1. An Introduction to Fractional Ownership
Game-changing, innovative, or forward-thinking, however you want to describe fractional ownership, it’s altering the way people approach luxury assets such as real estate, yachts, aircraft, and even fine art. But what exactly is fractional ownership?
In essence, it’s a co-ownership model where multiple individuals share ownership rights in a high-value asset, dividing both the costs and the benefits among themselves. This makes it possible to access assets that might otherwise be out of reach, opening up a world of possibilities.
If you’re intrigued by the idea of fractional ownership and interested to find out what it entails, you’ve come to the right place. We’re exploring everything you need to know about fractional ownership, from its origins and variations to its benefits and the ways you can get involved in this exciting model.
Shared ownership, shared wealth
Instead of bearing the full cost burden, fractional ownership enables you to own a portion of a high-value asset, and potentially build a diverse investment portfolio. It opens avenues to assets that were previously unattainable and presents not only lifestyle opportunities but also the chance to boost your wealth.
Real estate stands out as a prime example of a fractionally owned asset, enabling multiple owners to collectively buy properties such as vacation homes or commercial buildings. In fact, fractional ownership started with real estate, and then expanded to yachts and aircraft, giving shared owners access to luxury transportation without sole ownership responsibilities.
It’s also possible to buy into high-value artwork, luxury cars, and rare wines and spirits through fractional ownership. Plus, of course, the better-known fractional ownership of stocks and investment funds in financial markets.
Let’s take a closer look at the various branches of fractional ownership:
2. Different Fractional Ownership Products
Fractional ownership of aircraft and yachts
Co-ownership of aircraft and yachts offers a cost-effective and flexible alternative to full ownership, allowing individuals to purchase a share in these luxury assets. This model divides the costs of acquisition, maintenance, and operation among multiple owners, making private aviation and yachting possible for a broader range of people. Owners buy shares corresponding to a set number of flight hours or sailing days annually, tailored to their specific usage needs.
Benefits and operational structure
For aircraft, companies like NetJets manage operations, ensuring maintenance, pilot staffing, and scheduling. This provides the convenience of private aviation without the hassles of full ownership. Owners can access a fleet of aircraft, often with minimal notice, ensuring flexibility and reliability. The management company handles all logistical aspects, including regulatory compliance and insurance, allowing owners to focus solely on their travel experience.
Similarly, yacht fractional ownership is managed by firms such as Smart Yacht. These companies take care of crew hiring, docking arrangements, and maintenance, helping owners to enjoy luxurious yachting experiences without the significant financial and time commitments typically associated with owning a yacht. The management firms also offer concierge services, organizing bespoke itineraries and ensuring that the yacht is provisioned and ready for use at a moment's notice.
Cost efficiency and sustainability
This shared ownership model not only reduces individual costs but also addresses the issue of underutilization of these high-value assets. Full ownership often results in significant downtime, where the aircraft or yacht remains unused but still incurs maintenance and storage costs. Fractional ownership ensures that the assets are used more frequently, leading to better cost distribution and reduced environmental impact. This aligns with a growing trend towards sustainable and efficient luxury lifestyle choices, as shared use maximizes resource efficiency.
Market trends and accessibility
The popularity of fractional ownership has been on the rise, driven by an increasing desire for flexible and personalized travel options without the burdens of outright ownership. This model is particularly appealing in a post-pandemic world, where private travel has become more desirable for health and safety reasons. And along with that, technological advancements and improved digital platforms have made the management and booking processes more seamless and user-friendly, enhancing the overall experience for fractional owners.
Democratizing access to luxury assets
Instead of a few individuals bearing the high costs of purchase and upkeep, a larger group can enjoy the benefits at a fraction of the price. This inclusivity is expanding the market, attracting younger and more diverse clientele who value experiences over possessions. And indeed, as more people seek personalized and convenient travel options, the demand for fractional ownership is likely to continue its upward curve, further revolutionizing the luxury travel industry.
