Fractional real estate was born out of necessity as developers who were building luxury vacation homes at some of the country's largest ski destinations were running out of slope-side space to build. With most of the existing homes sitting vacant for most of the year, the concept of shared ownership became an almost obvious choice. Today's fractional real estate industry has changed since it first burst onto the real estate scene several decades ago, and there are now several different models that are successful, including collective asset ownership. Although each model is slightly different, they are all based on the concept of shared ownership in a high-end vacation property.
What is Fractional Real Estate?
Fractional real estate is any property that is owned by two or more entities, and access to the property is shared on an equal basis. In a traditional fractional arrangement, ownership is deeded to each individual, allowing that share to be sold, transferred or willed to beneficiaries. Collective asset ownership is another type of fractional real estate where each entity owns a share of an LLC, which in turn owns a number of properties. Time in the properties is also shared equally among each of the owners.
Why Choose Fractional Ownership?
The National Association of Realtors states that typical vacation home owners spend an average of 39 days per year on vacation. Many of those vacation homes remain unoccupied the other 326 days, although owners must maintain the property even when they're not there. In a fractional real estate scheme, a property manager takes care of the home year-round so that owners can simply enjoy time building family memories without all of the hassle of home ownership when they're not there. In a collective asset model, the LLC may purchase a number of homes instead of one property, giving owners a choice of destination vacations to enjoy. This offers the best of both worlds: the smart vacation ownership investment and the ability to travel and vacation in multiple destinations.
Are Fractional Vacation Homes a Good Investment?
In 2011, there were close to 8 million vacation homes in the United States, and many were purchased at prices that were driven down by the recession. All of these homes, whether they are fractional or wholly owned properties, are subject to the ebb and flow of the real estate market, and owners may see gains or losses as with any other investment. When you compare the relatively low entry cost of fractional ownership with the throwaway money spent on vacations in rental homes, hotels and destination clubs, the numbers make the decision for most people. Choosing a collective asset ownership model is often the route chosen by risk-averse investors, as the LLC offers some protection in case things go awry.
The concept of fractional real estate as an investment and a lifestyle makes sense for many who want in on the growing vacation ownership trend. With approachable home prices for high-end homes, it's a smart way to enjoy the benefits of home ownership while building family memories and enriching your investment portfolio.
