How Does Fractional Ownership Of A Condo Work?

If you’ve been looking for a vacation home, you may have noticed condo listings that refer to fractional ownership. But what is fractional ownership, and how does fractional ownership of a condo work? 

 

Often confused with timeshare, fractional condo ownership allows you the use of a condo as your vacation home, along with several others. But you don’t just get to use it, you get to own a fraction of it, too.

 

If this seems confusing, don’t fret. You’ll learn all you need to know about fractional condo ownership, right here. In this guide, we look at what fractional property ownership is, how it works, and the pros and cons involved. 

What Is Fractional Condo Ownership?

The very words sound daunting, but don’t be deterred by the terminology. Let’s start with the basics. What is a condo? A condominium complex, usually just referred to as a condo building, is a large property complex with individual units for sale.

 

So, what is a fractional ownership condo? Fractional ownership of a property is another way of saying shared ownership. Therefore, fractional condo ownership describes when an individual condo unit has more than one owner. 

 

In fractional condo ownership, ‘fractions’ of the condo are sold to multiple owners. This is typically done through a Limited Liability Company (LLC). A fraction could amount to an eighth or a twelfth of the property, for example (it is usually not more than twelve). 

 

But this is not necessarily as limiting as it sounds. Anyone who chooses to invest in fractional condo property ownership may decide to purchase more than one share. 

Is A Fractional Owner A True Owner?

Yes. A fractional condo owner is a true property owner. Each of the co-owners of a fractionally-owned condo receives a title deed for their share of the property. This is similar to sole ownership of a property. However, there are multiple owners, and therefore multiple deeds.

 

Each deeded fraction entitles the owner to use the property at specific times. However, just as each owner enjoys rights to the condo, they also each have responsibilities. To explain this in more detail, let’s have a look at how fractional ownership of a condo works. 

How Does Fractional Ownership Of A Condo Work?

So, how does fractional ownership of a condo work? What are you entitled to on the property, and when? Let’s get a common misconception out of the way, first. Dividing the property into ‘fractions’ for sale does not mean that co-owners are only entitled to use certain parts of the property. 

 

Rather, it means that they share usage, with each co-owner designated exclusive usage relevant to their share. The exclusive usage per year allocated per share to each owner, is set out in the purchase agreement. 

 

With up to 12 co-owners, this equates to four to five weeks per owner. Owning more than one of the fractional shares allows an owner to spend more time on the property. It also means a greater investment in the property, and therefore more potential profit down the line. 

 

Just as with ordinary property deeds, these deeded fractions can also be sold, or left to beneficiaries in a will. A share in a fractionally-owned condo can be transferred to your next of kin in the event of your death.

How Is Fractional Ownership Managed?

But how does fractional ownership of a condo work when it comes to running expenses, you ask? Who manages the condominium property’s maintenance and schedules all of the necessary repairs that inevitably arise? 

 

All the owners are responsible for maintaining the property and often outsource this responsibility to a property management company. The admin and scheduling will then be handled by the property manager, with the co-owners equally liable for the costs.

 

Owners have a say in what type of maintenance or repairs are done, The same goes for redecorating, renovations, and remodeling of the condo. However, the co-owners will have to reach a consensus on these matters, before any work on the property commences. 

Fractional Ownership Vs. Timeshare

If this sounds like a timeshare, don’t be alarmed. This is a common mistake!

 

Fractional ownership offers each person who buys a share, ownership and usage rights to the physical accommodation. Timeshare, on the other hand, offers participants the right to spend time there as set out in the timeshare agreement. Timeshare does not confer property ownership.  

 

This simple breakdown of the similarities and differences between the two will highlight the distinction more clearly. 

Fractional Ownership Vs. Timeshare: Similarities

There are three big similarities. With both fractional ownership and timeshare, you:

 

• Are entitled to annual usage of that property, as set out in the initial agreement. 

 

• Can leave both to your family in your will, or sell them. Terms and conditions may apply in the case of timeshare).

 

• Share the maintenance and running costs of maintaining the property. However, timeshare owners do so by paying their annual fees.

 

The main similarity between fractional ownership of a condo, and a timeshare, is shared usage of the property. 

Fractional Ownership Vs. Timeshare: Differences

If you decide to invest in a condo through fractional ownership, you:

 

• Co-own the property in perpetuity, unless you sell it. You own a share of the property and are entitled to a specific amount of time at the property each year.

 

• Hold a deeded share of the property title. This establishes your rights to the property as set out in the purchase agreement. It also means you can sell your share in the property if you wish.

 

• Have equity in the property, and thus benefit from an increase in property valuation. This will become very important should you later wish to sell your share in the condo.

 

If you decide to invest in a timeshare, you:

 

• Don’t own a share of the property. You merely own a share of the time spent at the property. 

