The fractional real estate model is a way of partially owning real estate through co-ownership. It is related to and not that different from timeshare properties, except for the fact that fractional real estate purchases usually include deeded ownership. Fractional real estate purchases waned during the recession, but recently there has been signs of recovery.
Fractional interest in real estate is often part of large-scale real estate projects, which finance construction through smaller contributions to shared ownership plans. Meanwhile, timeshares usually relate to residence and destination clubs that sell multiyear memberships, which give owners a chance to use a network of resort properties located in different areas.
One sales agent for a fractional real estate firm reported that the industry’s recovery was not unlike the flipping of a light switch. The volume of sales is still below what it was before the recession, but it has shown dramatic signs of improvement, making fractional real estate one of the last areas of real estate to recover.
Prior to the recession, purchasers were making use of equity on their homes to buy fractional real estate shares for cash. Shares of fractional projects had an average price of $105,425, and shares of private residence clubs had an average price of $363,550. Nevertheless, securing financing for these kinds of purchases remains challenging.
Minnesota residents considering investing in fractional real estate may want to discuss their purchases with a real estate attorney before agreeing to them. Indeed, there are many details that would-be purchases may not be aware of, so — like any other kind of high dollar purchase — an attorney’s input could be worth its weight in gold.
Source: Star Tribune, “Business is coming back for Minnesota’s fractional real estate industry,” Jim Buchta, Sep. 19, 2016