Vacation Homes and Shared Ownership: What You Need to Know

Do you dream of having a place to gather with friends or family — be it a cabin tucked away in a peaceful mountain range, a historic ranch compound in the Texas Hill Country or a luxury high-rise condo near the Gulf Coast with all the comforts of home?

Might you like to share your home away from home with loved ones for generations and perhaps defray costs by renting it out along the way, too?

With the help of shared ownership in a vacation home, all of those dreams could become a reality.

Shared ownership (a.k.a. fractional ownership) and tenants in common

According to the National Association of Realtors (NAR), shared or fractional ownership¹ is becoming increasingly popular in the vacation real estate market. Although they initially may invest different amounts in the property, individual shareholders in a fractional ownership arrangement may split access, responsibilities and benefits. (Note: This type of ownership is distinct from vacation timeshares², which are owned and managed by a company.)

Unlike joint tenancy arrangements³ (through which one holds property with a spouse, life partner or other close family member), shared or fractional ownership is held by tenants in common⁴ who may initially invest different amounts in the property.

Intrigued by the possibility of shared ownership and how it might help open the door to your dream vacation property? Let’s take a closer look.

What are some possible advantages of shared ownership of a vacation property?

Through fractional ownership, you may:

• Create a common gathering location for friends or family at a beloved destination.
• Nurture family bonds by establishing a new home (or preserving an existing one already in the family) that can be shared with future generations.
• Share responsibility either across owners or through a professional management company to keep the property in tip-top shape.
• Invest in a luxurious new real estate asset with amenities and services in a prime location that one might not otherwise be able to afford through sole or joint ownership. (It’s worth noting that, according to NAR, commercial investors have also taken notice of short-term rental vacation homes⁵ in recent years.)

What are some possible disadvantages of shared ownership of a vacation property?

Although there are many pros to shared ownership, it’s important to be mindful of potential cons, too.

• Access to the property may be limited. One of the drawbacks of a shared vacation home is the limited amount of time allocated to each owner. At the outset of an arrangement, property access may be divided into fixed time slots or seasons, with owners adhering to allocated timeframes. Still, there can be scheduling conflicts, and the decision to rent the property may put further limitations on access.

Something else to consider: if someone puts more money down on a property than others, will they have expectations about using the home more or overseeing who else uses it?

• Frequent consensus may be necessary regarding renovations, modifications or major changes to the property.

• Restrictions on renting or subletting may be an issue for some HOAs. And, by necessity, some shared ownership agreements may further restrict owners from sharing, renting or subletting their allocated time.

• Property values may decline. As with any other real estate purchase, one never knows for sure if the investment will pay off. Additionally, when selling a property with multiple tenants in common, conflict may erupt if not everyone agrees to the condition of the sale.

What other issues might one want to take into consideration?

Property maintenance

Why leave the care of your property to chance? Determine upfront who will manage repairs, cleaning and other costs.⁶ Often this responsibility is best addressed through an agreement with a property management firm, assuming one is available near the property’s location.

Financing issues

Shared homeownership can be messy, so be careful with whom you share the title, mortgage and deed to a property. Unless you’re able to pay cash, each person who seeks to be on the mortgage loan will need to provide a good credit score, income, debt, assets and employment history.

Coordination and communication

Organizing vacation schedules, managing shared expenses and resolving conflicts or disagreements among owners can be challenging. Effective communication and clear, documented agreements are needed from the outset — ideally with regular review timeframes spelled out.

Reserve funds

As with any property, there’s the ongoing issue of routine maintenance and bills. Rental income can help, but what if a wildfire wipes out your beloved mountain cabin or a hurricane renders your condo useless for several months? Agreeing upon a monthly and annual budget and setting aside money in a reserve fund can help.

An exit plan

When embarking on a shared ownership plan for a vacation property, it’s important to consider a variety of future circumstances, such as:

• If someone wants to sell the property, will there be restrictions to whom they can sell?
• If one of the original parties in the agreement passes away, what will happen to their ownership? Will it be passed along to their spouse or children?
• Would existing owners have an opportunity to purchase the share, a first right of refusal of another owner purchasing a share or an approval vote on new tenants in common?

Build a team of professionals to help

Naturally, a good real estate agent is a key player when it comes to exploring shared ownership of a vacation property — especially if you’re interested in luxury properties, but there are other professionals who may be of help to you. These include a mortgage loan officer, an escrow officer and, if you do plan to rent the home, a property manager.

Additionally, consider hiring a real estate attorney, especially if you want to address the issue of who will inherit the property (and how) if one or more owners were to pass away. You might also want to explore the creation of a limited liability company (LLC) or a trust through which you can purchase a home.

Depending upon your estate plans and financial circumstances, you may wish to discuss your desired purchase with your trust officer, accountant, financial advisor or wealth management professional, too.

The takeaway

There are many pros and cons to shared ownership of a vacation property. With proper planning, forethought and a team of real estate professionals to guide you, however, you may be able to make your dreams a reality.

Are you planning to sell or buy a luxury Central Texas property soon? Let us help you navigate the process. Remember that RBFCU’s preferred real estate partner, Kuper Sotheby’s International Realty, is here to help you move beyond your expectations toward an extraordinary real estate experience.

To get started, contact us today by emailing realty@rbfcu.org or completing a simple online form now.

Information in this article is general in nature and for your consideration, not as financial advice. Please contact your own financial professionals regarding your specific needs before taking any action based upon this information.

Last updated November 2023

Kuper Realty Holding Company, LLC dba Kuper Sotheby’s International Realty is a subsidiary of RBFCU Services LLC. RBFCU Services LLC is affiliated with Randolph-Brooks Federal Credit Union (RBFCU).

SOURCES

The following sources were last accessed in June 2023.

¹Fractional interest ownership. (2017, March 6). National Association of Realtors, https://www.nar.realtor/fractional-interest-ownership

²Timeshare: What It Is, How It Works, Types of Ownership. (2023, April 6). www.Investopedia.com. https://www.investopedia.com/terms/t/timeshare.asp

³Joint Tenancy: Benefits and Pitfalls. (2021, December 31). www.Investopedia.com. https://www.investopedia.com/articles/pf/08/joint-tenancy.asp

⁴Tenancy In Common (TIC) Explained: How It Works and Compared to Joint Tenancy. (2023, May 24). www.Investopedia.com. https://www.investopedia.com/terms/t/tenancy_in_common.asp

⁵Investment firms target vacation homes. (2022, February 24). www.Nar.Realtor. https://www.nar.realtor/magazine/real-estate-news/commercial/investment-firms-target-vacation-homes

⁶Help homeowners maintain their vacation homes. (2023, May 19). www.Nar.Realtor. https://www.nar.realtor/magazine/real-estate-news/home-and-design/help-homeowners-maintain-their-vacation-homes