 

• Don’t hold a title deed to the property. The property usually belongs to a resort.

 

• Don’t have equity, and thus don’t benefit from an increase in property valuation. A timeshare’s value tends to depreciate over time. If you try to sell it, it will probably be at a reduced cost.

 

The main difference between fractional ownership of a condo and a timeshare is ownership vs non-ownership of the physical property. 

 

Another important difference is the number of potential owners. In fractional condo ownership, this rarely exceeds twelve. In a timeshare, however, this can be as high as 52 (in which case each timeshare owner is entitled to a week’s stay).

Pros Of Fractional Ownership For Condo Buyers

What is a fractional ownership condo going to offer you? Here are the three main advantages of functional ownership. 

Cost Savings

The biggest advantage of fractional condo ownership is the money you’ll save. 

 

For example, the dream of owning a beachfront condo as a vacation home is out of reach for most people. Fractional ownership allows them to own a vacation home that they would otherwise not be able to afford.

Flexibility In Property Usage

You’ll have more flexibility in property usage with fractional ownership than you would with, for instance, a timeshare.

 

For one thing, you’ll get to spend more time on the property than a timeshare would allow. But you’ll also be able to negotiate with the other owners for a time slot that suits you each year. It’s a much more flexible option than people realize. 

Value Appreciation Potential

Real estate tends to appreciate in value. Is the potential increase in value a big factor for you when buying a property? 

 

If you’re considering purchasing a condo as an investment, fractional ownership allows you to do so affordably. Be advised that various factors influence condo value appreciation. If you’d like to learn more about this, read our guide to estimating a condo’s worth. 

Cons Of Fractional Ownership For Condo Buyers

How does fractional ownership of a condo work against you? Here are the three main disadvantages of fractional ownership.

Limitations On Usage

Unfortunately, fractional ownership means your use of the condo will have certain limitations. The amount of time spent there will not exceed the time allotted to your deeded fractions as set out in the initial contract. Also, negotiation about when you’ll use the property may not always be possible.

Co-Owners Must Agree On Major Decisions

You and the co-owners will have to agree on any major decisions about the property. And that’s easier said than done. If you’re thinking of making structural changes or starting large-scale renovations, a formal approval process is required. If your co-owners disagree, your renovation plans will get no further.

Resale Challenges

Condos are attractive to buyers because of their low maintenance, security, and amenities such as on-site gyms and pools. That’s why so many people choose to buy a condo vs. a house. But how does fractional ownership of a condo work out when you want to sell the unit? 

 

Fortunately, you don’t need consent from your condo’s co-owners. But finding a buyer who is happy to purchase a fractional ownership condo is not always as quick and easy as selling a property outright. 

Should You Consider Fractional Ownership?

Now that we’ve dealt with what fractional condo ownership entails, who should consider it? 

If you’re still undecided about fractional ownership, ask yourself the following question. What is a fractional ownership condo going to offer you that sole ownership won’t? 

Budget-Friendly Vacation Home 

Are you looking to invest in a vacation home within your budget? That’s a good place to start. 

 

Everyone has different budget considerations, and property prices vary considerably too. But if financial constraints are preventing you from buying a vacation home, fractional ownership may be your solution. 

 

It will enable you to purchase the kind of property that would normally be out of your reach. You'll also have co-owners with which to share the burden of maintenance/repairs, condo fees, utility bills, property taxes, and property management fees. 

A Vacation Home That Suits Your Lifestyle

Finances might not be the cause for your hesitancy to buy a vacation home, but rather time. If you want a vacation home but don’t have the free time to justify buying one, fractional condo ownership is the answer. 

 

You’ll have a condo that you love, all to yourself, for a few weeks a year. That’s probably all the available time you’ll have to spend there, anyway. The reduced expense of buying a ‘fraction’ of a condo as opposed to buying a condo outright, will simply be a welcome bonus.

Cost-Effective Investment Opportunity

Perhaps you aren’t too concerned with buying a vacation home, but rather making a savvy property investment. Fractional ownership of a condo fits the bill. Real estate is almost always a good investment! 

 

When you invest in a fractional ownership condo, you pay much less than you would if you were buying the condo outright. It remains an asset, just like any typical real estate investment would. And best of all, you stand to gain from the appreciation in value with time.

The Bottom Line

What is a fractional ownership condo going to offer you? It will allow you to invest in a condo property more affordably. The property’s value may also dramatically increase, giving you a good return on your investment. 

 

There are a few drawbacks to this type of ownership, though, including usage limitations and resale challenges. Ultimately, only you can decide if it’s right for you. But whether you choose sole or fractional ownership, your first step is always to find the right property. 

 

Hudson Condos can help. Our inventory database lets you filter your search according to specific criteria like area, price, specs, and more. 

Contact us for help with finding the perfect property for you.