A holistic overview of fractional ownership to decide if it’s right for you.
What was the last time you bought a desert? Did you get a whole cake for yourself, just for the sake of eating one piece? Most probably not. You bought one portion, right? If you recognize yourself in this situation, you already know the basics of second home fractional ownership.
Fractional ownership is like slicing a delicious cake and paying only for what you eat. In other words, you pay only for the share of the property you use. The rest of the 'slices' are bought by other interested parties, while the cost of the whole property is shared equally among owners. If you feel you need more of your second home, you simply buy more shares, much like you would buy a second piece of cake! Or maybe the second time around, you want to try a new dessert after dinner, say a slice of cheesecake and tiramisu. In fractional ownership terms, you could get a share in a downtown London apartment, for example, and a share in a Paris flat and enjoy both.
Let's look at what you gain if you buy a second home with fractional ownership:
It's affordable — By slicing a property into smaller chunks, each share becomes tremendously more affordable. Imagine a second home worth £1.2mil. Can you afford it? With fractional ownership, you can. If you buy 1/12 ownership, you would only have to spend £100k.
Bung for your buck — Fractional ownership gives you access to a property that might have previously been totally out of budget. Suddenly with £100k, you obtain the rights of usage of a luxury second home, with all the space, the facilities, and smart features that come with it. So, out of the blue, you get much, much more value for your money.
You have usage rights — Each share in a fractional ownership property entitles you to the right to use your second home when you want. For example, if you own 1/12 of the property, you are entitled to access it for up to 30 days, while if you own one-fourth (3/12), you have access for 90 days.
You own it — With fractional ownership, you own the asset, not a block of time. Your £100k buys you real estate ownership, in prime property, not a chunk of time as would be the case if you got a timeshare.
Buy as you need — If you need more time in your second home, you can get more shares. If the frequency of your business travel increases, for example, or you simply like your pied-à-terre a lot, you can look into acquiring more shares of the asset, should they be available.
Share the joy — Friends and family can use your co-owned second home without any additional fees. This is certainly not the case in timeshares and even short-term rentals and hotels; bringing extra guests comes at an extra cost.
Share the burden — The ongoing cost and hassle of second home ownership might be a deterring factor for many buyers. With fractional ownership, you share the costs of the property evenly with other co-owners. So you end up paying only a fraction of the upkeep and maintenance costs. This includes anything from utility bills, repairs, and property management company fees to all other re-occurring and ad hoc expenses associated with the co-owned property.
Outsource the hassle — If you own a second home that is fully managed by a property manager (Flyway falls in this category), you simply pass on the headache of ownership to them for a fee. All of the above activities would be handled by the property management entity so that you can make the most of your second home without having to worry about it all year round.
Stop wasting on hotels and rentals — Visiting the same city often results in piles of money wasted on short-term rentals and hotel rooms. With fractional ownership, you can instead invest this money for a return.
It's an investment opportunity — Buying a share (or more) in a fractionally owned property does not differ from a usual real estate investment. Since you are the legal property owner of your share, you pocket the appreciation if prices go up. The value of your share in the house increases or decreases following the real estate market trends. Any gained equity in the property as a whole is then divided proportionately among co-owners.
Diversify & have variety — With fractional ownership, you can diversify your investment & holiday experience by buying shares in various places instead of locking all your capital into one second home.
Full utilization — A vacant property for the biggest part of the year is a huge underutilization of resources. Think how much time you can actually spend in your second home, given your work and family obligations? Fractional ownership maximizes the use of real estate resources and allows more people to have access to and enjoy exclusive properties.
No more absentee owners — The phenomenon of 'ghost properties' in highly sought-after locations raises eyebrows among neighbors, municipalities, and even fellow buyers. Converting such properties into fractional ownership breathes new air into previously reserved areas only for the few who could afford to make those investment purchases without ever really living in the property.
Identify early & resolve — An empty property has running costs, wear and tear, and responsibilities that don't stop when you are not there. Regular visits by co-owners and active property management mean that any issues are identified early and resolved on the spot, hence preserving the property's long-term value.
A place to call home — Coming back to the same place creates an emotional sense of stability, warmth, and homeliness. Contrast this to the impersonal nature of standardized hotel rooms, especially in large cities, and short-term rentals. Owning a share in a fractional property means you know your way every time you visit, have your personal belongings stored, and know-how to access the facilities (like the gym, pool, and garden), and a feeling of 'landing home' embraces you.
Let's now turn to some fuzzier aspects of second home fractional ownership:
Financing options — Given the novelty of the fractional ownership concept in the second home real estate market, it might be harder to obtain a mortgage for such a purchase. Or you might have to expend more energy explaining the model to your lending entity. The availability of financing options varies by location, with this type of financing being more prevalent in countries where fractional ownership is more prominent. However, this landscape is rapidly changing, with property management companies themselves jumping in to correct this mismatch.
