If you have been doing any research into investing in vacation properties, you might have come across the term “Fractional Ownership.”
This type of investment has become an increasingly popular way of buying homes, but what is it exactly? How does a fractional property investment break down and what makes it different from other similar-sounding options like timeshares?
Let’s take a look into Fractional Investment and how it works.
Fractional Ownership Explained
Fractional ownership (also known as Fractional Investment) allows multiple people to divide up an asset and share ownership of it.
This often applies to real estate, but can also apply to other high-value assets such as jets or yachts. It is also known as “collaborative consumption” which is a general term for when the overall cost of something is split within a group. The asset could be owned by a group of friends and family, or it could be a group of strangers brought together by a platform.
When the fractional ownership concerns a property, all owners can make personal use of the space. For example, at Partbnb you’ll be able to book your getaway at your property at a discounted price not available anywhere else.
Fractional owners will also earn revenue when the home is rented out. This is usually arranged through a property management company that takes care of the maintenance and marketing of the vacation home. For example, here at Partbnb, Caribbean-based property management company KeyLobby takes care of all aspects of renting the vacation properties on VRBO, Airbnb and other popular sites.
Fractional ownership can be seen as a stepping stone between renting a property and fully purchasing it. With this type of investment, there’s no need to worry about paying the entire running costs or upkeep of the property. You don’t have to go through the work of being a landlord. You also don’t have to worry about marketing the property as a vacation rental or greeting and managing guests - it’s all taken care of.
Often fractional ownership will be restricted to buyers who qualify. For example, at the moment Partbnb fractional ownership is only available to Accredited Investors. This is defined as someone who has a net worth exceeding $1 million (not in property) or an annual income of at least $200,000 (or $300,000 for joint income) for the last two years.
How It Works
When you buy a fractional property, your purchase price relates to the number of shares you own in the property.
Most fractional ownership options divide the shares into 6 or 8-week blocks.
It is also possible to divide the property up into percentages.
For example, for $100,000 you could own 10% of a luxury property on a beautiful tropical island worth $1,000,000.
The size of the fraction you own is up to you. It could be ½, 1/4, 1/17th or any other share of the property deed.
As the value of the property grows, your share grows in value as well.
If the property generates rental income, you also receive a proportionate amount of that income.
Each fractional investment property option will work differently, so it’s important to research and find the right option for you. For example, here’s how things work at Partbnb.
We have done our best to make sure the fractional ownership investment process is as straightforward and easy to understand as possible. You can see your investment on the handy dashboard and track your rental earnings in real time.
We have done our best to make sure the fractional ownership investment process is as straightforward and easy to understand as possible. You can see your investment on the handy dashboard and track your rental earnings in real time.
Fractional Ownership vs Timeshare
Fractional ownership is not the same as owning a timeshare.
The main difference between the two is that with fractional ownership the buyer owns part of the property. With a timeshare, the buyer only owns a unit of time to spend on a property.
Also, with fractional ownership, the value of the shares will increase in value if the entire property increases in value. The same will not happen with a timeshare. At the end of a timeshare, you will have nothing but the memories of the time you spent in the property. With fractional ownership, you have the potential to make a rental income from the property as a potential capital gain when you sell later.
You can also read about it in our previous blog about this topic.
Benefits of Fractional Ownership
Here are some of the main perks that fractional ownership offers:
You’ll be able to go back again and again to the same destination, enjoying a sense of community and establishing friendships in your “home away from home.”
Enjoy a passive income as the property is rented out to visitors throughout the year while you are not using it.
You’ll enjoy this vacation rental income without having to worry about the time-consuming hassle of managing or renting out the property.
Since you’ll only be paying a fraction of the costs, you’ll be able to afford a much more luxurious vacation property than you normally would.
You’ll be able to benefit from rental income no matter where in the world you live.
The vacation rental homes are always in stunning locations that bring in high vacation rental fees and are also a delight to visit.
A property is an actual physical asset that exists in the real world, rather than a stock that is a bit more abstract.
You’ll be sharing the maintenance costs over the years with the other owners.
It is possible to pass along the fractional ownership to your children, so the property can be in the family for generations.
This type of investment allows you to diversify your portfolio, which is always a very smart move financially. (Learn more about why you should diversify your portfolio.)
Learn more about Fractional Investment
At Partbnb we make it as easy as possible to be a part owner of a property.
On our user-friendly platform, you can buy and sell parts of an operating short stay rental, while enjoying the steady rental returns. You can also benefit from potential long term capital gains.
To see our available properties and learn more about owning your own slice of paradise - click here.