Fractional Homes as STRs

Member since 2020 · 7 posts · 1 vote

Has anyone had any success (or horror stories) with fractional ownership of a second or vacation home as a rental?

My understanding is that fractional ownership is different from a timeshare as the buyer owns a portion of the actual home (generally from 1/2 to 1/8), not just a right to use it. So, property value appreciation accrues to the owner and can be realized upon a sale--plus any income associated with the rental of their share. Generally, these are implemented as a special purpose LLC with owners buying and selling out of the LLC--with all owners sharing costs such as property tax, insurance, maintenance, utilities, etc.

Do you think this is good approach to limit the size of an investment, or do the risks of the other owners outweigh any potential benefit?

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

Fractional ownership is a growing market, but I don't personally have experience with it. I just read an article about it the other day and approached the subject with my wife. We agreed it's not for us. We could see splitting the costs of a vacation home with friends or family, but we wouldn't want to share with complete strangers when there's no way of knowing if they would cover their share of the costs, take more than their share of access, maintain the home to our standard, etc.

The idea is good. Instead of paying $300,000 for one vacation rental in Florida, you could pay $50,000 to purchase a share of six different vacation homes around the country! The question is: can you trust the other partners?

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Jerry W.Pro Member
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Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
6y
@Lou Smith, welcome to BP bud. Your question is pretty much impossible to answer. Is it better to drive a ford or a chevy? It's pretty much a personal preference and could vary from different models. Fractional ownership without a really operating or ownership/operating agreement is usually bad, but pretty much every major corporation is fractionally owned. I have seen several properties owned fractionally from estates where someone divides property equally among a list of folks, often their children, but sometimes others. Even brothers and sisters often end up fighting. You need to make sure you have rules built into your operating agreement about who does what work, what they get paid, how you divide profit or losses or adding money in case something goes wrong. You need how and when folks can sell shares, how to resolve a dispute in case of a tie, and how to dissolve it if push comes to shove.
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
6y
Fractional ownership is a growing market, but I don't personally have experience with it. I just read an article about it the other day and approached the subject with my wife. We agreed it's not for us. We could see splitting the costs of a vacation home with friends or family, but we wouldn't want to share with complete strangers when there's no way of knowing if they would cover their share of the costs, take more than their share of access, maintain the home to our standard, etc.
The idea is good. Instead of paying $300,000 for one vacation rental in Florida, you could pay $50,000 to purchase a share of six different vacation homes around the country! The question is: can you trust the other partners?
The DIY Landlord Book4.7243 Reviews
Website View Page
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Mike Makkar
Investor · Plano, TX · Member since 2014 · 188 posts · 149 votes
5y
I am doing this with a couple of investor friends on some Single Family Residences. There aren't too many tools to manage this, but I'm seeing more interest for this among folks.
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