Fractional ownership offers affordable luxury housing alternatives

While homes in San Francisco typically sell for far north of $1 million, home shoppers might be surprised to see that a two-bedroom in the posh Ghirardelli Square area was recently listed for $168,000.

The catch? Only one-tenth of this waterfront property is for sale.

This condo is being sold as a “fractionally owned property,” where multiple people sign on as owners in exchange for access to the property for several weeks a year.

“Indulge in the best of San Francisco living with fractional ownership,” the listing says. “With this 1/10th deeded fractional ownership, you have access to an array of stunning 2-bedroom, 2-bath residences for 35 days out of each year.”

Co-ownership or fractional ownership has become an increasingly popular way for people to own a portion of an investment property or vacation home. Depending on the property, it might involve splitting a home cost in half or with more than a dozen people.

And while it sounds similar to a timeshare model, it’s functionally very different.

Fractional ownership vs. timeshares

Fractional ownership or co-ownership differs from a traditional timeshare model in terms of the access you have to a property. With timeshares, you’re purchasing the right to use a property for a set amount of time each year—not the property itself. With fractional ownership, you own a portion of the deeded property, which comes with many more advantages than a timeshare arrangement.

“Fractional ownership is a much greater form of direct ownership,” says Nicholas Ritacco, portfolio manager and director of finance at IB Global Real Estate Funds. “From an appreciation and improvement standpoint, you have much better control over monetizing the asset and increasing its value in the long term.”

Most people involved in fractional ownership do so for secondary or rental properties that they might visit only for a few weeks each year. This way, buyers aren’t saddled with an entire vacation home that sits empty most of the year when they’re not there. They also don’t have to deal with renting it out on Airbnb or other short-term rental sites.

“You’re not burdening yourself with any additional expenses or more home than you actually need,” says Ritacco, who likes fractional investing because it allows people to “right-size” their homeownership. “It’s ideal for a vacation home where your time at the property is generally limited or something that can be structured to be shared.”

Unlike timeshares, which are notoriously difficult to sell, fractional ownership properties are relatively easy to unload. Plus, if the property's value increases over time, owners gain equity.

“Your share is real property, not simply a block of time,” says Austin Allison, CEO of Pacaso. “And because it’s a real estate asset, its value will move with the market—which means that any equity realized is yours. When you purchase a timeshare, you typically own the right to use the property for a period but not the property itself."

Part-ownership of part-time property

Like timeshares, fractional ownership suits those interested in maintaining but not occupying full-time second homes," says Laguna Coast real estate agent Cynthia Ayers.

People often opt for fractional ownership because it provides lower entry barriers into otherwise inaccessible markets. Fractional homes are popular in expensive vacation spots: Big Bear and Hawaiian islands offer several such properties.

Access varies greatly within fractional ownership arrangements. For instance, Ayers has a client looking to sell half her four-bedroom beachfront second home while retaining six months' access annually.

“It’s been very good income-generating," she says about her client's Hanalei condo available up to ten weeks yearly at $325K but notes she now prefers sharing responsibilities rather than managing bookings alone."

This type—half-stake sales—is rare; typically involves multiple owners like Key Largo's compound offering stakes at $249K each among eight owners accessing properties minimum forty-eight days yearly including amenities like boats gym pool cabanas managed by experienced staff scheduling vacations efficiently."

Fractional Ownership Offers Luxury For Less

Proponents argue affordability through shared luxury multimillion-dollar homes costing individual fractions worth couple hundred thousand dollars providing exclusive benefits otherwise unattainable enabling broader participation within real estate investments via platforms Fundrise CrowdStreet buying shares portfolios instead single properties facilitating diversified investments potentially yielding significant returns albeit requiring careful due diligence regarding expectations improvements operations ensuring secure manageable agreements without undue complexity"

How To Invest In Fractional Ownership Of A Home

Potential investors should know upfront payments range between twenty fifty percent financing options include equity agreements lines credit cash-out refinances companies Pacaso managing agreements crucial evaluating comfort levels sharing maintenance conflict resolution conducting thorough research before committing investments"