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What is Fractional Ownership?

Timeshares are popular ownership choices for vacation properties.
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  • Written By: N. Madison
  • Edited By: Bronwyn Harris
  • Last Modified Date: 01 September 2014
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Fractional ownership is essentially partial ownership of a property. With this type of ownership, a property is owned and shared by at least two, and often several, individuals. This type of ownership is popular with vacation properties and resorts.

To understand fractional ownership, consider a large, and expensive, property that may be difficult to purchase and care for on your own. Instead of becoming the sole owner of the property, you purchase a share of it, as do 15 other people. Now, you own 1/15 of the property and have others to share in the burden of maintenance and taxes. Though this option is popular with larger properties, it may be used with smaller, lower cost properties as well.

Often, people confuse fractional ownership with timeshares. Both situations are common with vacation and resort-type properties. With a timeshare, however, you would purchase a specific amount of time to spend at the property, such as 3 weeks out of every year. You would not actually own any portion of the property. With fractional ownership, you would actually own the portion of the property you purchase.

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When you opt for fractional ownership in a property, there will be sharing involved. For example, if you purchase a share in a property with three other fractional owners, you may have use of the property for one week out of every month. The other owners would have their weeks as well and you would not have use of the property at that time. Keep in mind, however, that each property is different and some allow owners to use the properties more or less than one week per month.

Some individuals choose to use fractional ownership to earn money. For example, if an owner doesn’t plan to use some or all of his allotted weeks, he may choose to rent them out to others. Depending on how much he charges, he may be able to earn a profit. He might even be able to rent his weeks to other owners, allowing them to spend more time at the property. Rules concerning renting the property to others are usually covered in the contract.

Fractional ownership is attractive to many because it offers an easy way to own vacation property. With this type of ownership, you have a place to go to vacation, yet are freed from being solely responsible for the property and related expenses. In most cases, a third party or management company takes care of everything from upkeep and utilities to taxes and insurance. Though you have little responsibility with a fractional ownership, you do get the deed to the property, specifying the number of shares you own. You can gift it or sell it as you wish.

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Discuss this Article

anon283218
Post 22

My grandmother left her home to my father and two other people. He passed away without a will. What happens to his share of ownership?

anon223369
Post 21

Recently bought at Whitewater Village in Ottawa. This will be our first full year on this new property. Anybody else out there bought?

jeremie06
Post 20

I really liked reading this article and the fractional ownership concept seems perfect for me.

anon140500
Post 19

I bought a fractional in a villa just one week ago in the Dominican Republic. it seems to work nicer than time share, much more because it's actual ownership, not a club membership. Golden Treasures luxury villas is the agent I bought from, in Puerto Plata (North coast).

Robert Baggs
Post 18

We bought a share this year in a beautiful cottage in Brittany, for around the cost of a 'one-off' family cruise vacation, yet this gives us legal share and title to the property for life.

Entitlement is agreed rotationally, with two consecutive weeks guaranteed in each of three periods - High, Mid and Lo.

We could have bought outright, but six weeks p.a. is likely to be the most time we can spend at our 'maison secondaire', and the property is maintained throughout the year and prepared for each owners visit, with costs shared six ways, and we can ‘bank’ or exchange our week(s) with owners in other parts of the world e.g. Canada, USA, Australia. We truly have ‘realised the dream’! Robert B.

anon114571
Post 17

Can somebody explain the resale value of a fractional product? I know when real estate goes up, so does the fractional product but isn't that only in theory?

Example with some numbers, just an example.

A Freehold Villa costs $200.000 (three bedrooms, private pool).

Fractional cost, $30.000 (with 13 owners each four weeks).

Somebody buys, and is happy, but wants to sell after five years.

Freehold Market value example: $250.000. What is the Fractional resale value?

And more importantly, how do you resell it as an individual? Will this not develop in the same way as the timeshare resale market?

anon104086
Post 16

Fractional ownership has a lot of advantages over time share, but even more when you buy a single property ( a villa or condo ) in a "closed circle" as opposed to a residence club.

