Co-ownership of vacation homes offers a great alternative for those wanting to own a luxury vacation home with a lower capital investment and where everything is taken care of.
Owning a luxury vacation home is a dream for many. Still, the high initial cost and justification of usage against the running expenses and empty periods or hassles of renting the property out dissuade many people from going ahead with buying a second property abroad.
In this article, we will explore co-ownership of vacation homes. What it means to potential investors and what to look out for when entering a co-ownership agreement.
Why Co-own and Not Rent Your Vacation Home?
Fast forward to this summer, and the travel industry is booming, with vacations very much at the top of everyone’s list once again. Deciding where to stay is not only becoming a labour-intensive search, with pages and pages of luxury vacation rentals but also (along with everything else) a lot more expensive than ever before. If you’re looking for a reason why the vacation home co-ownership industry is moving in a solid upward trajectory, then the price factor and searching for a socially responsible way to own a property abroad are definitely two key factors.
Thousands of luxury-seeking vacationers seem to be steering away from the sprawling mass resorts (some still covid-crowd-shy, others searching for that bespoke experience) to find the comfort of a home away from home but with a high-end hotel feel.
Is Airbnb fatigue setting in? While many customers are feeling the pinch of the rising costs of these luxury rental properties, they are also, at the same time, reluctant to look at downgrading their stay. Owning your little bit of luxury abroad is appealing on many levels. However, the cost of splurging on somewhere that we have to maintain even when we’re not there definitely adds a layer of the mundane to one’s dream of a luxury escape where stepping out of the busy day-to-day life means having nothing to think about.
Vacation home co-ownership is answering this request by eliminating all the headaches and spiralling costs of owning that abode abroad. By sharing with like-minded people you are with owners all after the same thing – leveling up to that more expensive property bracket without breaking the bank and enjoying a luxury home that is fully managed.
What is Vacation Home Co-ownership?
Co-ownership of vacation homes is when two or more people own a property together. This type of ownership, also called fractional ownership property ( NOT to be confused with timeshare – more on this later), allows individuals to share the purchase cost and maintenance expenses. By splitting the costs, co-owners can enjoy the benefits of owning a vacation home without the financial burden of owning outright.
What to look out for: Ensure the property is fully deeded where you actually own a portion of the property and NOT a timeshare where you get nothing except the right to use some time. Read our Fractional Ownership vs Timeshare to understand the difference and what to be aware of with companies discussing fractionals.
How Does A Vacation Home Co-ownership Work?
One of the main benefits of co-owning vacation homes is that it can be a cost-effective way to enjoy ownership of a property in a beautiful location. Co-owners can split the cost of the property price, property taxes, maintenance, and running costs. This allows individuals to purchase a vacation home that may have either been out of reach financially if they were to own it outright; or buyers who are just too busy and don’t want the additional hassle of managing the property over the years. Home co-ownership is not a new concept and is an arrangement often facilitated within families when buying property. It makes sense for those looking to own a vacation home more responsibly and not buy more than they would realistically use, allowing additional purchasers to buy into the property.
The property is usually put into a Limited Liability Company, and prospective purchasers would buy a fraction of the company that owns the property. It is usual to see properties advertised for sale split into fractions and purchased by several co-owners.
When co-owners buy together, the stresses of maintaining a property disappear, as does the whole financial responsibility, as the annual running costs are apportioned equally.
How Many Co-Owners Can There Be?
Vacation home co-ownership properties are usually advertised in fractions. It is common to see properties priced by quarter, eighth, and twelfth shares, so if you purchase one ¼ fraction of a property, then you will co-own with three other owners, and so on. If you buy additional fractions in the property, you will have fewer co-owners, more equity and more personal usage of your vacation home.
Sharing Maintenance and Repair Costs
One of the most significant financial benefits of home co-ownership is the ability to pass on the burden of property maintenance and repairs to someone else. Co-owning a vacation home with property management means everything is handled for you. When you co-own a home, equally dividing the annual expenses between your fellow owners results in significant cost savings compared to owning a vacation home alone. Plus, you can leave the responsibilities of getting the jobs done to the team on the ground, leaving you free to turn up and enjoy your vacation home.
What to look out for: Inquire about the annual maintenance costs so you can work out your expenses in advance. For more tips, please read our article: Is Fractional Ownership a Good Investment?
The All Important Vacation Home Co-ownership Agreement
When entering into a co-ownership agreement, it is crucial to consider several factors. One of the most critical factors is the co-ownership agreement. This document outlines the rights and responsibilities of each co-owner, including the percentage of ownership, usage schedules, and maintenance responsibilities. It is essential to have a clear and comprehensive co-ownership agreement to avoid potential conflicts.
Creating a Co-Ownership Agreement
Before entering into a co-ownership arrangement, it is vital to create a co-ownership agreement. This agreement outlines the rights and responsibilities of each co-owner, including how expenses will be split, how decisions will be made, and what happens if one co-owner wants to sell their share. It is also important to work with a lawyer to create this agreement to ensure that all parties are protected and that the contract is legally binding.
You can safely and efficiently navigate the purchase process by selecting the right property co-ownership company for your desired vacation home. They will also assess the suitability of other owners, including financially, to ensure a cohesive group of owners, so you don’t have to.
What to look out for: Choosing a reputable co-ownership company to facilitate the agreement is imperative. Selecting a professional company ensures transparent pricing and full disclosure on all costs, maintenance, and property management fees and that the co-ownership agreement is legally binding and all parties are protected. Check that the company is registered in a country you have heard of and a location that makes sense for the property you want to be a part of.
Vacation Home vs Investment Property?
In this article, we’ve focused on purchasing co-ownership vacation homes and the benefits of co-owning rather than owning outright. Let’s summarize the financial merits we see if you were to consider co-owning a vacation home as an investment property.
- Less Investment – Enjoy a lower downpayment on a high-end property.
- Asset Value – Benefit from any increased capital growth as you would if you owned 100%
- Income – The management company will rent and manage on your behalf all unutilized usage, generating potential rental income.
- Sell – You can resell at any time by yourself or typically back to or through the company that will have a pool of potential buyers.
- Fix Your Costs – Reduced operational costs by only paying your equally split amount of running costs each year.
- Timing – Co-owning your vacation home is an excellent alternative to owning outright. With interest rates rising alarmingly, it could be a favorable time to lock in those future vacations. Freeze the price now, and enjoy the financial advantage in the coming years.
With careful planning and consideration, co-ownership of vacation homes can be a fantastic way to own a vacation property without breaking the bank. This year has begun with the Dollar strong, meaning more bang for your buck, making higher-priced properties more affordable.
Where are the favorite European hotspots this year? Take a virtual journey through Europe today. Browse our collection of carefully curated developers and show-stopper properties amongst the Fractional Group collection of co-ownership vacation homes for sale.
Have you got a question? Why not chat with our team today?