What Is Fractional Ownership of Residential Property?

Fractional ownership is splitting the cost of an asset – typically more expensive, big-ticket items like a house, boat, aeroplane or piece of art — with other people while retaining a portion of ownership and use of the asset.Simply put, a group of people get together to pool their resources and buy something between them. They are issued a deed confirming their share of the asset.

Risk and reward

The co-owners are entitled to the risk and reward that come with the ownership of the property asset. If it rises in value, their share’s value rises correspondingly. They also take responsibility for the care and maintenance of the asset: repair, upkeep, improvements, taxes or fees.

Different models

Fractional ownership is a relatively new concept, especially in Europe, and there are a few different models for how to achieve it. One of the simplest and least problematic is for a property to be owned by a limited partnership, with the shares owned proportionately by all the co-owners. Other models include private residence clubs, destination clubs and exchange programmes.

How is this different to a timeshare?

With a timeshare, you pay for access during a specific period of time, and that time period is your opportunity to enjoy the property. When you no longer want it, you can sell that specific time on.Fractional ownership is different. Each co-owner owns a share of the property, and has a stake in its upkeep, repair and improvement.

What are the pros and cons?

Pros

Each owner has express ownership of part of the propertyThe value of your share in the property increases or decreases in line with the property's market value. Any increase in value is divided equally and becomes gained equity for all fractional owners.Your capital goes further as a part of a collective buying powerYou have the opportunity to own a portion of a high-end property in a prime location that would otherwise be outside of your budget.You have greater control over when and how you stay… than a timeshare. With a fractional ownership property, you own actual property, giving you the right to use the vacation home according to your share. For example, if you own a quarter share in a property, you hold the right to use the property 3 months of the year.Shared upkeep and maintenance costsFractional ownership means you’re only responsible for a fraction of the upkeep and maintenance.

Cons

Fewer financing optionsNot many banks provide mortgages for those looking to buy properties fractionally. You may need to shop around and consider other ways to finance your purchase.Less flexibility and freedomAll decisions about maintenance, repairs and decor must go through all ownership partners, and this can be a hassle. If you want to sell a fractional property, the sale will also have to be approved by the other fractional owners. 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 possible 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 a couple of favourite spots, and you'll likely be staying in a resort condo, not a private, detached single-family home.Novelty and unfamiliarityFractional ownership is a relatively new concept in Europe. It’s better known in the United States and Canada where it is recognised and well regulated.

An alternative to fractional ownership

As we’ve just seen, fractional ownership has its pros and cons. Where fractional ownership falls short, Pacaso fills in the gaps in co-ownership of a second home.Pacaso’s professionally managed limited partnership co-ownership model gives you all the perks and lower costs of co-ownership, but with key differences that set it apart from fractional ownership resort clubs.

What’s different?

True ownershipPacaso offers true property ownership of private, luxurious homes in choice locations. You’re in chargeBuyers decide how much of the property they want to own, from ⅛ to ½. We take care of itPacaso handles all maintenance and management, and offers easy and equitable scheduling on the Pacaso app. You’re in controlThe homes cannot be rented out, so you have peace of mind knowing the property is only being used by a small owner group and their registered guests. It’s up to youBecause the co-owner group collectively owns 100% of the home, owners can vote to remove Pacaso as programme manager if they decide they’d rather self-manage. We’re confident enough in our concept and delivery that we feel no need to tie you in.Check out co-ownership opportunities for homes in more than 40 destinations worldwide.

What is fractional ownership of property?