What is fractional ownership in real estate?

What is fractional ownership in real estate?

Fractional ownership in real estate is when individuals own a percentage of a property and share usage rights. Fractional ownership splits the cost of an expensive purchase among several people.

Understanding fractional ownership

Fractional ownership is commonly used for buying vacation homes or luxury items like boats or planes, but is also used for other types of assets such as art, stock and fashion items. Owners are issued a deed representing their fraction of the property. Fractional owners also take on the benefits and losses that come with ownership: If a property grows in value over 10 years, individual shares appreciate, too. Co-owners share income of their shared property proportionate to the percentage of the asset they own. Fractional ownership means you own part of the property itself. 

Fractional ownership is: 

• A more accessible way to buy and own than purchasing alone

• When the cost of an asset is divided into percentage shares

• Property that’s owned and shared by multiple unrelated parties

In more detail:

What are the pros and cons of fractional ownership?

Pros include: 

• Each owner has express ownership of part of the property.

• Your capital goes further as a part of a collective buying power.

• You have greater control over when and how you stay than a timeshare.

• There are typically fewer owners to share with than a timeshare.

• You can sell your shares in the property whenever you want.

• Your shares can appreciate over time.

Cons include: 

• You aren’t the sole owner of the property.

• You pay management fees, if you choose an external manager.

• Your shares can depreciate over time.

• It can be difficult to sell shares versus a whole property.

What is tenancy in common?

With tenancy in common (TIC), each tenant holds an individual deed for a fraction or percentage of a commercial or residential property. There is one key difference between tenancy in common and fractional ownership: No one person or company is in charge. To be a TIC, individuals must own different percentages of the property while sharing the whole and managing it themselves.

What is fractional ownership through an entity?

Some properties split ownership via a structural entity like an LLC (limited liability company) or LLP (limited liability partnership). Since a separate legal entity defines the ownership, it’s no longer a tenancy in common. It’s not necessary to have an LLC to make a fractional ownership purchase.  

Can fractional ownership apply to any purchase?

Many major purchases can be purchased via fractional ownership: luxury cars, yachts and boats, aircraft, recreational vehicles and, of course, real estate. 

Can you finance fractional ownership?

Yes, you can finance fractional ownership of a property, but it’s less common than paying in cash. Fractional mortgages come with their own restrictions and are issued less often by lenders. 

What responsibilities do you have as a fractional owner?

Maintenance of fractionally owned properties typically falls to a third-party management company. If the property you share is recognized as a tenancy in common, the owners might take a more casual approach and assign property management tasks to individuals in the group.  

How does ownership work for Simpley?

Simpley offers fully managed LLC co-ownership of a property. Owners purchase from 1/10 to 1/2 of the property and share the rest anonymously with their fellow owners. From there, Simpley handles all the maintenance, management and ongoing updates to the property. Learn more about our listings of available properties for co-ownership.