Fractional ownership of artwork
The art market has traditionally been dominated by wealthy collectors, but fractional ownership is opening up the art world by lowering the financial barrier to entry. This innovative approach enables multiple investors to own shares of high-value art pieces, making art investment more accessible to a wider audience. Art is being transformed from a luxury asset to a more inclusive investment opportunity.
How fractional ownership of artwork operates
The process begins with a company or platform acquiring high-value paintings, sculptures or other artworks. These companies then divide the artwork into shares, which are sold to individual investors. This system reduces the entry cost significantly compared to outright ownership, allowing investors to participate with a relatively small amount of capital.
Benefits and logistics
Investors benefit from potential appreciation of the artwork's value over time. Additionally, the logistics associated with owning high-value art—such as insurance, storage, and maintenance—are managed by the platform, relieving individual investors of these responsibilities. Some platforms even handle the eventual resale of the art, streamlining the investment process.
A key player in the art market
One well-known company in this space is Masterworks. This firm acquires high-value artworks and sells shares to investors, allowing them to participate in the art market with a minimum investment. The platform handles all logistics, including insurance, storage, and eventual resale of the art. Investors can later sell their shares on a secondary market operated by Masterworks, providing liquidity in an otherwise illiquid asset class.
Art for all
Fractional ownership opens the door to broader participation in art investment and creates a new asset class for investors looking to diversify their portfolios. As the popularity of fractional ownership grows, it has the potential to significantly transform the traditional art market, leading to increased ownership and investment opportunities, as well as greater transparency on pricing.
Fractional ownership of fine wines and spirits
Fractional ownership of fine wines and spirits allows people to invest in high-end, rare bottles without the need to purchase them outright. This model works by bringing together multiple investors to share the costs and benefits of owning expensive assets. By participating in fractional ownership, investors can diversify their portfolios with luxury items that often appreciate over time, while also enjoying the occasional sampling of these prestigious beverages.
Several companies facilitate fractional ownership of fine wines and spirits, providing a seamless experience for investors. For example, Vinovest offers a platform where investors can buy shares in a curated selection of wines and whiskeys. The company handles professional storage and management, ensuring optimal conditions for aging and value appreciation. While investors benefit from the expertise in selection and maintenance, which enhances the potential for financial returns.
Similarly, CaskX specializes in whisky, allowing investors to purchase shares in barrels of premium whisky. As the whisky matures, its value typically increases, offering financial returns upon eventual sale. CaskX also provides detailed information about the distilleries, maturation process, and market trends, giving investors confidence in their investments.
Reasons to fractionally own fine wines and spirits
Fractional ownership of fine wines and spirits offers numerous benefits, making it an attractive option for investors. This model enables greater numbers of people to own high-end wines and spirits, making these luxury items much more accessible. By investing in shares rather than whole bottles or barrels, people can diversify their portfolios across different types of wines and spirits, reducing risk.
Professional storage and management services provided by companies like Vinovest and CaskX ensure that the wines and spirits are kept in optimal conditions, maximizing the potential for appreciation in value. These platforms also employ experts who carefully select the wines and spirits, ensuring that investors are buying into high-quality and promising assets.
The rise of fractional ownership in luxury drinks
As more people seek to diversify their portfolios and invest in tangible assets, the market for fractional ownership of fine wines and spirits is expected to expand. And with increased accessibility and ongoing innovations in the sector, this investment model is poised to become a mainstream option for those looking to combine their passion for luxury beverages with their financial goals.
Fractional ownership of luxury cars
Fractional ownership is particularly appealing for those who want the experience of driving a luxury car without the commitment and expense of owning one outright. It makes it possible to own a high-end vehicle without being lumbered with a sky-high purchase price, ongoing expenses, and depreciation costs.
Key features of fractional car ownership
One of the main benefits of fractionally owning a car is cost sharing. The purchase price, insurance, maintenance, and other expenses are divided among the owners, reducing the financial load on each individual.
Another important aspect is scheduled usage. Each owner has access to the vehicle based on an agreed schedule or number of miles each year, ensuring fair usage among the participants.
