Fractional ownership is a popular concept that’s become increasingly common over the past few years. In short, fractional ownership is a way to split larger purchases with other people, divide time using your purchased item or property, and save on total costs.
Most people use fractional ownership to purchase real estate, expensive modes of travel like planes, cars, or yachts, antique relics, rare books, and other larger investments. This method of purchasing expensive assets is desirable for many people, especially if you don’t want to use your purchase often and don’t want to pay full price for it.
This guide takes a closer look at fractional ownership, how it works, and whether it’s right for you. Read on to learn more.
Fractional Ownership: How it Works
Fractional ownership works based on the premise that a group of people comes together to share the financial responsibilities of one item. This could be a vacation house, a condo, a private jet, a yacht, or even an expensive yacht.
Fractional Ownership & Properties
The concept of fractional ownership originated in the realm of real estate. Instead of accepting full responsibility for a mortgage, insurance, down payment, maintenance costs, and property tax, you can use fractional ownership to split the cost and use of a property. When you split the cost of real estate, some are even able to eliminate loans and mortgage payments entirely.
The most popular way to use fractional ownership with real estate is to purchase vacation or investment properties. If you share an investment property, you share both the rises and falls of your return on the property. If you share a vacation property, you share the time and money necessary for it. Sometimes, fractional ownership isn’t evenly divided, so those with more money invested will receive more responsibility and more profit.
Managing a property via fractional ownership can become a bit complex. Who is responsible for putting in the active labor? Who fixes it up, cleans it, and schedules regular maintenance? While you can try to figure out how to divide responsibility, using a third-party service or company to manage your property and take care of it eliminates the awkward and frustrating maintenance and responsibility of fractional ownership.
Getting a mortgage on a real estate property owned by fractional ownership can be a bit tricky. There are some lenders willing to lend a mortgage for these types of properties, but it’s not the most common type of loan.
It’s also important to understand that, when it comes to real estate and fractional ownership, not every owner has the same rights to the property. For owners that have a higher percentage, they would have more say when it comes to what to do with the property and how to handle it.
Fractional Ownership & the Stock Market
The concept of fractional ownership can also be applied to the stock market. For instance, if you don’t want to buy an entire share of stock, you can only buy a piece of it. Let’s look at a real-world example. Let’s say Tesla is selling the stock at $835 per share, but you’re only interested in investing $200. Some stockbrokers may offer one-fourth of a share so you can still reap the benefits of Tesla without breaking the bank.
Even if you have enough to invest into an entire share, purchasing smaller pieces with fractional ownership is an excellent way to diversify your investment portfolio!
Selling Fractional Ownership
In most cases, people go into fractional ownership with a long-term mindset. However, it’s possible to sell a share. Unless you’re bound by contracts, you can always sell your share of a property or investment to get a cash return.
Why Use Fractional Ownership for Vacation Rentals?
One of the best ways to use fractional ownership is for a vacation rental. Investing in stocks, yachts, and fancy cars may sound fun, but putting your money into a vacation rental yields some of the highest returns on investments available without a large upfront cost.
Plus, when you invest in a vacation rental with fractional ownership, you can enjoy your investment completely hands-off. Enjoy high-yield cash flow for your completely hands-free investment! How does fractional ownership for a vacation rental work? There are three simple steps!
First, simply browse available vacation rentals near you until you find one you like. Be sure to factor in price, location, taxes, insurance costs, HOA fees, and any other expenses or investment criteria.
Next, invest in the property using fractional ownership. Figure out how much you are able and willing to invest, what percentage you want to own, how much you can budget each month or upfront for the costs, and whether you want to pay upfront or in payments.
Lastly, sit back, relax, and enjoy passive income from your investment.