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Fractional ownership – A hot business model that is driving disruptive startups

People have always thought it was important to own property. This is something that has been accepted by most cultures and societies. People usually own things through a rental or loan agreement.

This is true for things like homes, cars, and other physical assets. Owning a stock unit or share is the business equivalent of owning a piece of a company.

However, recent changes in how businesses work are changing how we think about the ownership of assets.

What is fractional ownership?

Fractional ownership is when several people share in the risk and ownership of a high-value item. This concept is coming back in new and interesting ways.

Fractional ownership means that a group of people share an asset class. Usually, this asset is something that is expensive but only needed sometimes. The customers get to use the rights of an owner, but they don’t have to pay for the whole thing themselves.

It is an ownership structure in which multiple parties own a shared asset, such as a vacation home or an airplane.

There are two main types of fractional ownership – whole ownership and shared ownership. With whole ownership, each party owns a specific unit or share of the asset.

For example, with a vacation home that is rented out, each owner might own a part of the rental revenue. With shared ownership, ownership is more flexible and can be rotated among the owners.

What are the benefits of fractional ownership?

Fractional ownership can offer certain benefits over traditional ownership, such as increased access to the asset and lower costs. In some cases, fractional ownership can also offer tax advantages.

Access

The most important benefit is that it can offer increased access to an asset that might otherwise be out of reach. For example, a vacation home in a desirable location might cost more than $1 million to purchase outright. However, by fractionalizing the ownership of the property (i.e., owning a share of the property), the cost of ownership can be spread out over multiple parties, making it more affordable. Similarly, you want to own a luxury car but don’t want to spend the full price. Instead owning a luxury car with a few others can help you flaunt your social status without the heavy investment.

Cost advantages

In addition to increased access, it can also offer certain cost advantages. For example, with an airplane, the costs of maintenance, storage, and insurance can be shared among all of the owners. This can make fractional ownership a more economical option than traditional ownership.

Risk diversification

When you fractionalize an asset, you are effectively diversifying your investment. This is because you are spreading the risk of ownership across multiple parties.

Income potential

In some cases, fractional ownership can offer the potential for income generation. For example, if you purchase a share in a vacation rental property, you might be entitled to a portion of the rental income.

Zero management

It can offer the benefit of zero management. This is because the asset is managed by a professional company that takes care of all the details, such as maintenance, bookings, and marketing. Many new startups are using the fractional ownership business model to come up with innovative ideas.

Tax benefits

In some cases, fractional ownership can offer certain tax advantages. For example, in the United States, owning a share in a vacation home that is used as a rental property can offer certain tax deductions.

This is something you should discuss with a tax advisor to see if it applies to your specific situation.

What are the disadvantages of fractional ownership?

There are also some potential disadvantages to fractional ownership that you should be aware of before making a decision. These include:

Complicated ownership structures. It can involve complicated legal structures, which can make it difficult to understand your rights and obligations as an owner.

Potential for conflict. It can also lead to conflict among the owners. This is because each owner might have different ideas about how the asset should be used or managed.

Possible regulations. In some cases, fractional ownership might be subject to additional regulations. For example, in the United States, the Federal Aviation Administration (FAA) has strict rules about how fractional ownership of an airplane can be structured.

Exit strategy. When you fractionalize an asset, you might have difficulty selling your share later on. This is because you will need to find a buyer who is interested in purchasing a share of the asset.

If you are considering fractional ownership, be sure to weigh the pros and cons carefully to decide if it is the right option for you.

Can you raise venture capital
Can you raise venture capital?

Who can benefit from fractional ownership?

Fractional ownership can be a good option for anyone who wants to increase their access to an asset. It can also be a good way to diversify your investment portfolio and spread out the risk.

It can also be a good option if you want to generate income from an asset, but you don’t want the hassle of managing it yourself.

How to get started?

There are a few things to keep in mind if you are interested in fractional ownership.