The management company typically handles all aspects of vehicle care including maintenance, insurance, logistics, and detailing, providing a hassle-free experience for the owners. What’s more, this model offers flexibility, allowing owners to choose from a variety of vehicles and switch between them if the company offers a fleet of luxury cars.
A prominent provider of fractionally owned cars
Curvy Road is an example of a company offering fractional ownership of luxury cars. This provider allows members to own a share in a fleet of high-end vehicles, ranging from sports cars to luxury sedans and SUVs – and offers different levels of membership, each providing access to a certain number of driving days or miles per year. Members have access to a diverse selection of luxury vehicles, including brands like Ferrari, Lamborghini, Porsche, and Bentley, and can book cars for specific dates and occasions, enjoying the flexibility to drive different vehicles based on their preferences and needs.
The power of fractional ownership
By participating in a fractional ownership program like Curvy Road, individuals can enjoy the thrill and prestige of driving luxury cars without the major investment and responsibilities associated with full ownership. This model also allows for a more sustainable and efficient use of high-end vehicles, as they are shared among several owners rather than sitting idle for long periods.
Fractional ownership in financial markets
Traditionally, financial market investors were required to purchase whole shares of stocks or funds, which could be financially prohibitive, especially for high-value assets like Amazon or Google. However, fractional ownership has made it possible to buy a portion of a share, making investing more accessible and inclusive.
How it works
Fractional ownership operates through investment platforms provided by brokerage firms or investment apps. Investors can specify the amount they wish to invest, and the platform calculates the corresponding fraction of a share. When an investor places an order for a fractional share, the platform aggregates these orders to buy whole shares, distributing the fractional amounts to individual investors' accounts.
Accessibility
Investors can start with as little as $1 and invest in high-value stocks or funds that were previously out of reach. This accessibility makes it easy for investors to spread their investments across a wider array of assets, reducing risk.
Fractional ownership also offers flexibility, allowing investors to invest exactly how much they want, to suit their personal budgets and investment plans.
Investing for everyone
An example of a company offering fractional shares is Robinhood. Through its platform, users can invest in fractional shares of stocks and ETFs (exchange-traded funds) for as little as $1. Robinhood combines user orders to purchase whole shares and then allocates fractional amounts to individual accounts. With commission-free trades and a user-friendly interface, Robinhood has made fractional ownership accessible to a broad range of investors, encouraging participation in the stock market.
Fractional ownership of real estate
Fractional ownership properties are a form of shared ownership where multiple people collectively own a portion of a property, typically a vacation home, a high-end property, or a commercial building. Each owner holds a fraction of the property, usually represented as shares.
The types of fractional ownership in real estate
Fractional ownership in real estate allows each owner to enjoy benefits such as financial returns, personal use of the property, or both.
Below you will find an explanation of the four main types of fractional ownership in this space. Each has its advantages and considerations, depending on individual preferences, financial goals, and lifestyle choices:
1. Investment-only fractional ownership (domestic buildings)
In this type, individuals purchase a share of the property solely for investment purposes. Owners do not have the right to use the property for personal use but instead, receive a portion of the rental income or profits generated from the property's appreciation when it's sold. This arrangement is similar to owning shares in a company, where the primary goal is to generate returns on investment rather than enjoy personal use of the asset.
Companies such as Arrived, enable people to invest in rental properties and vacation homes, with as little as $100 USD, and earn a passive income through rental income, plus benefit from eventual appreciation if/when the property is sold.
Arrived carefully selects properties that they believe will be top-performing investments, to safeguard their 600k (and growing) investors.
2. Fractional ownership of commercial buildings
Fractional ownership of commercial properties provides a lucrative opportunity for passive income and capital growth within the commercial real estate sector. It enables multiple people to collectively own a property, lessening the financial load for each person and spreading out the risk.
Investors purchase shares in a professionally managed building which is then leased to individuals or businesses, and the income generated from this rented space is divided proportionally amongst the owners.
Purchasing commercial real estate typically requires a very high amount of capital, but this setup makes it possible to invest without so much money upfront. And what’s more, as the building's value goes up, so does the potential for profit. It's a way to earn money without actively managing the property.
