Have you ever split the cost of a pizza with friends because you were each only eating a portion of the pie? That’s the basic concept of fractional ownership. Fractional ownership is when you split the costs of an asset – usually an expensive one, like a private jet or resort condo – with others while retaining a portion of ownership to the asset. Just like with the pizza, you only pay for the portion you plan to use; for a jet, it’s the miles you’ll fly in it, and for a condo, it's the amount of shares you will own in the property. Once you pay for it, that portion becomes yours. It seems simple enough, but there are pros and cons to fractional property ownership that make it more complicated than sharing a pizza. Here are things to consider before you jump into a fractional ownership agreement for a co-own home.
Owning properties fractionally gives you the opportunity to own a portion of one or more properties, that might otherwise be outside of your budget. With multiple owners sharing the costs, you can now own a fraction of a property, without breaking the bank.
Fractional ownership gives you a deed to a fraction of the property itself, sometimes called a fractional interest. This means that the value of your share in the property increases or decreases in line with the property's real estate value. Any increase in value is divided equally and becomes gained equity for all fractional owners.
A fractionally owned property can be rented out either as a short-term or long-term rental if the ownership agreement allows it. Depending on the terms of the agreement, all owners may earn a share in the proceeds of rental income, based on their proportional stakeholding in the property.
If you are a 10% co-owner of a property, and the property rental income is USD1,000, then you will receive USD100, which is equivalent to 10% of the income.
When you hold ownership of a property using the fractional ownership model, you’re also responsible for only a fraction of the upkeep and maintenance. This includes the cost of taxes, HOA fees, repair bills, property management companies and other expenses associated with shared ownership.
Most fractional ownership agreements include provisions for long-term property management, with owners deciding together how to handle any issues that arise.
Few banks provide mortgages for those looking to buy properties fractionally. You may need to shop around and consider other ways you might be able to finance your fractional ownership property.
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