What Is Fractional Home Ownership?

Fractional home ownership is a financial arrangement in which multiple parties share ownership of a residence. This type of arrangement is sometimes referred to as a partial ownership, with each of the co-owners sharing both the rights and the responsibilities of ownership based on the percentage of the property they actually own. This type of asset sharing can allow individuals to acquire property for periodic use, while also making it possible to keep the costs of that ownership somewhat low. In some cases, fractional home ownership may be structured to allow the property to be leased or rented to others, subject to the approval of all the co-owners.

One of the more common examples of fractional home ownership has to do with the acquisition of a vacation home. In this scenario, two or more households choose to combine financial resources to purchase a home at a beach, lake or mountain area, for the express purpose of using the property for holidays and vacations. The parties involved are all listed as owners of the property, with each committing to contributing to the costs of upkeep and managing any other expenses that may apply, such as maintaining homeowners insurance and paying property taxes. Typically, the level of responsibility is in proportion to the percentage of ownership held by each participant. This means if four different individuals contribute equal amounts to purchase the property, each of the four will contribute 25% of the funds necessary to manage all of the usual costs of maintaining the property.

As part of the fractional home ownership arrangement, each of the homeowners will be entitled to use the property for a certain number of days each year. As with the responsibilities, this benefit is normally in proportion to the percentage of ownership held by each owner. After determining when each owner will make use of the property, there is always the possibility of renting or leasing the home to others during any time frame that none of the owners plan on making use of the property. This approach can often help generate revenue that helps to offset expenses associated with the property, making the cost of ownership for each of the fractional owners all the more attractive. It is not unusual for partners engaged in a fractional home ownership to employ a professional real estate management company in order to handle the process of screening potential renters, collecting the rental fees, and in general helping to see to the upkeep and maintenance of the property on the behalf of the owners.

At its best, a fractional home ownership arrangement allows individuals to partner together and acquire an asset they could never manage to own on their own. In addition, the sharing of costs makes it easier to maintain the property while still enjoying the benefits of ownership. In order to make sure the fractional home ownership arrangement works to everyone's best advantage, creating legal agreements that define the scope of rights and responsibilities held by each co-owner will often help to minimize the possibility of miscommunications that could create difficulties for all parties concerned.