What Is Fractional Ownership of Real Estate?
Do you wish to be the co-owner of commercial real estate or one of those lavish, extravagant resort properties? With fractional ownership of real estate, you can become the part-owner of warehouses, retail spaces in malls, and offices among other types of properties.
You can enjoy rental income while co-owning a percentage of the property. This doesn’t just fulfill the goal of real estate ownership, it also ensures that you earn revenue from the property.
Fractional ownership of real estate can be tricky. Considering the significant financial stakes involved, it is best to consult with a reliable real estate attorney about any doubts and concerns you may have. When you are ready to make a deal, make sure you have the right legal advice to protect your interests.
What is Fractional Ownership in Real Estate?
Fractional ownership can be best understood as a type of investment in which co-owners share the cost of a property. There will be multiple investors in the enterprise which decreases the risk of ownership by spreading it around. The properties in question are generally high-value assets, like vacation spots (resorts) or strip malls.
Fractional ownership has attained increasing prominence in the global real estate market of late because of enhanced security and affordability. There are several senior living and co-living communities based on the fractional ownership model, for example. They enable investors to own a share of this increasingly popular type of real estate.
How Does it Work?
Multiple investors come together in fractional ownership. They are driven by the common interest to own the property. In most cases, the investors pay an equal share of the property.
For instance, if a property is worth $2 million, you may only need to pay $100,000 if there are 20 other investors in the module. Stemming from this, all buyers will become co-owners of the property.
You will be awarded a fractional ownership certificate once the deal is completed and everything is registered. It’s vital to understand the difference between fractional ownership and timeshare ownership. You can use the property for a short period of time in timeshare ownership; while you actually own a share in the property in fractional ownership.
Types Of Fractional Ownership in Alabama
There are two types of fractional ownership:
You cannot use the property for personal reasons in commercial fractional ownership. You can only lease or rent the property and share the rental income among other investors. Restrictions on usage have opened the fractional ownership market to the residential real estate sector as well. This has become a sought-after passive investment option owing to its high security and affordability.
Access to the usage of the property is an added benefit available to all owners. You can give the property for rent or use it as you see fit during the period of your share. However, there are certain interpersonal problems that may arise during personal use of a fractional ownership property:
- Overlap of usage may occur in the case of resorts and similar properties
- Differences when it comes to paying maintenance charges and repair bills could become an issue
Starting a Fractional Ownership Investment
There are several companies, such as Realty mogul, Real crowd, and Crowdstreet among others that have listed such properties. It’s recommended to choose only the best-performing companies. Certain companies offer Growth Plus products that provide investors with fixed returns and a major chunk in profits.
Benefits of Choosing Fractional Ownership
- It allows for the purchase of high-cost properties without having to break the bank through an affordable share price.
- Due diligence is performed by the management company that evaluates and assesses individual properties before listing them. This makes the investment low-risk and reliable. It also decreases the time invested in hunting property history and legal aspects.
- You get to enjoy higher rental yields.
- The risk of ownership is reduced dramatically as the cost of the actual property gets shared among different investors.
- Returns from investing in a high-quality property located in a good area are likely going to be high.
- You get a major share in the sale at the end of the tenure as well as profits.
- You don’t need to worry since the property will be managed by a dedicated property manager.
Pitfalls to Consider in Fractional Ownership
- You will be illiquid for the committed period of time because of tough resale options.
- Interpersonal problems may arise in the case of using the fractional ownership property for personal use. This is because the property will be owned by a number of people. A few interpersonal issues that can arise include:
- Division of different expenses, including repair and maintenance bills.
- Different opinions on when to sell the property.
- Usage overlap issues.
Get Legal Representation from a Knowledgeable Real Estate Attorney in Alabama
Fractional ownership has made it affordable and safer to invest in real estate. This has caused a substantial increase in the popularity of this passive investment option. However, there are several things to consider when investing in fractional ownership.
The skilled real estate attorneys at Davis, Bingham, Hudson & Buckner, P.C. can help you understand the legal implications and all the key factors to consider. Schedule a free consultation with our lawyers today. Call us at (334) 821-1908 or contact us online.
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