Fractional Ownership Model for Vacation Rentals

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Fractional Ownership Model for Vacation Rentals

Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes

Of all the people here on BiggerPockets, do any of you follow a fractional ownership model when it comes to vacation rentals where your primary goal is use rather than profits? In other words, have any of you ever gotten together with friends or family to buy a really cool property that you want to own so they you can use it for vacations, etc. and then you rent it out as a vacation rental in order to cover the costs of the property? 

Most investors that I know would rather put their money in a property that will give them the highest profit and then just spend money when they go on vacation rather than buy a property that doesn't produce a very high return just so that they can have the property for when they want it.

Personally, all my vacation rentals have the primary goal of use and the secondary goal of making sure the property covers its own costs and then third goal is profits. I just wanted to know if there's anybody else out there like me or if I'm a rarity on this platform.

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Matthew Tregoning
Property Manager · Melbourne, FL · Member since 2019 · 505 posts · 178 votes
2mo

Personal use first is a completely valid goal as long as everyone agrees that it is not a pure investment. The hard part is not the vacation calendar. It is repairs, upgrades, cash calls, exit rights and what happens when one owner wants out. I would put those rules in writing before the property is chosen. A great house can become a terrible partnership fast when expectations are different.

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  • Jules Aton
    MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
    2mo

    Both of mine are personal enjoyment first and investment second but I haven't ever had an interest in giving up the control of being sole owner. One of my neighbors owns with another couple and they aren't replacing the old, ugly carpet becaause their friends don't want to. Stuff like this would make me end up covering the full cost to replace and then being salty about it.

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  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 4k+ posts · 3k+ votes
    2mo

    Of all my client buyers currently about 75% are chasing tax benefits as the primary driver then profit then personal use third I would say.  The other 25% are a mixed bag of having a second home then profit, general investment etc.  I do see some going in on this with family and/or friends but have never seen a group model actually executed.  I think control is not easily given up and can lead to things like lawsuits or regrets in the future IMHO.

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    2mo

    Mine are vacation rentals for personal enjoyment first too.

    One also makes good money while the other breaks even, for now.

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    • John UnderwoodPro Member
      Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
      2mo

      If I bought another vacation rental it would be a beach house.

      I'm leaning towards just keeping acquiring LTR'S and then use that money to go where ever I want and go different places.

      I only buy mountain view, Lake, River, Ocean front etc.

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    • Shiloh LundahlPro Member
      OP
      Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
      2mo

      @John Underwood You just described the houses we have in Costa Rica. Mountain house, Lake house, and Beach house. The only one I am missing is one on the river which is what my wife wants. We have 2 cabins in Arizona, but neither of them are on a river and they are 3 hours away. So my job is to find a cabin within 2 hours of Gilbert, Arizona that is on a river. But if I ever did find it, then it would just be an expense because there is no destination spot within 2 hours that has a cabin on a river. It would probably be easier to build the river than to find the illusive cabin on the river within 2 hours of our house. 😔

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2mo

    I have followed fractionals for the last 30 plus years.. starting in Lake Tahoe ski areas and then the super high end ones where the company owns and manages multi million dollar homes in high end locations.. Europe Aspen Vail Cabo Tahoe etc etc .. back in the day it was about 100k to 200k to join and you got a certain amount of weeks a year very white glove .. for the well to do I can for sure see the appeal as oppossed to spending 2 to 5 mil on a high end second home.

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    • Shiloh LundahlPro Member
      OP
      Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
      2mo

      @Jay Hinrichs what you described is the model I use in with the properties that I co-own in Costa Rica. Each of them have a value of over 1 million and there is no way my wife would be amenable to me paying a million dollars for each of these properties while our kitchen still has the orange oak cabinets from the nineties. 

      So instead, if I have 10 partners on each of the deals and I can still have access to using them, then it becomes a different story. I am only bringing in a portion of the total costs, but I am able to enjoy the whole property for 1-2 weeks a year. I personally love it. 

      But it is a lot of work to keep up with all of the bookings, maintenance, finances and advertising. 

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  • Diana KhanPro Member
    Attorney · 10451 Mill Run Cir #755 Owings Mills, MD 21117 · Member since 2024 · 716 posts · 259 votes
    2mo

    @Shiloh Lundahl, I actually like the idea of putting personal use first, especially if everyone going into it has the same goal. The part I’d spend the most time on is the agreement between the owners before anyone buys.

    I’d want everyone to be clear on things like who gets which weeks, how repairs or upgrades are approved, what happens if someone stops paying their share, and how an owner can get out later if life changes.

    The property itself may be easy to manage. Sometimes the harder part is making sure friends or family still agree a few years down the road. If those expectations are clear from the beginning, I think the model can make a lot more sense.

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  • Matthew Tregoning
    Property Manager · Melbourne, FL · Member since 2019 · 505 posts · 178 votes
    2mo

    Personal use first is a completely valid goal as long as everyone agrees that it is not a pure investment. The hard part is not the vacation calendar. It is repairs, upgrades, cash calls, exit rights and what happens when one owner wants out. I would put those rules in writing before the property is chosen. A great house can become a terrible partnership fast when expectations are different.

    2Reply
  • Chris I.
    Gilbert, AZ · Member since 2018 · 93 posts · 42 votes
    2mo

    @Shiloh Lundahl Are you buying them with cash or financing? 10 people paying 100K each to buy a 1 million property to enjoy 1-2 weeks a year wouldn't make sense to me personally. But not sure I'd trust a foreign bank with financing either....

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  • Shiloh LundahlPro Member
    OP
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    2mo

    @Chris I. As a an investment property with the goal of getting a good return wouldn't make very much sense. If you look at it from the other way, which is: How can I own a really cool property in Costa Rica without putting too much of my own money into it that I can still go out and enjoy each year? Deniz, then as the wheels turn you find that owning the property with other people brings down the cost. If you can rent it out while none of you guys are there, you may be able to own the property without paying any costs. So, if your first goal is to use while minimizing personal expenses, then fractional ownership makes sense. At least to me, it does, but I'd love to know more about your thoughts on it. Also, didn't you use to come to my meetups a few years ago?

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  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    2mo

    Fractional ownership is essentially a time share situation.  You "own" use of the thing for a week or two.  Basically pre-paid hotel, plus your "share" of all administrative, marketing, and maintenance expenses.  

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    2mo

    Shiloh, I think this model can make sense, but the part I’d want everyone to understand upfront is that “we’ll all use it personally sometimes” changes the tax picture quite a bit.

    If multiple friends or family members own the property together and also use it personally, you're not just dealing with a normal STR. You also have to track personal-use days, rental days, who used it, and whether the property crosses the vacation-home thresholds that can limit how losses are treated.

    The ownership structure matters too. If several people are contributing capital and sharing use, I’d want the operating agreement to clearly spell out ownership percentages, scheduling rights, maintenance responsibilities, capital calls, income distributions, and what happens if one owner wants out.

    From the tax side, mixed personal and rental use can affect deductions, depreciation, and whether losses are limited. Cost segregation may still be worth evaluating, but I’d only model it after understanding the actual personal-use pattern, because accelerated depreciation is much less helpful if the resulting losses can’t be used the way everyone expects.

    So yes, I think the concept can work, but I’d treat it less like “friends buying a vacation home together” and more like a real partnership with a very clear operating and tax framework from day one.

    Happy to connect and share some of our resources that might be helpful!

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