Fifty years ago, if you wanted to stay in a luxury penthouse you had to save money for six months just to afford a weekend away. The luxury property market has always been exclusive, reserved for the rich and the elite with no hope of your average individual getting a foot in – but no more. Fractional ownership is a reasonably new method of investing in luxury property, without needing to save millions.
So that you can stay in the know, we have compiled a short guide that will explain exactly what fractional share ownership entails and what makes it special.
How it Works
Fractional ownership operates like a more secure and valuable version of Timeshare. Timeshare involves a group of individuals each sharing the right to stay in a property for a specified period per year.
For example, a resort owner in Hawaii might decide that they want to sell timeshares of their property to a family from London. The family purchase 4 weeks during summer to stay in the property. Now, every year, for those specified 4 weeks, the family can go and reside in the property. The resort owner might then sell more timeshares for other times of year to different families. So throughout the year, different people stay in the property, each having paid for their time there. However, they do not own any element of the building – what they have bought is their right to spend time there. This is the key difference between Timeshare and fractional ownership.
Fractional ownership operates similarly in the sense that multiple individuals can stay in the property throughout the year. The difference is that individuals buy a share of the property’s title deed, rather than just the right to spend some time there. This means that they own a share of the physical building that can both appreciate in value with the property and be resold easily.
Fundamentally, Timeshare serves as a holiday solution whilst fractional ownership is an investment that will pay itself back (for more information on fractional ownership in comparison to Timeshare, go here).
How Fractional Ownership is Changing the Luxury Property Market
The reason why the distinction between fractional ownership and Timeshare is important, is because Timeshare does nothing for the young investor whilst fractional ownership does. Timeshares are unreliable and unregulated regarding value, whilst fractional ownership gives you part of the title deed that is directly linked to the value of the property.
This means that your average person now has an avenue of entering the luxury property market. Taking London as an example, there are many expensive and glamorous flats and apartments throughout the city; usually held in exotic skyscrapers that boast all sorts of facilities. To maintain simple numbers, let’s say one of these properties costs $1 million. Usually, this figure would leave investing completely out of reach for the average homeowner but if you split that title deed into twelve equal sections, then each fraction will cost a 12th of $1 million, or $83,333. This figure is much more achievable.
Continuing our example, if a homeowner purchases a 12th of this property, then they have the right to occupy the building for 4 weeks a year which is even better than most Timeshare deals. Furthermore, the fractional share of the property that has been purchased can increase in value along with the property and if our homeowner so chooses, they can sell the portion at any time to invest in something bigger or better.
Fractional ownership has opened the door for more people to invest in (and live in) luxury property that they would usually have no chance of reaching.
It’s Not Just a Good Investment, Either
The primary advantage of fractional ownership (apart from the fact that it is an investment which will pay you back), is the experience of owning part of a luxury property. Whilst your fraction appreciates in value, as a part owner, you can now enjoy a glamorous holiday home in some of the most sought-after locations across the globe. This is a real perk for the novice investor looking to get a foothold in the property market.
Whilst we’ve been focusing on the glamorous and luxury element of fractional ownership, the other perk is that this system is being used across the world with all sorts of different properties. Our previous example dealt with a $1 million property but there are plenty of other locations with cheaper options. Whether you’re looking to invest in a Tuscan cottage or a Barbadian villa, there’s usually something within your budget and on offer, it’s just a matter of looking.
That concludes our guide; now you’re fully equipped to make the most of this up and coming trend. Staying on top of the current movements within the property industry has always been the best way to get ahead of the competition and make a profit. Don’t discount fractional ownership in your future plans.