Pros and Cons of Fractional Ownership | Pacaso

Pros and cons of fractional ownership

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Kasey Tross

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Have you ever split the cost of a pizza with friends because you didn't want to pay full price when you wouldn't eat the whole pie? That’s the basic concept of fractional ownership.Fractional ownership is splitting the cost of an asset – usually an expensive one, like a private jet or a resort condo – with others while retaining a portion of ownership and usage rights to the asset. Just like with the pizza, you only pay for the portion you plan to use; for a jet, it’s the miles you’ll fly in it, and for a condo, it's the portion of the year you'll occupy the property. Once you pay for it, that portion becomes yours to enjoy.It seems simple enough, but there are pros and cons to fractional property ownership that make it more complicated than sharing a pizza. Here are things to consider before you jump into a fractional ownership agreement for a second home. 

Fractional ownership pros

Expanded opportunity to ownFractional ownership gives you the opportunity to own a portion of a property – usually a luxury resort condo – in a prime locale that might otherwise be outside of your budget. With multiple owners splitting the cost, you can enjoy all the amenities of a high-end, resort-like condominium property without breaking the bank. Deeded ownershipUnlike a resort timeshare, fractional ownership gives you a deed to a fraction of the property itself. This means that the value of your share in the property increases or decreases in line with the property's real estate value. Any increase in value is divided equally and becomes gained equity for all fractional owners.Usage rightsYou own actual property, giving you the right to use the property according to your share. For example, if you own one-fourth of a share in a property, you hold the right to use the property one fourth – or 3 months – of the year. You can enjoy the home to the fullest extent of your share in the fractional ownership agreement.Shared upkeep and maintenance costsWhen you own property with the fractional ownership model, you’re also responsible for only a fraction of the upkeep and maintenance. This includes the cost of taxes, HOA fees, repair bills, landscaping, utilities and other expenses associated with the shared property. Lower upkeep and maintenance burdenMost fractional ownership agreements include provisions for property management, with owners deciding together how to handle any issues that arise. Potential rental incomeA fractionally owned property can be rented out either as a short-term or long-term rental if the ownership agreement allows it. Depending on the terms of the agreement, all owners may earn a share in the proceeds of rental income. 

Fractional ownership cons

Fewer financing optionsFew banks provide mortgages for those looking to buy using fractional ownership. You may need to shop around and consider other ways you might be able to finance your fractional ownership property. Less flexibility and freedomAll decisions about maintenance, repairs, decor and reselling fractional ownership shares must go through all ownership partners, and this can be a hassle. Most fractional ownership clubs also require you to maintain an agreement with the club or property management company associated with the home, with no option for self-management or management outside the company. Limited travel opportunitiesWhile it’s not unheard of to own shares in multiple fractional ownership properties in different locations, each one is a significant financial investment. Unlike the more traditional hotel stays or short-term rental properties, fractional ownership can limit your travel options to just one or two favorite spots, and you'll likely be staying in a resort condo, not a private, detached single-family home. 

The bottom line

Where fractional ownership falls short, Pacaso steps up. Pacaso’s professionally managed LLC co-ownership model gives you all the perks and lower costs of co-ownership with key differences that set it apart from fractional ownership resort clubs. Unlike fractional ownership resorts, Pacaso offers true property ownership of private, luxurious single-family homes in choice locations. Buyers decide how much home they want to own, from ⅛ to ½. Pacaso handles all maintenance and management, and offers easy and equitable scheduling on the Pacaso app. Pacasos cannot be rented out, so you’ll always know who’s in your home. And owners can vote to decide to remove Pacaso as program manager if they choose. For more about buying a Pacaso, check out answers to some frequently asked questions

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