Why Fractional Ownership Beats Owning Your Own Vacation Home
Compare Fractional Ownership To Owning A Vacation Home Alone
The common sense of shared ownership is so elegant and obvious, it is puzzling that these arrangements are only now attracting the attention and popularity they deserve. Why incur all of the costs of owning something you will only use part of the time? Why not share the costs with other people who want to use the same thing? This simple logic is now being employed by buyers of many types of luxury items, from executive jets to fabulous yachts. But by far the most common use of fractional ownership today is the vacation home.
Statistics show that most people only use their vacation home 17-30 days each year. Fractionals are appealing because they allow people to own only the share of a vacation home that they will use, rather than the entire property. The main benefits of fractional ownership are:
Lower Acquisition Costs
Buying a fraction of a property means the buyer pays only a fraction of the cost of the entire property. In addition, the costs of renovating, furnishing and outfitting the property are shared. Although the per-share cost of fractionals packaged by a property owner or developer include a “markup” (on average the total share price will be 150-250% of the cost of the home and contents), they are still a good deal for most buyers because they avoid the time, effort and difficulty of outfitting the property, creating the legal structure and assembling the owner group.
Lower Operating Costs
Owning real estate involves ongoing operating costs such as property tax, insurance, utilities, and maintenance, including the cost of repairing and replacing the furniture and other household goods inside. Maintaining a vacation home can be particularly complex because of intermittent usage and the distance between the owner and the property, often requiring the assistance of a local manager or management company. Sharing the cost and efforts of operating dramatically lightens all these burdens.
Eliminate or Diminish Need for Rental Tenants
Most vacation home owners face the unpleasant decision between leaving the property vacant when it is not being used by the owner, or renting it out. As anyone who has been involved in vacation rental knows, the rental option has significant downsides. Do it yourself, and you spend innumerable hours promoting the rentals, responding to inquiries, handling bookings, checking tenants in and out, and readying the property between tenants. Hire a manager or rental agency and you will generally give up 30-50% of the rent. Either way, the tenants extract a significant toll on the property, and the rental periods most demand are the same ones when you would prefer to use the home yourself. While some fractionals allow owners to rent out their home when they are unable to use it, the lower cost of buying and owning a fractional means that most owners do not need to use this option.
Diversification of Investment and Destination
Shared ownership allows the money that would have been needed to own and operate a single vacation home to be spread over two or three vacation homes. Spreading your dollars over several homes lowers investment risk and increases the likelihood of profit by exposing you to two or three different real estate markets. Moreover, owning vacation homes in several locations gives you more vacation options each year, while still allowing you to spend your time in your own homes where you are comfortable with the surroundings and know how everything works.
The benefits of fractional property are so compelling that many people who could easily afford their own place are opting for fraction ownership instead. Perhaps even more surprising, many people who already own a vacation home are choosing to sell some fractional interests in it in order to lighten their cost and management load and still use the property as often as they ever did.
Today’s fractional ownership arrangements are often organized by the users themselves. More frequently, they are set up by a property owner or developer who outfits the property, creates the legal structure and documents, then offers the fractional interests for sale. Contrary to what you might think, groups of complete strangers who come together through these packaged offerings are generally more successful at managing the shared property than groups of friends or family members. The key is good advice, careful planning, and a comprehensive legal agreement.
About SirkinLaw APC
SirkinLaw APC has focused on real estate co-ownership since 1985, and has been involved in the creation of more than 5,000 co-ownership arrangements throughout the United States and the world. This breadth of experience allows us to draw on a huge library of fractional project documentation as well as extensive knowledge of marketing and registration requirements for virtually any location where a project might be located or potentially marketed. We pride ourselves on our ability to write legal documents in plain English, develop simple and elegant usage and organizational structures, and offer efficient, reliable and cost-effective services for fractional projects ranging in size from a single house or condominium up to hundreds of factional interests. Our firm has offices in San Francisco California, Evergreen Colorado, and Paris France.
About The Author
Andy Sirkin has been a recognized expert in fractional ownership for more than 35 years. Since 1985, he has focussed on advising and preparing contracts for small groups of families and friends who want to buy and share vacation homes as partners, and on advising and preparing contracts for sellers and real estate agents who want to market and sell fractional interests in a particular vacation home. While work with individual owner groups, buyers, sellers, and real estate agents remains a major part of Andy’s fractional ownership practice, his work now encompasses advising and preparing contracts for web-based platforms (such as Pacaso) that organize, facilitate and manage fractional ownership arrangements for specific homes, and advising and preparing contracts for fractional ownership developers (who buy properties to renovated and furnish for sale as fractional ownership interests), fractional ownership marketing and sales firms, and fractional ownership management companies.
Andy has worked on fractional ownership of properties located throughout the U.S. and the world, and has also advised fractional ownership startups, platforms, developers and related businesses based in, or focussing on, locations throughout the U.S. and many other countries. However, most of his work has involved fractional ownership in the U.S., the U.K., Western Europe, Mexico, and the Caribbean. He has been a featured speaker at many fractional ownership and timeshare conversions and symposia, an accredited instructor with the California Department of Real Estate, and a frequent interviewee on fractional ownership for podcasts and news coverage throughout the world. Andy is based in Paris, and can be contacted via the contact form.