2) FRACTIONAL PROPERTY: Shopping around the world

1 September, 2011 1 Comment

That is, to buy only part of the property, which is different than timeshare or right of use.

Fractional ownership allows the buyer to purchase only a portion, instead of owning the total property. This method was originally used in the purchase of yachts and planes, but for the last two decades has been applied also in the American real estate market, and also in areas of Europe that tend to have a year round occupancy, i.e. Golf Resorts Algarve (Portugal).

Buying a share of the property, usually between 1 / 4 (to use 13 weeks per year) and 1 / 12 (one month of use), carries a small down payment, which instead of buying an entire property, allows you to buy small fractions of different properties in different locations. Another advantage would be to buy a portion of a much larger house for the price a little one.

Keep in mind that if you buy a quarter of the property, the cost will be slightly more than one fourth of the property’s market price. This increase is to bear with administration costs, which involve the management of the estate by a company that will have the property always ready whenever there is a change in use (repair, maintenance, cleaning, gardening, etc) . These are monthly expenses, and therefore we must take into consideration this additional cost when choosing this type of purchase..

The idea of fractional property shall not be confused with the figure of timeshare property that was very popular in the 80’s. The differences are:

1. Buying a fractional property is similar to buying an entire property, the owner’s name appears in the documents that guarantee the ownership of a part of that property. It is called ” common tenancy” with other owners. The owner may sell, rent or take a mortgage on that part of the property during the time he has allotted for its use. On the other hand, timeshare property only sells time of use (right of use), instead of selling a property title. The value of this “time” will usually depreciate over time. Instead, fractional ownership on a property, if the market improves, will be appreciated as any other owned real estate.
2. With timeshare, if the managing company is dissolved, the person who bought a right of use, may be at risk. This does not happen in the purchase of a fractional property because shared ownership is independent of the management company.
3. In many type of timeshare, the time is bought in hotel rooms or apartments which may vary each time, because investors are only owners of the time. In fractional ownership, you get part of that home, it will not change.

To sell fractional ownership: If there is no special provision in the contract, the property can be sold at any time and recover the portion of the initial investment (or more if the property has appreciated over time), but usually there is some sort of extra charge. Depending on the terms of the contract, some companies may offer to repurchase the fraction, and others act as brokers and charge a fee in order to sell it privately.

Some fraction contracts are signed for a certain period of time, and after this period all the owners may sell the property, to be divided equally among all of them. It is also possible to start another period with the same conditions, or if a co-owner wants to buy the entire property, he will have preference over any external investor.

Sometimes doubts arise about the purchase of a property…  Why should I buy it if I will not get the most out of it? Here are the advantages of fractional purchase:

* Instead of assuming the total costs of owning a home, divide the cost of furnishing, maintenance, insurance, repairs, security, tax, among all co-owners ..
* The company that manages the property will take care of the maintenance problems, if any, that entails having a second residence ….. when you arrive everything is in perfect conditions ….. when you leave you don’t have to worry either, because the house will be in perfect condition.
* You do not need a large amount of capital invested in it, and you can allocate the rest in other investments.
* An empty house always carries a higher risk, but in this case will be inhabited most of the time
* Owners of second residences, often use as much of the 4-12 weeks per year. Fractional ownership makes the purchase price match with the use that is given to a holiday home.

Posted by Ines Llanas

Comments (1)

 

  1. Jeremie Politi says:

    I enjoyed reading the article and have come across an exhibition in London next month which has a fractional ownership focus – http://www.fractionallifexpo.com

    I will be making the trip from Cannes

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