Is a Fractional Ownership Property Right For You?
By Chris Arnold
There are many reasons for buying a secondary residence. A niche of homeowners are motivated to purchasing a secondary residence for their own use with the understanding that they will not use this property for the majority of the year. Management and upkeep are primary concerns that rationalize their decision. If this describes you, Fractional Ownership may be a great solution.
Other motivations for purchasing a secondary residence include retaining the property solely for use by your family and close friends. Additionally you may need access to the property at all times or a majority of the year. Your goals may differ and thus you are simply purchasing your next investment property to rent. These are all purposes that fractional ownership does not fill.
In focusing on your wants and needs, the solution will come easily. We have included qualifiers below that should assist you in determining if fractional ownership is right for you.
Fractional Ownership may be right for you if
You spend less than 8 weeks a year at your secondary residence. While most owners spend less than four weeks a year at their second home, the majority spend less than two weeks a year. Your primary goal is to purchase a true place to get away from it all. You prefer that your second home be managed for you. Many current owners are all too aware of responsibilities that come with a secondary residence.
The idea of reducing the purchase price and carrying costs for the residence are attractive to you. Whole Ownership (non-rental) may be right for you if
You spend more than four months a year at your second home.
If you spend more than four months a year at your secondary residence or do not want the restrictions of a schedule, fractional ownership will not work for you. Some people want a home that is always available for them and their family. In this situation there is no substitution for whole ownership. You want your second home to be yours and only yours.
For those who enjoy having a residence available only to them and no one else, there is no substitute for whole ownership. Whole Ownership (investment rental) may be right for you if
Your primary goal is to purchase a property for investment purposes and the inherent potential increase in value over time. Your primary goal is renting the property in order to cover as much of the mortgage carrying costs as possible, if not all of it.
Although fractional ownership provides many benefits, purchasing a fractional ownership property primarily as an investment is not one of them. While you may purchase a property for a fraction of the total property price, this fractional price usually comes at a premium when compared to whole ownership.
Carrying costs of a fractional property also comes with a premium when compared to whole ownership. The advantage to fractional ownership is that by fractionalizing the property both the initial and carrying costs are significantly less than costs associated with maintaining the same property, as a whole.
Owners also typically receive a higher level of management and service compared to whole ownership. Fractional properties may or may not allow for rentals depending upon the specific property. Regardless, the premium paid for the property and association fees will not make this an intelligent choice for those looking strictly for a rental investment property.
Fractional ownership makes the most sense for owners who will use the property for their own recreational purposes. Even if you are sharing ownership in an investment property, technically this does not meet the definition of Fractional Ownership. Groups of individuals purchasing a property together are known as Tenants in Common.
Unlike Fractional Ownership which places restrictions on the property for each interest holder, Tenants in Common may have benefits for those primarily looking for an investment property.
This form of ownership includes unrestricted rights to access the property and owners do not pay a premium for their interest in the property or its carrying cost. There is a risk in that the open relationship is likely to have little to no restrictions and boundaries between the owners. Even if there are, they are difficult to enforce.
About The Author
Chris Arnold is a leading real estate agent in Panama City Beach Florida. He also works with fractional ownership properties. You can see this article at http://www.fractionalownershipgroup.com/65-Is-a-Fractional-Ownership-property-right-for-you