreement among the owners?

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