Commercial exploitation — Your fractional ownership contract might be prohibiting you from exploiting your share of the property for commercial interest. This means that you might not be able to monetize your share of the second home by renting it out as a short-term rental or sub-letting it. This is often linked to terms imposed by property developers, especially on new luxury builds and other local restrictions.
Decision-making — In a co-owned second home, decision-making on common property issues might be a more elaborate process as more people are involved. As a result, more opinions are voiced and have to be ultimately bridged. That is particularly true in traditional fractional ownership properties, in which multiple owners have to navigate disagreements on important home decisions, resulting in lengthy back-and-forth talks, delays, and frustration. Luckily, the presence of a property management company to mediate all aspects of co-ownership speeds up decision-making. Even more so, the property management company might have developed tech capabilities to address those issues to their core (such as equitable scheduling, bill splitting, voting on common matters, etc.). In that case, fractional ownership becomes a much more smooth, hassle-free experience.
Plans crashing — Who gets the property when? This is one of the most common concerns of fractional ownership buyers. In co-owned vacation homes, this is a much more grounded worry, as it is not uncommon for annual holiday plans to collide. As would be the case with families with kids, for example. Then, there is the whole saga of who gets August, who gets Christmas, who gets Easter, who gets mid-term school holidays, and so forth. This is much less of a concern for city second homes, which are co-owned by owners with asynchronous schedules, who might be traveling for business or leisure, throughout the whole year. Destinations with seasonality also make this a more legit concern (for example, a seaside villa) compared to city second homes, which offer a more year-round value proposition (think of London, Paris, New York, and the like). Once again, fully-managed fractional ownership powered by tech can mitigate this concern. A well-functioning app with a smart algorithm, running behind the scenes, is a powerful tool to ensure all co-owners get their fair share of stays and feel they make the most of their second home.
Less variety — This is a drawback as much as a positive, depending on your point of view! If you stick to only one second home in one destination and keep returning, you might feel you forego the excitement of a new place every time you visit. Of course, it comes with less hassle, so it is about balancing trade-offs. However, suppose you genuinely enjoy the unexpected element of trying new places (something that for many is unsettling), and you prioritize it over stability and homeliness. In that case, it might be that a fractionally-owned second home is not the best fit for you.
The novelty of the concept — Fractional ownership might come with a wealth of benefits. Still, it might also be accompanied by skepticism from various stakeholders who are perhaps struck by the newness of the concept (such as property developers, real estate agents, banks, and neighbors, among others). Let's not forget it is still a niche offering. It's only recently that companies like Flyway pushed hard to democratize access to second homes, making it truly affordable even in large metropolises and thus paving the way for its en masse adoption. Early adopters in prime city real estate might stand to gain in the long-term by being ahead of the curve, but the fractional market remains relatively young. For example, owners are perfectly able to resell their shares at the price they set whenever they want to, but the secondary market for fractional ownership shares is yet at the start of its growth.
In this article, we took a bird's-eye-view of the fractional ownership model. If you jump on board and get a share in a co-owned second home, it is important to feel comfortable with your decision, convinced of its merits, aware of all aspects of the model, and empowered to make the most of it.
Flyway jumped in to address the pitfalls of fractional ownership and create a viable investment and second homeownership option for interested buyers in the world's largest metropolises. We simplify fractional ownership with a legal structure that makes it straightforward and easy. More specifically, we identify the top real estate in top city destinations, acquire it, and convert it into an LTD (Limited Company). You can then buy the number of shares in the property that matches your budget and needs, starting on 1/12. Each share gives you up to 30 nights of use, and you can own up to half of the property (6 shares), in which case you would be entitled to 6 months worth of stays.
Add technology into the mix, and the shortcomings of fractional ownership are immediately addressed. A tool like the Flyway App is user-friendly and straightforward but powered by an intelligent algorithm that mitigates the fussy side of fractional ownership. No more disputes on who gets the house when — automated equitable scheduling can address this. No more worry, back and forth chasing and dispute about common expenses and bills — it's all standardized, automated, and handed to you, on a monthly basis, via your phone. No more frustration and lengthy negotiations regarding common property decisions, upkeep, maintenance, and upgrades — a savvy property manager does it for you. No more fuss around whose voice is heard — Flyway acts as an impartial gatekeeper of the common property, making sure you can all vote on essential matters and ultimately even decide to have the property management entity removed.
Fully managed fractional ownership with Flyway has it all laid down for you so that you can land in your second home and simply enjoy it to the fullest. It's the second home co-ownership that finally works.
Do you still have questions or doubts or do you think fractional ownership entails additional issues we have not pinned down in this article? Shoot us a message by completing the form below or Book a Call. A member of the Flyway Concierge team would be happy to have a chat.
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