Is It a Good Idea To Buy Fractional Ownership of a Vacation Home?
Written by
Crystal Mayer
Edited by
Carly Brashears
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Many of us have dreamed of owning a vacation home, but few of us can afford the investment. A study by Statista shows that only 6.02% of individuals between the ages of 30-49 own a second home, and only 4.13% of adults ages 50-64 do. Desirable homes along either coast can cost millions, putting them firmly out of reach for the average American.
To help more people achieve their dream of owning a vacation home, companies like Pacaso have begun offering fractional ownership in certain properties. Fractional ownership allows for multiple people to co-own a home that may otherwise be unaffordable. While the concept sounds great on paper, there are some common pitfalls that you may want to consider before you sign for your share.
And if you decide sharing a vacation home is not for you, here are the best places to find one for under $200,000.
What Is Fractional Ownership?
Fractional ownership, according to the rental company Vacatia, allows owners to “purchase an interest in a residence or pooling of residences, in partnership with other owners.” Each co-owner is entitled to time at the residence but also shares in its cost and maintenance.
Most fractional ownerships are broken into shares, allowing owners to purchase a slice of ownership of a home — for example, one-half, one-quarter or one-eighth ownership. The owner is issued a deed for their share of their property, allowing them to profit from increases to the property’s value.
Is Fractional Ownership a Timeshare?
Fractional ownership and timeshares are different. With a timeshare, a purchaser is usually buying the right to use a property. Investing in a timeshare does not traditionally give you property rights or ownership. It merely allows you access to a property. There are different kinds of timeshares available, including those that require a fixed week commitment and those that allow you a floating week.
Fractional ownership, on the other hand, is when a property is co-owned by multiple parties. A fractional owner purchases a stake in the property and receives deeded ownership. Fractional ownership is typically significantly more expensive than a timeshare but does give owners more access to the property.
What to Consider Before Buying a Fractional Ownership of a Vacation Home
Before you buy fractional ownership, you need to think about your lifestyle. Investing in a second home is not cheap, even if it is only investing in part of it. As with a timeshare, it can also be challenging to sell your investment. Fractional ownership is a limited market and may not have many buyers.
Cities are also starting to crack down on fractional home ownership. Earlier this year, the Newport Beach City Council considered whether the trend was negatively impacting the city. Ultimately the council directed its planning commission to “broaden the definition of timeshare to include fractional homeownership and ban it in residential zoning districts,” as reported by Spectrum News 1.
Are There Outside Fees to Consider with Fractional Ownership?
Another thing to consider is that fractional ownership tends to come with substantial annual fees. The fees can fluctuate over time, meaning that it won’t be a fixed cost. You will also want to make sure that you understand any tax liabilities associated with the property.
Can I Sell My Interest in Fractional Ownership?
If, down the road, you change your mind and hope to sell your interest in fractional ownership of a property, you are absolutely able to. The only downside is that it might not be easy. While fractional ownership has not yet obtained the stigma of timeshares, it may still be frowned upon. Not to mention that laws may eventually restrict the property from being sold to multiple owners.
Fractional ownership is a unique industry with a specific target audience. Finding a buyer isn’t going to be as straightforward as listing your home on Redfin or Zillow. You will need to find an agent or a company that specializes in these transactions and the right buyer, of course. But for now, the trend seems to be gaining momentum. It definitely broadens the landscape for people hoping to invest in a vacation home without having to give up their child’s education fund.
How to Decide If Fractional Ownership Is Right For You
The best way to decide if fractional ownership is right for you is by doing your research. Companies like Pacaso have listings throughout the United States and abroad. You can also find ownership opportunities through “private residence clubs,” such as the Deer Valley Club in Park City, Utah. It is strongly recommended that you speak to current and former fractional owners to ensure that it will be the right fit for you and your family.
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