Fractional Ownership: Definition, Purpose, Examples

What Is Fractional Ownership?

Fractional ownership is a percentage ownership in an asset. Fractional ownership shares in the asset are sold to individual shareholders who share the benefits of the asset such as usage rights, income sharing, priority access, and reduced rates. The usage benefits that the fractional owners receive are comparable to those of timeshare owners.

Fractional Ownership Explained

Fractional ownership is a common investment structure for expensive assets such as aircraft, sports cars, and vacation properties. The fundamental difference between fractional ownership and timeshare ownership is that with fractional ownership the investor owns part of the title rather than units of time. With fractional ownership, if the asset increases in value, the value of the shares in the investment does as well.

Fractional ownership is a form of collaborative consumption where the overall cost of a property is split among a group of owners or users. A party that takes on fractional ownership of a vacation property can make personal use of the space and earn revenue when it is rented out. When the property is rented out for a profit by a fractional owner, it serves as a form of investment property. Fractional ownership in real estate is typically arranged through a property management company that oversees the regular upkeep of the vacation home and restocking of food.

Fractional Ownership and Vacation Property

If fractional owners want to use the home for personal needs, they must schedule time through the management company. Each property or management company has restrictions on how much time a fractional owner may spend at the vacation home. It is not required that fractional owners use all of their allotted time themselves. They could let family members, friends, business associates, and even employees use some of their time. Fractional owners might rent out their remaining time to other owners or make that time available for third parties who are not owners.

Property managers for fractional ownership vacation homes might have a network of properties they oversee in several countries and locations. They might offer the fractional owners the option to exchange occupancy in each other’s property. For example, a fractional owner with a percentage ownership in a home in the Caribbean might want to spend time on the coast of France. The property manager who oversees their vacation home also has a property under management in the desired location. The fractional owner could arrange to spend a week in France at the other property while their vacation home is rented out.

It is possible for fractional owners to include their stake in the vacation home to be part of their estate that would pass on to their heirs.