The Pros and Cons of Fractional Ownership of a Vacation Home
Are you looking to buy a vacation home, but are unsure if it is the right move for you and your family?
Want more articles like this?
Create an account today to get BiggerPocket's best blog articles delivered to your inboxSign up for free
If so, you might want to look at fractional ownership. It is a great way to still have many of the benefits of owning a vacation home while spreading out the risk and/or monthly bills.
What is fractional ownership? This is where 2 or more families purchase a vacation home together. They split all the expenses and income proportionately amongst the owners.
Advantages of Fractional Ownership
Many people dream of owning a vacation home in a resort community, but sometimes their income does not allow this to actually happen. By joining in with another partner or two, an owner can split the monthly carrying cost of the vacation home — not to mention any unforeseen maintenance issues.
Ability to Buy a Bigger House or a House in a Better Community
The houses in the best communities oftentimes cost more than houses in less desirable neighborhoods. This is the first rule of real estate: location, location, location.
So by joining into a fractional ownership agreement, a potential buy can buy a bigger house or a house in a more desirable area. This will also reduce their risk if they ever wanted to sell the property.
Less Property Vacancy Due to Shared Use
With school schedules, extra circular activities and hectic work schedules, most vacation homeowners can really only enjoy their vacation home about 3 or 4 times a year. So even if you owned a vacation home with 3 other families, you still could use the property 17 weeks or more a year.
More Capital for Property Upgrades
All vacation homes, even the most lavish houses, need a little TLC every now and then. When you are sharing the cost of the vacation homes with other families, you can afford more upgrades than would be affordable if you were to pay for the upgrades yourself.
If you decide to rent the vacation home out to other families, and one of your goals is the have the vacation home make a profit year in and year out, then you could split of up various jobs to the other owners.
For example, one owner might be in charge of talking to prospective renters and letting them know about the property, while another owner might be in charge of guest relations once the guest is actually staying in the house. By splitting up these jobs, you can reduce the monthly overall carrying cost of the vacation home and hopefully charge more money on the bookings as compared to relying on a property manager or vacation booking sites to fill up your vacation home calendar.
Disadvantages of Fractional Ownership
Hard to Sell
Oftentimes, it is hard to get out of or sell a fractional vacation homeownership.
Many times, prospective buyers get very leery about joining into a partnership with someone they do not know. Also, sometimes the other partner in the ownership can make it extremely difficult for the property to sell in hopes that they can pick up the full ownership or more of the ownership for pennies on the dollar.
In addition, it is very hard in some markets to find a real estate agent who will sell a fractional ownership. In some markets, it is just too difficult to sell.
Difficulties in Coming to an Agreement on Decorating
Many families might find it hard to agree on decorating ideas for the vacation home, and it is nearly impossible to make the house personable with pictures of the kids and family.
HOA or Local Rule Regulations May Restrict it
Some communities are now cracking down on fractional ownership of the vacation homes.
While it is hard for them to eliminate it altogether, some HOAs are limiting ownership privileges to just one or two owners. This also makes it difficult if you have 3 or more owners sharing in the ownership.
Clashing Plans for the Vacation Home
One owner may want to use the property for just immediate family members, while another partner may want to rent out the house as a short term vacation rental. Obviously, short term vacation renters can bring in extra money, but renters can also do damage to the property, while also limiting the owners’ overall usage of the property.
All in all, fractional ownership is just like anything else: it has its pros and cons.
My suggestion is, before you get into such a partnership, write up a detailed agreement that all owners can agree upon. This agreement should outline the responsibilities of each owner and also outline steps an owner must take if they want to sell their portion of the house.
The last thing you want to do is actually buy the property, then find out that each owner has a different objective with the vacation home.
Do you have any experience with fractional ownership? Would you consider this mode of vacation homeownership?
Leave a comment below!