Are you looking to buy a vacation home, but are unsure if it is the right move for you and your family? If so, you might want to look at fractional ownership
. It is a great way to enjoy the benefits of owning a vacation home while spreading out the risk and/or monthly bills. In short, fractional ownership is when two or more families or investors purchase a property 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 better property in a better community
Better properties—or properties in better communities—oftentimes cost more than less desirable properties or neighborhoods. This is the first rule of real estate: location, location, location. By entering into a fractional ownership agreement, potential buyers can purchase 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
With school schedules, extra circular activities and hectic work schedules, most vacation homeowners can really only enjoy their vacation home about three or four times a year. So even if you owned a vacation home with three other families, you still could use the property 17 weeks or more a year. Of course, if you plan on renting the property exclusively via a platform like VRBO or Airbnb,
More capital for property upgrades
All vacation homes—even the most lavish—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.
Shared duties for rentals
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, fractional ownership allows you to split up various jobs.
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. By dividing these jobs, you can reduce the monthly overall carrying cost of the vacation home.
Disadvantages of Fractional Ownership
Hard to sell
Oftentimes, it is hard to get out of or sell a fractional vacation homeownership. Prospective buyers can be wary about partnering with someone they do not know. And you want to choose your partner wisely: If the relationship goes sour, they can make it extremely difficult to sell the property in hopes that they can pick up full 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 property. In some markets, it is just too difficult to sell.
HOA or local restrictions
Some communities are now cracking down on fractional ownership of vacation homes. And while it is hard for them to eliminate it altogether, some HOAs are limiting ownership privileges to just one or two owners. This makes it difficult if you have three or more owners interested in sharing the property.
Clashing plans for vacation homes
If you're planning on utilizing the property for personal use, fractional ownership may lead to clashing plans. 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. Take care before buying to discuss your plans—and finalize them with a lawyer.
Fractional ownership is just like anything else: it has its pros and cons. Before you begin your 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. Consider having an attorney review this agreement.
After all, 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.