Fractional Vacation Home Ownership: What is It?

Fractional Vacation Home Ownership: What is It?

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You’ve heard of timeshares, a form of shared property ownership that entitles stakeholders to use a home for a particular week during the year. Timeshares exploded in popularity during the 1970s as Americans sought to enjoy stays at more exotic locations. However, timeshares are often seen as a burden with too many restrictions, high costs, and little flexibility allowed.

Fractional Home Ownership

One alternative to timeshares that are beginning to gain steam is fractional home ownership. With fractional ownership, you own a slice of a vacation home and share it with others. Instead of a timeshare management company controlling the home, it is the responsibility of its fractional owners to oversee the property. Moreover, fractional home ownership may provide a bit more flexibility for users, but not always.

There may be more similarities between fractional home ownership and timeshare than differences, however. The overarching difference is that with fractional ownership your name is usually on the deed of the home with the other owners. With a timeshare it is not. Before you sign any agreement, familiarize yourself with its terms.

A Piece of a Home

Timeshares are typically bought and sold through a management company or directly by a current owner. With fractional ownership you have a few options including assembling family and friends to go in on a property.

For instance, that $400,000 cottage at the Jersey Shore may be way out of your reach, but if you and three others put up $100,000 each, it may be something your group can afford. You’ll just have to work out the particulars for who stays during what weeks over the summer, usually eight weeks between Independence Day and Labor Day. That means two prime weeks during the year plus select times off. Oversight including paying property taxes, home upkeep, and other responsibilities will have to be put in writing.

If family and friends aren’t willing to share ownership, you can team up with strangers who share a like vision. And just like timeshares, there are people that are willing to sell their fraction. A real estate broker or a management company specializing in fractional ownership and timeshares may be able to help you there.

Legal Responsibilities and Liabilities

Before you enter into an agreement to fractionally own a home, you’ll want to understand your responsibilities and liabilities. For a newly organized ownership arrangement, a visit to your attorney is in order. You may learn that setting up a special entity to oversee the home, such as a limited liability company, is the way to go. Under this arrangement, everyone owns a slice of the entity that owns the home, and is protected from liability. This feature can be especially important if the LLC members have the right to rent out the home during their vacation weeks.

Your attorney can also discuss with you what regulatory requirements are in place for shared home ownership. For instance, your state may limit the number of fractional owners. Certain taxes and security laws may also apply. You need to know everything about fractional home ownership before entering into an agreement with your money at stake.

See AlsoBook Your Summer Vacation Plans While Yet Winter

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