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True Home Ownership

Owning a second home through fractional ownership

To facilitate the purchase, a legal entity, such as a Limited Liability Company (LLC), Trust, Corporation, Sociedad Limitada (SL), or Société Civile Immobilière (SCI) is set up. This legal vehicle or company is usually set up by the property manager, which also handles all the legal work associated with the purchase. Each house is divided into an equal number of shares, and the buyer becomes the co-owner of the real estate property in proportion to the percentage of the shares owned.

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The method of purchasing a fractional property is different from a traditional outright purchase. So, how does it work in practice? How is the purchase process structured in the background?

Image by Signature Pro

1. Creation of the legal entity

The property creates a special vehicle entity such as an LLC that is registered for the sole purpose of purchasing the property. This provides secure and transparent rights for co-owners.

Image by Juan Domenech

2. Buyer aggregation

The property is 'divided' into shares and the property manager starts the aggregation process finding and vetting future co-owners. The complementarity of profiles is one of the key criteria. 

Image by Julie Molliver

3. Home management

All costs associated with small renovations and maintenance are managed by the home, and shared amongst the co-owners (click here for more information).

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Fractional homes listings: available now vs. potential buy - what is the difference?

As you explore fractional homes on the property managers' listing page, you will notice several categories associated with each home. Here is a breakdown of the different labels: 

  • Available now / for sale / shares available: those homes have been purchased by the developer. They have been professionally decorated and furnished, and are ready for co-ownership.

  • Coming soon: homes marked "coming soon" are properties the developer has under contract and that will be available for purchase soon, once they have been renovated, decorated, and furnished to the developer's quality standards.

  • Potential buy / prospect: these homes meet the developer's quality standards and pass its proprietary certification process (prime location, good construction, competitive price, etc). Once enough buyers have shown interest, the developer will acquire and fractionalise the property to make it available for co-ownership.

  • Sold / accepting waitlist: all available ownership interests have already been purchased. However, interested buyers can join a waiting list and get notified ahead of the public when a share becomes available in the future.​

What is the markup in fractional real estate?

For fractional homes the entry cost is smaller: the buyer only pays a fraction of the cost of the entire home as the overall cost is split between various parties. However, properties being sold fractionally are usually offered at a higher price or 'markup' to reflect the various costs linked to the purchase and upgrade of the property:

  • standard purchase costs: land registry, notary fees

  • legal and admin fees: creation of the legal structure, buyer aggregation

  • home upgrades: renovation, interior design, furnishing

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Despite this premium, fractionals are still beneficial for most buyers as they avoid the time, effort, and difficulty of creating the legal structure and assembling the owner group, as well as renovating and furnishing the property.

All those costs will impact the price paid for the fractional home and would need to be compared to the price of the whole property value if owned outright. The markup describes the relationship between the price of a fractional ownership interest and the price of whole ownership. It can be calculated as the sum of all shares being offered in a particular home divided by the fair market value of the property. According to SirkinLaw APC, a specialist lawyer in shared ownership, historical statistics show that the total share price - calculated as the number of shares multiplied by the share value - is usually  between 110% and 250% of the actual home value.

Case study - Calculation of the markup

To illustrate it, below are a couple of examples of actual fractional properties from two different property managers in Europe and the US.

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17th century home in Provence

EUR 399,000 per 1/8 ownership

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  • Total share price = 8 shares x 399,000 = EUR 3,192,000

  • Fair market value of full home = EUR 2,560,000

  • Markup = 3,192,000 / 2,560,000 = 125%

Source: Lazazu, Nov 2022, all photo credits go to the agent​

Purchase

Contemporary home in Miami Beach

USD 867,000 per 1/8 ownership

  • Total share price = 8 shares x 867,000 = USD 6,936,000

  • Fair market value of full home = USD 5,675,000

  • Markup = 6,936,000 / 5,675,000 = 122%

Source: Pacaso, Nov 2022, all photo credits go to the agent

Illustration of the costs associated with a purchase

Price breakdown with actual figures:

17th century home in Provence priced at EUR 399,000 per 1/8 ownership

  • Purchase price = EUR 320,000 (based on full home price of EUR 2,560,000)

  • Standard purchase cost = EUR 22,559

  • Legal and admin fees = EUR 28,800

  • Home upgrade = EUR 27,641​

         Total 1/8 Ownership​ = EUR 399,000

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