Fractional ownership gives those looking to invest in a vacation home the power to purchase next-level luxury for less investment. The same co-ownership model applies to many high-end assets aimed at the aspirational consumer. But how do you know if they are legitimate fractional ownership or not?
Here, we investigate the true definition of fractional ownership. We check out the benefits so you can decide if it’s right for you. Read on for an in-depth 2022 guide to everything fractional ownership.
What Does Fractional Ownership Mean?
The definition of fractional ownership is quite simple. If you break down the words, then you have the answer instantly. ‘Fractional’ refers to the asset being equally split into fractions so that the costs can be shared. ‘Ownership’ is the owned interest of the fractions.
Fractional ownership is where two or more people choose to co-own an asset benefitting from shared costs and benefits.
The vital part of this definition is the word ‘ownership.’ Always make sure that you own part of the asset when looking at anything sold through a fractional ownership model.
The fractional ownership method is not something new; you only need to look at the stock market for another example. An investor can buy shares of a company. Suppose, for example, you purchase 50 shares in your selected company. In this case, you have partial ownership of the company with those 50 shares until you decide to sell them. In the meantime, you and all the other company shareholders will benefit from any dividends and share growth over time.
How Does Fractional Ownership Work?
Interested parties enter an ownership arrangement whereby they agree to co-own a property (or another asset) with several like-minded individuals. Owning a property abroad is a dream shared by many. Let’s look at how the agreement would typically work for co-owning a property through a reputable developer, step by step.
- The real estate property is usually purchased through a Limited Liability Company (LLC).
- The property is then divided into equal fractions, with buyers typically able to purchase 1/8 or 1/12 fractions.
- These fractions are freehold, and each co-owner holds a deeded share of the asset’s title for each share purchased.
- Investors can purchase one or more shares in the property, dictating the amount of time spent at the property. The exclusive usage per year is generally four-five weeks per 1/12 fraction, depending on the original agreement.
- The properties are typically taken care of by a property management company that deals with the property’s upkeep, maintenance, and repairs. The associated and annual running costs are split equally between the property co-owners.
- You will own the deeded fraction in perpetuity if it is actual fractional ownership. Your titled interest should also be sellable and willable.
There are many fractional ownership properties for sale. The Fractional Group will thoroughly vet any potential developers, ensuring you see the best, high-quality fractional homes on the market.
Is Fractional Ownership the Same as Timeshare?
No, real estate fractional ownership is NOT timeshare. Timeshare is what it says—you buy a share of time to use each year. You don’t possess ownership rights to the physical accommodation you stay in each time you visit. You are paying to stay for a set amount of time each year, usually at a resort or hotel. There will be a maintenance fee to pay to the resort where the timeshare is based. There will be no ownership of the physical property asset.
As we explained earlier, true fractional ownership allows you to purchase a share of the freehold property. Owning a slice of the asset. Each fraction typically comes with four-five weeks per share (allowing all co-owners exclusive annual usage). You hold a deeded share of the property title and will profit from any capital appreciation over time. The asset is owned outright by a definitive number of the fractional property owners. The number of owners generally doesn’t exceed twelve.
Many timeshare resorts also use other terminology to talk about their product. You’re likely to hear phrases like private residence clubs, fractionals, destination clubs, and condotels, to name a few. The use of the word fractional can understandably be confusing when applied to timeshare. Especially as the purchaser is not typically given anything other than the usage of time.
Check out our latest article, Fractional Ownership vs Timeshare: What’s the Difference. This will give you a thorough understanding of how actual fractional ownership is very different to timeshare.
Popular Types of Fractional Assets
Owning a fraction of something allows you to join others and share the cost of an asset. Ultimately, investing less initially will prove a more cost-effective option.
Many business sectors are realizing the appeal of this model. This is why fractional ownership operates in and beyond the real estate industry, as you can own a fraction of most tangible assets. Art, a private jet, aircraft, boat, yacht, supercar, or house—all of these can be fractionalized.
The fractional ownership model is prevalent throughout the luxury market. The main reason for this is that it gives one the opportunity to co-own a luxury asset like a high-end villa, a private jet, or a supercar that may have otherwise been out of financial reach.
Fractional Ownership of Aircraft
Popularity in fractional ownership of private jets has rocketed over the years. We are seeing businesses primarily using the method to potentially lower corporate travel costs. The program could prove cost-effective to regular private aircraft users as they effectively only pay for the time they fly.
How it works
The fractional ownership aircraft programs will offer multiple owners shares in aircraft ownership via fractions. These shares will guarantee a certain number of flying hours or days for a particular aircraft type throughout the year. And are generally sold in 1/16 or 1/8 fractions.
