Fractional ownership explained.

Great!

Real estate is considered the best investment available for almost everyone who is not afraid of moving cash into an estate to protect its value or use interest-bearing external capital to buy property for investment purposes. And certainly, given the current geopolitical conditions, it is the safest one.

Yet, if you struggle with money shortage and cannot afford to pay the full price for the property still there are safe solutions for you.

Whether you want to invest to create your passive income or simply enjoy your vacation home, you still may do that.

Use fractional ownership.

What is that? I am explaining that below. 

And it is easier than you think as long as you know what you want to accomplish. 

Fractional or collective ownership entails jointly owning a property with other co-owners.

Who can be the co-owner?

In my opinion, it could be everyone, as long as you trust the person and know that signing contracts with him or her will not affect any relationship. 

You may say that it does not matter because we are talking about business, but I am sure you know many examples of unwanted financial conflicts. When it comes to money and responsibility, business often ends like a harsh divorce. Losing relations because of money is never a solution. 

If you are thinking about using fractional ownership, I am sure your intuition will help you decide who is the best to share the property with.

The co-owners may be your family members, friends, or, if you feel secure enough, even someone unknown. Many people buy property remotely, and as long as it serves the goal, they do not even come to see it. 

If you feel secure about this, you know the law and your rights and obligations, this may work perfectly for you. 

How to find such a person?

Ask your developer or your real estate agent. They always have records of such investors in their database and facilitate those connections.

Always consult this with your lawyer.

At this stage, it is nothing more than agreeing on the number of shares (it works similarly to owning shares of some company that you buy on an exchange market) and agreeing on the rights that usually are determined by the number of shares someone owns.

If you cannot imagine that, no worries. Let me explain that to you by using a simple example.

Let’s say you found a villa that is located in a great summer location and its price is 100,000 €. You decide to buy it for many purposes.

But you do not have all the money so you cannot own it on your own. You have 50% of it so you look for someone who also wants to buy a villa and also has 50%. And let’s imagine that you found this person, same eager to own it as you are.

You agree to buy it together so you do that.

The title deed you will sign at the notary office will mention that this is a fractional ownership – each of you owns 50% of the property. Also, each of you covers 50% of the cost of maintenance and of the management company (if you decide to rent it when you do not use it). 

Same with income. It will shared proportionally to your shares.

Super simple, right? 

If you are not sure about how it works in practice, or what you should discuss before agreeing on the purchase let me just give you some basic bits of advice. 

Still, I am sure there will be a lot more factors that should be considered before putting your signature under the deed.

First, I think that you should obligatorily discuss your expectations regarding the cooperation and usage of the property, and then write them down. Do not assume that your co-owner expects the same. Everyone’s expectations are different. 

For example, if you plan to own a villa to create a space perfect for vacation, you should decide whose family comes when. Maybe the co-owner would prefer to rent it all the time? You should know that before you sign any document. 

Or maybe your co-owner wants to spend all the summer in-house? If you usually enjoy your vacation in July and the other person in August, that is your perfect 50/50 summer deal. But what if not?

You should know in advance to avoid stress, misunderstandings or unpleasant situations.

Of course, sometimes it is not easy to set the rules, especially if there are more than two co-owners and everyone expresses similar needs. However, I know that usually, it requires a simple conversation. Maybe someone prefers the off-season?

Discuss to find a solution that will satisfy everyone.

Whatever you decide, your agreement should be mentioned in the title deed or annexed to the deed. Just in case.

What is agreed and signed becomes proof in case of any problems.

I hope this short read gave you answers to some questions about fractional ownership.

Soon, I will tell you about owning an apartment solely for investment purposes and will indicate the best markets to invest in in 2024 & 2025.