is Fractional Ownership?
ownership simply means dividing an asset into portions or shares.
term ‘fractional ownership' has been used in recent years
by developers structuring property sales in this way, but in fact,
fractional ownership of real estate has always existed. For years,
families and friends have understood the advantage of purchasing
property jointly, especially if the intent is to use the property
part-time. In California, the real estate structure of tenancy
in common has been used for decades as an adaptation to ownership
laws for apartment buildings.
Current offerings now offer this shared asset structure to small
groups of strangers, providing an opportunity for joint investment.
Now, instead of finding a group of people and deciding together
which asset to purchase, interested investors can find the asset
while the developer takes care of structuring the purchase and finding
other like-minded individuals to share the benefits. The industry
has seen an explosion in support offerings for small fractional
ownership groups, including financing, resale brokerage, and property
management and exchange services.
How fractional ownership works
Typically, a company is formed to hold the title to the real property.
The fractional owners or investors, typically 5-12, then own shares
in that company. This structure allows the fractional shares to
be transferred more easily, without the need to make changes on
the property title, thus avoiding certain tax consequences.
fractional ownership, each shareholder has certain usage rights,
usually in the form of weeks of use. While the freedom and usage
benefits sound similar to what used to be called a timeshare,
there is a fundamental difference, fractional owners actually own
a share of the title, as opposed to simply owning time. Therefore,
if the property appreciates in value, so do the fractional shares.
As with sole ownership, fractional owners are free to sell, gift
or will their shares as they wish.