Two such companies, offering fractional ownership of commercial real estate are Realty Mogul in the US and 100 Ladrillos in Mexico.
3. Enjoyment-only fractional ownership (vacation homes)
Here, individuals buy a fraction of the property specifically for personal use, such as vacation homes or luxury residences. Each owner is allocated a certain amount of time annually to use the property, which is typically managed through a rotation or reservation system.
Owners have the exclusive right to enjoy the accommodation and its amenities during their allocated time slots and may see an increase in their initial investment over time, if property prices rise. Use-only homes are reserved exclusively for the owners and do not permit owners to rent out their unused weeks. Pacaso is a fractional ownership vacation home company that works in this way.
4. Both investment and use fractional ownership (vacation homes)
This type combines elements of both investment and use ownership. Owners not only receive a portion of the property's rental income and/or appreciation but also have the right to use the property for personal purposes. This arrangement offers the dual benefit of potential financial returns and personal enjoyment of the property. Kocomo’s Partner Providers follow this model.
3. How Fractional Ownership Works
How does fractional ownership of vacation properties typically work?
A fractional ownership provider divides the property into fractions or shares, often representing specific time periods, such as weeks or months. People can then buy these shares giving them shared ownership and the right to use the property for a certain period each year. This is usually determined through a rotating schedule or reservation system. Owners may have the flexibility to use their allotted time themselves, rent it out, or sometimes exchange it for time at other properties within the same fractional ownership program.
In fractional ownership, there can be up to 24 shares, although with fractionally owned vacation homes there tends to be between 2 to 8 co-owners. These co-owners can enjoy the home for a pro-rata amount of time depending on the number of shares they acquire.
What about the legal side of fractional ownership?
Fractional ownership is often based on an LLC structure (or its equivalent in different countries) to offer limited liability protection to its owners or members. This structure merges the benefits of a limited liability corporation with the flexibility and tax advantages of a partnership. In an LLC, owners' personal assets are shielded from the company’s liabilities, limiting their liability to the amount they have invested in the LLC.
Is fractional ownership the same as co-ownership?
While the term fractional ownership has been around for a long time, modern fractional ownership (or co-ownership as it is now also called) is completely different from traditional fractional models which provided very little transparency on cost and gave minimal support to owners when they wanted to sell their share.
Modern fractional ownership, on the other hand, is evolving in exciting ways thanks to the current industry players. They ensure that co-owners are fully informed about property value, additional charges, and future maintenance costs. And crucially, they also make it simple for co-owners to sell their shares when they're ready to move on.
4. Fractional Ownership vs Existing Products
How is modern fractional ownership different from timeshare?
Today’s fractional ownership models differ from traditional timeshare and older fractional ownership arrangements in several key ways:
1. Property type
Timeshare accommodations are generally hotel rooms or condominium units located within a resort complex. Fractionally owned properties on the other hand tend to be standalone vacation homes in sought-after destinations that have been hand-picked for their incredible location, unique cultural heritage, and access to popular outdoor activities.
2. True ownership
With a fractionally owned home, you own a portion of the home’s equity, not just the right to spend time there. This means that you benefit from any appreciation in the value of the home. Whereas with a timeshare, your investment buys you limited vacation time, but you have no ownership of the property itself.
3. Transparency
Modern fractional ownership providers, like Kocomo’s partners, are wholeheartedly transparent about pricing, fees, and the overall structure of the ownership arrangement. They provide clear information about the cost of ownership, including any maintenance fees or other expenses involved. Historically, timeshares and older fractional arrangements, have not always been so upfront with pricing.
4. Asset value
Unlike some older fractional ownership and timeshare models where buyers might end up paying more than the actual value of the asset, modern fractional ownership companies strive to ensure that the pricing reflects the true value of the asset. This means that buyers won’t overpay for their ownership share.
5. Flexibility
Modern fractional ownership offers more flexibility in terms of usage arrangements. Co-owners are clear on their allocated number of vacation weeks per year and owners have greater freedom for when and how they can use the asset.