Some well-known management companies offer fractional ownership programs for aircraft, including NetJets, Flexjet, Planesense, and Airsprint. Each company gives its fractional owners the right to use a choice of similar aircraft from their fleet. This usage comes with an agreed number of hours. NetJets owners typically own shares sold in 25-hour increments. The minimum purchase is of 50 hours for ownership of the aircraft asset for three years upwards.
Fractional Ownership Aircraft Costs
Hassle-free is the name of the game once again, just like with fractional ownership homes for sale. The owners eliminate the worry of actually looking after the aircraft. No maintenance or insurance to arrange or other services that come with owning a plane like the hangarage and catering.
You will pay extra costs such as a monthly management fee and a shared percentage of the costs with other owners. There are no operational issues to be concerned with. Simply turn up and fly in a fully prepared aircraft—often with just a few hours notice!
Always check the small print regarding the length of aircraft ownership time. Some companies can stipulate this to be a minimum period of five years before you can sell. Also, with fractional jet ownership programs, there are additional costs to be aware of. These include a charge for each hour you fly, along with fuel surcharges, to name a few.
Unlike bricks and mortar, aircraft–even the most high-spec jets, will suffer from capital depreciation over time. So be sure to factor this into your costs. Some operators will guarantee to buy back your share after a certain number of years. Good to know that if you stop flying, there is the option to recoup a percentage of your investment.
Ultimately, if you travel by private jet and want to own your own aircraft minus the hassles that come with it, then owning a fraction could be right for you. Co-owning will eliminate the necessity for a considerable capital outlay. And selecting a renowned company with a large fleet will give you access to your aircraft or similar in which to use your flying hours—potentially giving you access to a whole fleet!
Fractional Ownership Boats
The thrill of being on the open water is a big enough lure for most potential boat owners. Thoughts of crystalline waters and packing up the diving or snorkeling equipment, some quality family time, and relaxation are things we’ve all dreamed of at some point in our lives. But what about the reality?
For starters, there’s the high price tag of a quality yacht, and then there’s all the boat maintenance to consider. The cost of mooring, staff costs, fuel costs—the list goes on. More than the cost, we’re realizing more and more that people have a finite amount of time to enjoy their time away and just don’t want the hassles that come with owning outright and which eat into this precious time away. Cue fractional boat ownership—the flexible way to part-own your very own boat minus the large outlay and ongoing responsibilities of looking after and maintaining it.
How it works
As with all true fractional ownership, you will jointly own the physical boat or yacht asset. For fractional or shared ownership of a boat, you’ll enter into an agreement to purchase a part-share of the boat with a number of other owners. This number can vary from two, three, four, or more—so check your budget. Each owner is assigned a set number of days’ usage each year proportional to their investment.
Boat Ownership Costs
As for costs—you will pay for your share or fraction of the yacht followed by your percentage of the ongoing running costs, which cover insurance, berthing, maintenance, and maybe crew, depending on the agreement. With all this taken care of for you, you’re free to simply turn up and enjoy the boat during your exclusive usage time and leave the hassles of yacht admin and the general ‘looking after’ of the boat to the managing agent. You will get to enjoy all of the fun of owning a boat without the stresses that come with owning one outright.
Another advantage of co-owning a boat is that it allows you to move up to the next-level yacht for less. While the plus points are many, you need to ask yourself a few questions before deciding if investing in a part-share of a boat is for you. For example, while it is possible to move the fractional boat to another location, this is something that all fractional owners must agree upon and will need to be planned well in advance.
You will also need to book ahead to secure your time on board, so this probably wouldn’t suit those who prefer to book things last minute. A fractional boat program can save a lot of time and stress, proving a perfect choice for those that don’t have the time or funds to own a boat outright.
Fractional Ownership of Real Estate
We all have that property on our wish list, whether written down or in our heads. Some of us will eventually own the vacation home of our dreams, while others will compromise, looking for something within budget or opting to keep it on the list to look at again one day in the future.
Let’s face it, buying property is expensive, but purchasing through fractional ownership is becoming more commonplace nowadays, especially among those looking to invest for less.
Hailed as the intelligent way to own that dream vacation home, this refreshingly uncomplicated way to co-own a luxury second home makes dream vacation home ownership accessible to those who previously deemed it out of reach. With more and more fractional ownership luxury homes entering the market, there are more opportunities than ever before. Buyers are seeing that they can make their investment (and exchange rate!) go further by investing less in a high-end property that can be enjoyed each year whilst leaving the stresses of running it to someone else!
How it works
Whether you’ve got your eye on that luxury villa in Italy with sweeping views of the coastline and the sparkling Mediterranean Sea, or the uber-modern condo in the historical town center, it’s fair to say that these price tags will be on the high-to-incredibly-expensive side. But that doesn’t have to stop you from landing the property of your dreams.
Suppose you were to purchase the whole property, then yes, in this high price bracket, a lottery win could prove more than helpful! Even after such a windfall—if you have four weeks’ vacation time a year, it might still prove too time-consuming to maintain or deal with the possible rentals or vacant time. The simple solution is to buy some of the property and not all of it, thereby giving you some of the running costs to pay but not all of them.
