What is a Fractional Real Estate Investment?
Fractional ownership is a method by which investors are able to join together to purchase shares in a real estate property. This type of investment/ownership structure is especially common for expensive real estate assets, including hotels and resorts, stadiums, apartment buildings, residential developments, vacation homes, and other commercial properties.
A fractional real estate investment offers some benefits to individual investors and companies seeking to diversify their holdings. At the same time, there are also some drawbacks. Real estate investors should always carefully consider their unique circumstances before making a final decision. Here, our Dallas commercial real estate attorneys answer three frequently asked questions regarding fractional real estate investments.
What are the Benefits of Fractional Ownership?
One of the primary benefits of fractional ownership is that it allows investors to gain a stake in an investment that would otherwise be too expensive. The upfront costs associated with fractional ownership are considerably lower than owning an entire property.
The lower price offers investors a chance to get a piece of multiple assets. An investor can diversify a portfolio with a fractional ownership share of a commercial real estate property.
In addition, a fractional real estate investment is a far more liquid investment than a typical real estate investment. Depending on the specific structure of their agreement, fractional owners may have the ability to sell their shares in the property at any point in time.
What are the Drawbacks of Fractional Ownership?
Fractional real estate investment also comes with certain drawbacks. It is crucial that investors carefully consider all risks before finalizing any real estate transaction. To start, fractional ownership is more complex than individual ownership. Often, a fractional ownership agreement will need to be worked out between all investors. Furthermore, it can be far more challenging to obtain financing with fractional ownership. While it is certainly not impossible, getting financing can sometimes be an issue.
If you are an investor considering making a fractional ownership investment in real estate in Texas, please be sure to consult with a commercial real estate lawyer who can help you draft, negotiate, and structure a fractional ownership agreement that best protects your legal rights and financial interests.
Is Fractional Ownership the Same Thing as a Timeshare?
Not quite. Though there are similarities between fractional ownership investments and timeshare investments, there is also an important difference. Specifically, the manner in which equity is distributed to parties. A timeshare is not really an ‘investment’ in the way that fractional ownership is an investment. With a fractional ownership, investors own a share of the property. With a timeshare, the ‘investor’ is only purchasing the right to reserve time in the property. For this reason, a stake in a timeshare does not usually gain value or generate income.
Speak to a Texas Commercial Real Estate Lawyer Today
At Bennett, Weston, LaJone & Turner, P.C., we are a full-service business and commercial law firm with deep experience handling a wide range of commercial real estate transactions. To schedule your fully confidential initial consultation, please do not hesitate to contact our Dallas law office today at (214) 691-1776 or toll-free at (888) 991-1776.