Where a timeshare can be limited to a fixed period of perhaps 1-2 weeks each year, a modern fractionally owned property can give co-owners around 6 weeks of vacation time each year, if there are 8 co-owners and each co-owner buys 1 of 8 shares (although this varies depending on the particular provider.)
6. Selling
When selling a timeshare, your first option is typically to approach the resort operator who originally sold it to you, though this often leads to selling at a lower price than what you paid. Refreshingly, with fractionally owned homes, you can usually list your share on the provider’s marketplace for the current and genuine market value, and the provider will actively help you find a new buyer.
Dive deeper into the subject of fractional ownership vs timeshare in our blog:
How is vacation time divided between co-owners?
When co-owning a vacation home with a co-ownership provider, vacation time is allocated in an equitable way, with transparent policies and clear communication. Providers tend to use a booking system or booking app where high-demand periods like major holidays are fairly divided to give all co-owners equal access to the property, and each co-owner has a high level of flexibility in booking vacation dates either at short notice or in advance.
How easy is it to sell your fractional ownership share?
When you have a co-ownership provider, the process of selling is both efficient and transparent, as the provider leverages their resources to help you sell with minimal hassle.
Your provider guides you through the process of valuation, listing, and marketing your share, and then manages offers and negotiations for you to ensure a fair price. Once a buyer is found, they also assist with the necessary paperwork and transfer of ownership.
When can you sell your co-ownership share?
Typically, you can sell your share after a minimum ownership period of 1 year, although this varies between providers. The provider may have a right of first refusal clause, giving existing co-owners the first option to buy your share - and if not, they often have a list of pre-approved buyers.
Fractional ownership of vacation homes FAQs
To find answers to more frequently asked questions about fractional ownership, visit Kocomo’s FAQ page.
The future of vacation home investment
Just as fractional ownership is transforming the art and travel industries, it’s also reshaping the real estate scene by offering an accessible and cost-effective way for people to own a share of a luxury property without the headache of full ownership.
Let’s check out the advantages of fractional property ownership over traditional sole ownership:
1. Cost-effectiveness
One of the biggest attractions of fractional ownership is its affordability. Instead of shouldering the entire cost of a vacation home, you can purchase a fraction of the property, significantly reducing your initial investment. This makes owning a share in a high-end vacation home more attainable for a broader range of people.
2. Investment potential
Fractional ownership offers the potential for a return on investment. As the value of the property appreciates over time, so does the value of each owner's share. Additionally, fractional ownership programs often provide opportunities for rental income when the property is not in use by the owners, further enhancing the investment aspect.
3. Shared Expenses
By sharing ownership with other people, the expenses associated with owning a vacation home, such as maintenance, property taxes, and utilities, are divided among the co-owners. This significantly reduces the financial load on each individual owner, making it more manageable and predictable.
4. Flexibility
Fractional ownership gives owners plenty of flexibility in terms of usage. Typically, owners are allocated 6 weeks each year to enjoy the property, although this varies between providers and depends on the number of co-owners.
By dividing usage time fairly between the co-owners, the property is utilized efficiently throughout the year, rather than standing empty for long periods of time, as a traditional one-party vacation home might.
5. Rental opportunities
Owners of fractional properties often have the option to rent out their allocated time if they are unable to use it themselves. This rental income can help offset ownership costs or even generate additional revenue, making fractional ownership an attractive option for those looking to diversify their investment portfolio.
6. High-quality properties
Modern fractional ownership tends to be synonymous with high-quality, luxury properties in desirable locations, offering owners the opportunity to enjoy premium vacation homes and amenities without the expense and hassle of sole ownership.
5. Fractional Ownership Providers
Fractional ownership vs. traditional vacation home ownership
To discover more about fractional ownership and how it compares to traditional methods of vacation home ownership, visit Learn at Kocomo and read our blog What is the Best Way to Buy a Vacation Home?
Kocomo’s Fractional Ownership Providers
Kocomo partners with the industry’s leading fractional ownership providers and together, we’re proud to present a vast portfolio of the world’s finest fractionally owned vacation properties.
Get acquainted with our Providers and explore our latest Fractionally Owned Property Listings to acquire your own slice of paradise.
