If you’ve never heard of fractional real estate, you’re not alone.
What Fractional Ownership Is, Briefly
Fractional ownership is a small sector of real estate and often confused with timeshares. There is one important difference, though! While timeshares allow you access to vacations, fractional real estate gives you deeded ownership of a property.
Since ownership is split between several people, most fractional properties are professionally managed. Management companies take care of upkeep as well as coordinating housekeeping service.
The concept of fractional ownership started in Europe in the 1970s but didn’t catch on due to inflexible usage plans and difficulty marketing. It started to gain popularity in 2004 once technology became more specialized.
The industry peaked in 2007 with total sales of $2.3 billion. Unfortunately, the real estate bubble burst shortly after that for fractional properties as well as the market in general.
The industry is impacted by Airbnb, Inspirato, and VRBO due to their low upfront fees. Total sales of fractional ownership in 2017 were right around $480 million.
Innovation in Fractional Ownership
Fractional offerings have become more creative to attract compete with a growing number of vacation accommodation providers.
We’ve outlined some of the exciting new types of ownership below.
1. Equity Funds that Invest in Multiple Properties
If you like the idea of vacation home ownership but don’t want to return to the same property year-after-year, an equity fund may be the choice for you!
When you invest in an equity club such as Destination-M, Rocksure, or Equity Estates, you invest in their entire portfolio of properties. Your investment gives you fractional ownership of 30 or more homes, all at once!
Investment size in these is substantial, but with their multiple-property portfolios, it is a more diversified investment than a single vacation property.
One of the downsides is the lack of exit strategy. If you decide to leave the fund, someone must buy your stake. You can find a buyer on your own or allow the fund to assist you.
2. Equity Funds with a Liquidation Event
Another opportunity to enjoy multiple-property investment is with an equity fund that has a liquidation horizon. These clubs offer investment terms of 10-12 years, then at the end of the period, the properties are sold and the capital returned to investors.
These types of equity vacation clubs, such as Equity Residences, look for short sales or distressed properties to purchase and remodel and maximize the return on investor’s capital. Don’t think this makes the experience any less luxurious. The residences are managed to the same standard as any other vacation club or resort experience.
3. Fractional Properties in Exotic Locations
If you expect more from your vacation experience than the average resort or vacation home can provide, an exotic fractional property may be the answer!
Own a share of a private island or a mountaintop refuge. Own a share of a 200-acre estate or a fractional property specifically for hunting and fishing. Own a share of an apartment in Paris, France or a penthouse in Siena, Italy for long-term stays on the other side of the pond.
By purchasing a fractional share of an elite property, you guarantee yourself unique living experiences. You also reap the benefits of a potential investment – increased equity in the property and a share of rental income.
Even the most outlandish real estate ownership is within reach with fractional real estate.
4. Snowbird Fractionals
Two or three weeks of vacation aren’t enough to escape the whole long, cold winter in the North. While most fractional properties offer shorter time periods, some properties in tropical climates have recognized a niche market for longer-term stays. By offering a full month guarantee or more, these properties are perfect for a couple or a family who prefer to move south for the winter.
Fractional ownership makes the most sense for individuals who spend a significant amount of time away from their primary residence.
Final Thoughts
Home ownership is the American dream, and vacation home ownership is the ultimate luxury. Fractional ownership puts a vacation home in reach.
Find your fractional property today at the Luxury Fractional Guide.
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