Typically, high-quality vacation homes are divided into fractions and sold to a group of co-owners, as we explained earlier. Popular with investors from Europe, the US, Canada, and, more recently, the UK, the best fractional ownership properties come from trustworthy and legitimate developers who offer an easy way to access next-level luxury through purchasing and owning a fraction of freehold real estate and equity in a stylish home that could be straight out of a magazine!
Is Fractional Ownership a Good Investment?
Fractional ownership has become a fast-growing space and is being seen as a good investment due to its lower acquisition cost for a higher-value product. Fractional vacation home ownership makes properties in the higher price brackets more accessible and more appealing to anyone looking to own a slice of a luxury second home.
Whether fractional ownership is a good investment for you or not will depend on the reasons you are investing in the first place, so it’s wise to ask yourself a couple of questions.
- How often will you visit the property?
- Will you be managing the property upkeep or know someone locally when you’re not there?
- Will you be renting out your vacation home?
- Are you aware of the country’s local laws regarding owning property?
Uncomplicated Property Ownership
As so many people get carried away with the dream of owning an abode abroad, the cold hard reality often stops them from going ahead with their plans. Additional unexpected costs can scupper even the most thought-out plans.
If you want somewhere, you can visit for two weeks here and two weeks there; fractional ownership might be right for you. As you literally are paying for the amount of time you are using, you can move up the property bracket to that property of your dreams and purchase a fraction of it with other prospective owners. Not only do you have co-owners with whom to share the running costs, but you have the developer’s knowledge to assist you in navigating the purchase process.
Are fractional ownerships a good investment? Well, If you’ve always aspired to own that beautiful villa with a stunning infinity pool where you, your family, and friends can enjoy spacious rooms and relaxing spaces, why settle for an apartment with no view? Your fractional ownership vacation home could be more accessible than you first thought. Also, owning a fraction of a high-quality built property in a salubrious area could allow you to benefit from any capital growth. It could also enable you to generate a rental income on any property time you decide not to use, making fractional ownership a good investment for your lifestyle choices.
Advantages and Pitfalls of Fractional Ownership
Unless you move permanently to another country and buy a house where you will spend all of the year, the likelihood of using a second home abroad for much more than one to two months a year is pretty slim. This factor, along with getting a more luxurious property for less, raises the question of “why pay for more than you will use?”
Five advantages we see of buying a fractional ownership vacation home are
- Enjoy a more expensive property for less investment
- Less burden by being able to share all the running costs with your co-owners
- Fewer worries over the property remaining vacant for periods of time
- Less hassle as the property management company takes care of the running of the property, leaving you to enjoy quality family time from the minute you arrive.
- Enjoy asset appreciation on your fractional ownership vacation home
Fractional ownership pitfalls will vary depending on your property search requirements and intention behind purchasing a property. Every buyer has prerequisites when selecting a location and making a second home purchase. There’s more to read on fractional ownership pros and cons. It is worth doing the homework first to see whether buying fractional home ownership is a better option for you than purchasing a vacation home outright.
What to Look for When Choosing Fractional Ownership Real Estate Companies
As with any investment, you must do some homework to ensure you are dealing with a legitimate company. As you begin your research, ask a few basic questions to help you find the developer or real estate company that is right for you.
- Do they have a successful track record of fractional ownership properties?
- Are the fractions freehold and deeded?
- Are the properties purchased through a Limited Liability Company?
Suppose the location of the fractional vacation home you are interested in is in a country where you are unfamiliar with the language and local tax and property laws. In this case, it is prudent to check out the support offered to you during the buying process to prevent you from becoming frazzled and out of pocket. Remember, buying a fractionalized property aims to eliminate the stresses of owning a whole property and save money!
We cover some of the benefits in 5 Reasons Why Fractional Ownership Vacation Homes Make the Best Second Homes.
Any fractional ownership companies serious about their properties will be able to arrange an Inspection Visit. This gives you an opportunity to check out the location and properties first-hand. And allows you to familiarize yourself with the area while asking questions about the buying process.
We will continually add new developers and properties to our website at the Fractional Group. They will only appear online after we thoroughly vet the developer, saving you time and energy searching the internet.
How many weeks are typical of fractional ownership?
This depends on the company and agreement. As a rule of thumb, you can usually expect 4–5 weeks of exclusive usage per year per fraction.
Is it easy to sell fractional ownership?
With a fractional ownership property, you can look at it the same as you would if you purchased a property outright. The attraction would still be the location, style, exceptional finish and design, and property value. These factors remain the same. The apparent difference is the number of fractions you purchased in the property to sell. The first refusal will usually always go to the other co-owners of the property, thereby creating a pool of possible interested parties.