If you’ve dreamed about owning a piece of paradise in an idyllic part of the world at some point in your life, you wouldn’t be alone. Property buyers have owned second homes abroad for decades, but what are the pros and cons of owning through fractional ownership?
The quality and exclusiveness of these condos and homes in any market come down to one factor – affordability. Over the years, the market has been flooded with average vacation home rentals, especially throughout the 70s and 80s. Recent decades have seen a growing appetite by those looking to invest in more luxury-owned properties that offer professionally managed services and unique experiences. There has been an upturn in the amount of exceptionally finished fractional ownership properties for sale in the last couple of years in particular.
Why Fractional Ownership?
Fractional ownership has begun appearing regularly on the property radar, recording exponential growth over the last decade, and looks to be meeting the criteria for this gap in the market. Essentially, to own a share of real estate by buying a share of a property through a Limited Liability Company, potential buyers can now elevate their real estate requirements. This can be achieved by co-owning a higher standard of accommodation for a lower acquisition cost and shared running costs through fractional ownership.
When researching owning a home abroad and asking yourself the question ” is fractional ownership worth it?”, you’ll invariably see the words ‘hassle-free’ and ‘luxury’ mentioned. While these are important and both are factors we all strive for when selecting our abode abroad, we’ve compiled a comprehensive guide to get into the detail of fractional ownership pros and cons. If you’re looking to own a vacation home outright or prefer to make your money go further and are looking at shared ownership options, we weigh up the advantages and disadvantages of fractional ownership for you to consider when buying a slice of your vacation haven!
Pros of Owning a Property Through Fractional Ownership
What is it that makes owning a home with this shared model popular? In recent years, developers have focused on buying properties in some of the world’s most desirable locations and refurbished to a superior standard where even the pickiest celebrities would feel right at home. But it appears to be the financial model that makes the most sense economically.
The best fractional ownership properties will often boast manicured grounds and heated pools, be eco-conscious, and be in areas of historical interest. The uniquely designed interiors will feature top-brand fixtures and fittings and extra touches like underfloor heating and cozy interiors to make all-year-round living accessible. Buying a share and co-owning the property will give you all the above for a fraction of the cost of what you would spend to own a second home outright.
9 Benefits of Fractional Ownership
Here are nine more advantages that we find particularly relevant when deciding how to get more bang for your buck on that all-important vacation bolt-hole.
- Scale the property ladder by buying a share in that next-level second home you might otherwise have been unable to afford.
- Own a deeded share of real estate property bought through a Limited Liability Company.
- Relinquish the responsibility of taking care of the property. Full property management while at a fee is shared amongst all owners, as are all running costs, resulting in a well-maintained vacation home every time you visit.
- Personal effects are often stored and displayed when you visit, giving a home-from-home feel.
- Share in the property’s capital appreciation over time.
- There can be less exposure to real estate market price fluctuations through sharing the real estate price tag.
- Rent out any time you don’t use through the property management company and earn an income without worrying about having a house sitting empty for a large portion of the year.
- Own a saleable or transferable share and pass it on to loved ones when you no longer wish to use it. Alternatively, you can realize your capital and sell your share.
- Purchasing a property through fractional ownership gives you access to a pool of like-minded owners when you come to sell.
The Cons of Owning a Vacation Home Through Fractional Ownership
An obvious advantage of owning fractional property is that for *10% of the total purchase price, you can get a share of high-end real estate to visit every year. But what about fractional ownership pitfalls? Here are a few shared ownership pros and cons for you to consider when looking at ways to make the most of owning a second home abroad.
- The properties are typically luxuriously refurbished with lavish décor and plush furnishings. Still, it is worth ensuring that these are things that you can live with as you won’t be able to redecorate.
- A fair rotational occupancy calendar gives owners a direct share of key holiday dates each year. Get used to booking in advance to lock in your preferred dates.
- You don’t get to choose with whom you co-own the property.
- Lastly, you’ve got to love the location you choose to purchase in as you will be returning each year. Not so much a disadvantage in our eyes as a lot of the best fractional ownership properties are in jaw-dropping locations and ones you’ll want to visit time and again, but it needs considering, nonetheless.
Finally, when exploring your vacation home options, ask yourself what its main purpose will be? Is your primary factor in buying a second home purely for investment purposes, or is it for both property investment and to be a vacation home that you can visit each year while renting out and covering some of the running costs? Answering these questions first-off will allow you to venture further and see if fractional ownership is a good idea and could be suitable for you and your family.
*% varies according to the number of divided property fractions
How realistic is to think one might buy a fractional for a season (3-4 moths). As we would like to escape the summer heat where we presently reside!
Thanks for your comment Larry. With fractional ownership, you are in control of the number of shares you purchase, obviously the more shares of the property you buy, the more usage you own. This is the flexibility people love! Let us know if you would like more information on a specific property or would like a quick chat.