You might have noticed that over the past few months the newspapers and magazines have been mentioning something called fractional property ownership or fractional ownership, but do you actually know what it is?
In the most basic terms, fractional property ownership is when a group of people club together to buy a house or an apartment. People generally do this because they want to share the expense, or they only need to use the property for a certain amount of time each year. It is also popular with other high value goods such as yachts and private jets.
Fractional property ownership works on the same basis as the example above, but in a much more formalised, organised and legalised way – so there’s no danger of you falling out with your co-owners and squabbling about who did what!
The essential difference between a group of people just clubbing together and an organised fractional scheme is that the property is fully managed, organised and serviced by a management company and is run much in the same way as a hotel. There are strict rules in place regarding pets, smoking etc. to make sure everyone knows and agrees with what they can and can’t do.
Plus, you don’t ever have to know or meet your co-owners if you don’t want to as real estate agents will find the buyers of the other fractions. The management company is responsible for the upkeep of the property and for controlling the usage, payments and legal aspects, so they will be your first port of call.
Benefits of fractional ownership
There are lots of benefits of owning a fraction in a property – especially a second home – rather than owning it outright. For a start, the asking price is much cheaper and in today’s economy it’s a wise move to invest a small amount of your capital rather than taking on a heavy financial commitment. You can buy a 12th fraction of a property on the Costa del Sol for EUR25,000, which includes free golf membership.
Secondly, most people only get a limited number of days off, so there’s not much point in owning a second home if you can only use it for a few weeks each year. The rest of the time it is standing empty and draining your resources through community fees and maintenance bills.
Fractional properties are generally split into four, eight or 12 fractions, with each owner getting a certain number of weeks use per year. Quarter owners can use their properties for around three months, eighth owners get six weeks and 12th owners get 4 weeks. Any weeks left over are used by the management company for maintenance and redecorating. Weeks are generally rotated so you use the property for different times each year.
Is it the next big thing?
There are a number of reasons why fractional ownership is the ideal product for today’s economy. It will suit those who want to own a holiday home but don’t want the large financial commitment – and it has the advantage of allowing you to align your costs with your usage and control how much you are spending.
Fractional ownership has nothing to do with timeshare. Although you are in theory ‘sharing’ your property with others, the essential difference is that you own a percentage of the bricks and mortar. You also avoid the inflated marketing costs that have sullied the reputation of timeshare over the years.
With fractional you own a tangible asset which you are free to sell at a later date, and the property could rise in value giving you a profit on your original investment. If you don’t want to sell then you can leave your fraction to someone in a will or just carry on enjoying it.
You will pay a management fee to cover the furnishing, decoration, repair and organisational aspects of your fraction. If you’re buying for lifestyle and only want to use the property for a few weeks a year, it will be a relief to let someone take care of all that so you can concentrate on enjoying your holiday.