What is Shared Ownership
A Shared Ownership arrangement (also know a Fractional Ownership) is a method of co-ownership of a property (home, condo, boat, etc.). Several families, or people, can share the ownership, in an LLC partnership or as deeded Tenants in Common. The use and the cost of the property is shared equally. Most shared ownerships, whether a LLC or Tenants in Common, have an Operating Agreement that is a contractual agreement among all the shareholders. It defines the use of the property; management, maintenance, budgeting, use scheduling, house rules, etc.
How it Works
Owners purchase a deeded share in a residence (usually between 1/4 share to as small as a 1/8th share) that gives them a certain amount of use time per year at the property. The amount of use time is based upon the size of the share and is spread throughout the year. For example, a 1/4th share provides 12 weeks use or a 1/8th share provides forty-four nights use per year. The remaining unassigned time may be used for maintenance, or often the time is available for owners to use on short notice at a minimal cost.
Fractional Ownerships differ greatly from the old-style Timeshares. In a Timeshare the purchase of a share gives the buyer the right to use the property for a designated length of time, usually one or two weeks per year. There are multiple buyers; each has the same right of usage. However, the title remains with the property owner. In a Shared Ownership arrangement, the share owners are either deeded owners of the property or members of the LLC that owns the property and the shares are more than individual week ownerships (usually several weeks or months).
Shared Ownerships differ from short-term rentals (STR) in that STRs are properties owned by individuals or corporations who rent out their property by the day or week to vacationers who use the property. In some instances, property management companies handle the rentals and the renters, and in other instances the owners use a platform such as Air BNB and VRBO to advertise and book their property but must manage the property and the renters themselves. Most Shared Ownership properties do not allow rental of an owner’s time.
Benefits of Buying or Selling a Share in a Fractional Ownership Property
The average cost of a whole ownership vacation home can be upwards of $1,500,000, which makes it difficult for many people to justify owning a second home when they will only use their vacation home a few weeks a year. Co-owning is a more affordable means to own vacation property. For example, owners can have use of a $500,000 – 5-million-dollar luxury home, as a shared ownership, for anywhere from $80,000 – $720,000 (the median price is currently $325,000). Shareholders also pay homeowners fees (which they would be paying monthly anyway, at a higher rate, on a whole ownership), plus have services that would not be available with whole ownership. Financing is occasionally available on some Shared Ownerships.
More Inclusive
In vacation destinations the cost of homes have risen dramatically in the last decade. This rise in price has left many people out of the market and unable to own a vacation home.
Price Fits Usage
Shared ownership means price matches usage since most people don’t vacation more than 3 to 12 weeks per year. Shared ownership is a way to pay for just the time used and not for unoccupied time, like in a whole ownership. With Shared Ownership they can chose between a 1/4th share which provides 12 weeks use or a 1/8th share provides forty-four nights use per year.
More Luxury for less cost
A Fractional Ownership of equal quality and size, in the same or similar location, can be owned for a fraction of that cost. These Fractional Ownerships provide the amenities of a luxury home such as fully equipped kitchens with granite counter tops, whirlpool baths, roomy closets, and year-round storage of sports equipment, etc. – combined, in some Shared Ownerships, with the benefits of a first-class hotel such as concierge services, housekeeping and grocery shopping services. Depending upon the design of the property, residences may be hotel suites, cabins, townhouses, or single-family homes.
No Short-Term Rental Hassles-Only Invested Owners
Co-owners bring an owner’s mentality to the property and are invested in the maintenance and upkeep of the property and the community unlike short-term renters. Co-owners have an interest in what happens to the property resulting in less damage and surprises. Many vacation destinations have put up rules, ordinances, and even bans on short-term rentals because of the harm it is doing to the housing crisis and to the community. Shared ownerships are not included in this ban and are good for the community.
Create Community
Shared Ownership properties contribute to the community by allowing more homeowners to care for and maintain a single home, increasing usage and participation in the neighborhood and the community, and by lowering the barrier of entry for those who wish to be a part of a vacation community.
Cost Sharing with Other Invested Owners
Owners of a vacation home may want to consider selling shares in their home so that they don’t have to give up their vacation home to cover the costs of owning it. Co-ownership can help cover the costs of owning a vacation home by having other invested owners using and maintaining the property rather than short-term renters who may cause more hassle and damage.
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Where the Fractional Market is Headed
Shared Ownership makes so much sense that industry statistics show the Fractional Ownership market is growing. In vacation destinations the cost of homes has risen dramatically in the last decade. This rise in price has left many people out of the market. It has also led many investors to capitalize on a vacation home, or second homeowners to cover costs, by renting it for short-term use. Many vacation destinations have put up rules, ordinances, and even bans on short-term rentals because of the harm it is doing to the housing crisis and to the community.
I expect buyer interest in Fractional Ownership to increase due to the increasing costs of vacation properties and very low inventory. In high-end resort real estate markets large developers and brand name hospitality companies like Marriott, Ritz-Carlton, Four Seasons, Intrawest and KSL Equity Partners have already developed or have plans to develop, Shared Ownership projects. Shared Ownership properties also contribute to the community by allowing more homeowners to care for and maintain a single home, increasing usage and participation in the neighborhood and the community, and by lowering the barrier of entry for those who wish to be a part of a vacation community.
For a side by side comparison of Whole and Fractional Ownerships click HERE.
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