A single property can't close shop, like some clubs which belong to a larger group. I bought a villa fractional in the Dominican Republic and it's owned by a group of six people, not a club.

Legally, we're covered and the villa can't go broke because some resort club owner took a loan on the entire property.

anon70809
Post 14

i need to buy a fractional ownership. could you tell me what all i need to check and further what all are the documents i need to get from them and also can i understand what all are the advantage other then getting a one week stay? any monetary benefit by me buying this?

anon65633
Post 13

A land surveying firm was approached by a concerned citizen who asked: how would fractional ownership be implicated by a zoning scheme (land use) of a property?

I would like to clarify whether my point of view is correct. "Similarly to the Sectional Title Act, the way in which the property, owned by way of fractional ownership, can be used or managed will be determined by the applicable Zoning Scheme. If the owners of a Fractional owned property does anything in contradiction with the Zoning Scheme, then they will open themselves up for legal action." Your input would be appreciated - Regards, Karlo

ggharv
Post 9

I was willed 25% of a Cabin in Michigan. There is no written agreement. One of the owners has died since being willed 25%.

Do I have the same rights as the owner of any property? What happens with the 25% that was owned by the deceased party?

anon23581
Post 8

Does anyone know the size of the fractional ownership market in terms of value for the UK? ie what percentage of holiday homes are bought using this model? Thanks

thysgeyser
Post 7

We have been involved with Fractional Interest development and marketing for the last 4 years and can confirm that the concept is as sound as you can wish for. The market has exploded with these products in South Africa, with almost 40 developer/promoters active in developing and selling. The most common size in SA is the 13 shares with 4 weeks use per annum.

The legal structure is however a little more complex and the simple "deeded title" or undivided share is commonly admired but not yet perfected.

We see numerous bigger brand developers now entering the market and requiring our firms assistance for the development of Private Residence Clubs. This is a very positive sign that the bigger developers are also supporting this market segment.

We have also noted a remarkable increase in our services to assist smaller developers for 3 to 4 units. This demonstrates that the positive correlation between tougher economic conditions and a higher appetite for shared ownership does indeed exist. We do however advise that they follow the magic 18 steps to successfully developing such products, as it could be a very difficult project if tackled wrong.

segarrett
Post 1

Fractional ownership of second homes has been growing in popularity particularly in the US as people have realised that there is little sense in paying the full price for a property which you only use a few times a year, even if you can afford it. If you can get together with a group of like-minded individuals and work out a sensible arrangement for its use, you will not only reduce your cost, but the property can be professionally managed and will usually deteriorate less if it is used more often. Most commercial schemes are designed for between four and twelve owners.

There are already several major fractional developments, particularly in the USA but in increasing numbers in Europe, South Africa, Far East, Middle East and a few in the UK. They are usually highly exclusive and, if they offer the type of property you want, they are an ideal way to become a fractional owner.

But if the property you want to own fractionally is not available as a commercial development, there used to be few options for you. Maybe you want a different kind of property, or the right location for you has no development schemes, or you want to share a more mundane property. In these circumstances, sharing would probably never have occurred to you. If you are looking for a city flat to use during the week, could you share the ownership of a more up-market two bedroom flat closer to your work rather than buy a one bedroom flat further away? If you already own a property that you only use some of the time, could you sell a share in it.

www.yours2share.com enables you to find like-minded partners to buy or rent fractionally any property in any location. You can post an ad explaining what you are looking for, there is lots of guidance to help you establish if potential partners are suitable, and even template contracts to help you set up the legal side.

If you don’t need to use a property all of the time, consider sharing the ownership with someone who will use it when you aren’t. If you can, you’ll reduce your costs substantially and/or be able to afford a better property. Just make sure you invest sufficient time discussing all the issues your potential partners, ensuring that you are all like-minded and that the contractual side is properly documented.

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