So, what is so good about fractional real estate ownership? Well, have you always dreamed of owning a vacation home? What if you could enjoy the benefits of a vacation home, plus take advantage of this real estate to substantially increase your income? What if you could do all this at a fraction of the cost of your vacation home?
All these good things and more are possible with fractional real estate ownership!
How does fractional real estate ownership work?
Just as several companies and wealthy individuals have fractional ownership of a jet, regular people just like you can have fractional ownership of real estate.
With fractional ownership, several people own an equal percentage of the property. So, imagine you get 4 people to each purchase a 25% share in a second home on the beach.
If the property was worth $400,000, they would each pay $100,000. Then, each person would have access to the property for 365/4 = ~91 days.
How those days are scheduled would be spelled out in the agreement. It’s not uncommon to alternate weeks in the summer and then pick and choose during the rest of the year.
FRACTIONAL OWNERSHIP VS. TIME-SHARES
At this point, you might be thinking ‘time-share.’ While there are similarities between time-shares and fractional ownership, there are several substantial differences.
Typically, fractional ownership is applied to higher-end properties, though it doesn’t have to be. So the property is typically much nicer than the typical timeshare, and there’s the possibility that you could make a significant amount of money should you ever decide to sell your share.
You can rent your time to someone else. This allows for additional income during the times the property is yours to use.
Your heirs can inherit your ownership. Just like other assets you own, your heirs will get your fractional ownership.
Fractional ownership can be endorsed as alternative residences, thus allowing for tax savings. Time-shares don’t offer any tax advantages.
You can allow family and friends to stay during your time. During the time the property is yours to use, anyone you like may use the property.
You can sell your ownership. As with any other property you own, you can sell your ownership.
INCOME BOOST BLUEPRINT
INCREASING YOUR INCOME WITH FRACTIONAL OWNERSHIP
To visualize how you can use your fractional real estate ownership to produce income for you, let’s use our example of a ¼ share in the home mentioned before. Keep in mind that this is a $400,000 property, so it’s a beautiful home with several bedrooms. Think of how much you can charge others to rent this home for their vacation!
Even if you charged $500 per night, it would still be a bargain for the renters when they compare the cost of several rooms in an upscale hotel on the beach. Several couples could team up and enjoy their vacations for much less than staying in a hotel, while also saving money on dining out because your home has a full kitchen.
So your home offers tremendous value for vacationers!
If you enjoy staying in your vacation home for 2 weeks each year, that leaves 77 days each year that you could rent it out to other vacationers. 77 x $500 = $38,500! If you don’t stay there yourself, you could rent it out for your full 91 days for a grand total of $45,500 minus taxes, insurance, and maintenance expenses, of course.
If you have a mortgage on your fraction of the property, you would also subtract your mortgage payments from the total rental income to determine your profits. So, even if you financed your $100,000, you would still come out with substantial income from your property.
START WITH ONE
Fractional real estate ownership can be very lucrative. If you can gain $30,000 per year in income for one fraction of one vacation home, think of the possibilities! After you profit with one, you can use some of that profit to purchase a fraction of another vacation home. With 3 or 4, you’re looking at close to an extra $100,000 per year in income. Of course, this income is dependent upon your renting out the property during your available days. You may wish to hire a vacation rental management company to handle keeping your property occupied if you don’t have the time or expertise to market it yourself. You can also have it listed online by using AirBnB.com and other similar websites.
Fractional ownership of real estate allows you to possess a vacation property beyond what you could afford on your own. Only being responsible for a percentage of the value of the property might allow you to have a chalet in Aspen or a beachfront home in Malibu – or both!
POINTS TO PONDER
The agreements for these can be quite complicated, and it’s best to consult an attorney before any papers are signed.
Ensure you’re comfortable with the other owners, as well as how the time is divided, the cost of the property, maintenance fees, and so on. Don’t jump in before all details are spelled out.
Fractional ownership of real estate will only continue to become more popular over time. Builders in resort areas are now constructing upscale properties intending to sell fractional ownership in them.
Also, as the economy tightens, more and more people are unwilling to pay full price for a property that they will only use a few weeks or months out of the year.
But everyone still wants nice places to stay on their vacations! So get your portion of a nice vacation home and let these vacation-goers pay you for their vacations!
fractional ownership in real estate offers many benefits, including income, decreased cost, higher levels of luxury, rights of ownership, tax advantages, and flexibility.
Look into these investments and you might be on the beach this summer in that villa or mansion you never thought you could afford – and all paid for with the extra income from your fractional ownership in real estate.