What is Fractional Ownership?
First there were timeshares. Hotel-style suites and services made affordable by partial “ownership” of a vacation home. They were all the rage until the 90's when they became a nightmare litigation and hard to offload.
In the early 2000s we started sharing everything. Sites like VRBO, Airbnb, etc. These rentals quickly saturated markets, doing battle against municipality ordinances and a growing reputation for inconsistent guest experiences and hard-to-find property management services capable of handling the extreme turnover volume.
Is there not an answer for second home owners, travelers or investors looking for luxury and quality?
Sure there is. Fractional ownership.
How Does it Work?
Ownership of a house is "split" into quarters with each owner having their own deed. That's unlike a timeshare where you own a time slot - that's it. The home is under a JUMA (Joint Usage Management Agreement), sort of like an HOA that's specific to that address. The JUMA outlines how repairs will be handled, the schedule of day/week/month-long stays and what general rules apply to the property. Owners are allotted their usage periods throughout the year to enjoy the home without the high overall cost of owning it outright or the year-round responsibility of managing it from a distance.
What's the Upside?
Unlike a timeshare every owner enjoys the equity growth as the real estate rises in value with the market.
It’s more affordable. Maybe an $800,000 beach house isn’t in your budget but $200K does the trick. Additionally, all the expenses for upkeep won’t fall on your shoulders alone.
No home should sit empty and many second homes do. The regular opening of windows, running of water and use of the HVAC are critical to good home maintenance and preservation of value.
Unlike an AirBnb property there are legitimate owners with a vested interest in the upkeep and not a freight train of vistiors creating wear and tear.
What's the Downside?
Lending is sparse with few mortgage companies willing to service these. They’re out there but you have to look.
Selling a fractional share can take longer than selling a house since its a niche market. The JUMA should outline any specifics or restrictions. For example, can the next owner rent out their weeks or is it strictly for their use?
Consensus and compromise. Owners will need to make decisions jointly and that process, depending on the issue, can be easy breezy or mortal combat. This is why a well-drafted JUMA is so critical.
Commitment. Unlike occasionally renting out a VRBO home you’ll be limited to a specific location and specific weeks.