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? The shared ownership of a vacation property might put that dream in closer reach.

Did you know that shared ownership might also help you transfer existing family property to future generations and potentially generate revenue simply by renting it out? Plus, there's the possibility that the investment could, over time, increase in value.

For many families, the appeal is understandable.

About 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.

It’s worth noting, too, that this type of ownership is distinct from vacation timeshares,² 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.

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 the 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 time frames. Still, there can be scheduling conflicts, and the decision to rent the property may put further limitations on access.

There's another consideration. 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 time frames 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 may give you peace of mind.

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 thoroughly 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, however, you could enjoy the benefits of co-owning your dream “home away from home” in the company of your loved ones.

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.