By Rae Hartley Beck / Photo by amriphoto/Getty Images
Fractional ownership is a way to jointly own real estate. It allows multiple people to own a portion of the property without having to pony up the cash for the whole thing. Fractional ownership gives buyers significant cost savings but comes with some key disadvantages.
What is fractional ownership?
Fractional ownership is where several people share the ownership of a real estate asset such as a vacation home, a house or a condo. Unlike other forms of shared use that provide rights to possess or use but don’t bestow ownership, each person participating in fractional ownership actually owns a portion of the property.
Each owner has a direct share in the property, and the value of that share changes as the asset appreciates or depreciates. Furthermore, each fractional owner has a say in what happens to the asset and how it is used.
Fractional ownership can take several different forms, including:
- joint tenancy, which everyone involved equal interest in and rights to a property
- tenancy in common, which gives each owner a partial interest in the property
Fractional ownership is most often applied to real estate but it can be used to purchase many sorts of property, including:
- Yachts and boats
- Recreational vehicles
- Sports cars
Fractional ownership vs timeshare
Fractional ownership differs from a timeshare arrangement. A timeshare allows use of the asset for a defined period only, usually a week, and sometimes in certain years. Time-share owners have no direct say in how the asset is used, maintained or sold. They only own time to use the property — not the property itself.
In contrast, fractional owners share responsibility for the maintenance and upkeep of the asset, although it is common practice to contract these duties to a management company. And they do have a say in how it’s disposed of, as they own a piece of it. They can even leave their share to beneficiaries or sell it to someone else (depending on the exact form the fractional ownership takes).
In terms of vacation homes, depending on the size of their shares, they might also have a lot more time to use the property — typically for a period of up to 26 weeks.