First, you will need to find other people who are interested in owning a share of the asset.

Second, you will need to determine how the ownership will be structured (i.e., whole ownership or shared ownership).

Finally, you will need to consider the advantages and disadvantages of fractional ownership to decide if it is the right option for you.

Resources

If you are interested in exploring fractional ownership, there are a few resources that can help you get started.

The website of the National Shared Housing Resource Center (NSHRC) offers a good overview of fractional ownership and how it works.

The website of the National Timeshare Owners Association (NTOA) also provides helpful information about fractional ownership, including a directory of timeshare companies that offer fractional ownership options.

Finally, the website of the American Resort Development Association (ARDA) offers a directory of fractional ownership companies.

What are some examples of fractional ownership?

There are many different types of assets that can be fractionalized. Some common examples include:

Private jets

Private jets have become a status symbol for the wealthy, but they are also incredibly expensive to purchase and maintain. Fractional ownership is one way to make owning a private jet more affordable.

For example, with NetJets’ fractional jet ownership, you purchase a portion of a specific aircraft. That means that you have the right to fly that amount of hours in that specific type of aircraft. You can also upgrade or downgrade to any other jet in their fleet.

Racehorses

Racehorses can be a fun and exciting way to gamble, but they are also a significant investment. Fractional ownership is one way to make owning a racehorse more affordable and less risky.

For example, with the Thoroughbred Owners and Breeders Association’s (TOBA) fractional ownership program, you can purchase a 1/16 share of a horse for as little as $500. You will then be responsible for 1/16 of the training, boarding, and racing expenses.

The TOBA program also offers the option to purchase a “breeding certificate” which entitles you to a share of the offspring of the horse you’ve purchased a share in.

Vacation homes

A vacation home can be a great way to relax and escape the stresses of everyday life. However, they can also be expensive to purchase and maintain. Fractional ownership is one way to make owning a vacation home more affordable.

For example, with Marriott’s Vacation Club ownership program, you can purchase a “fractional interest” in a vacation villa. This entitles you to a certain number of weeks of usage each year. You also have the option to exchange your weeks for stays at other Marriott Vacation Club locations around the world.

Real Estate

This is an ownership model in which multiple parties own a share of a property, each with the right to use it for a certain period of time. It is similar to timeshare ownership, but with real estate instead of vacation condos or hotels.

Fractional ownership is a way for people to invest in physical real estate through an alternate route. There are online platforms that allow people to invest money in pre-leased Grade A commercial properties and earn an average 10% rental yield.

Cars

This is an ownership model in which multiple parties own a share of a car, each with the right to use it for a certain period of time. It is similar to traditional car leasing, but with multiple owners instead of just one.

Fractional ownership can be a good option for people who want to own a share of a car that would otherwise be out of their price range.

Solar power

In this model, multiple parties own a share of a solar power system, each with the right to use it for a certain period of time. It is similar to traditional solar panel leasing, but with multiple owners instead of just one.

Art

In this ownership model, multiple parties own a share of artwork, each with the right to use it for a certain period of time. It is similar to traditional art leasing, but with multiple owners instead of just one.

Masterworks.io is one example of a company that offers fractional ownership of art. Masterworks is the first platform for buying and selling shares representing an investment in iconic artworks – a stock market of sorts for art.

Stocks & crypto

Most stock market ownership happens when people buy whole shares of a company.

You can now purchase partial shares of stock through multiple stock brokers, including Schwab and Robinhood, for as little as $5.

You don’t need to purchase an entire bitcoin to invest in cryptocurrency. For example, you could purchase $10 worth. Your upside in that asset is then proportional to the amount that you invested.

Fractional ownership can be a valuable tool that enables more people to invest in equities. This is because they no longer have to worry about their capital limitations.

Fractional ownership vs timeshare

While fractional ownership and timeshare ownership are similar, there are some key differences to keep in mind.

Timeshares are typically for vacation properties, such as condos or hotels, while fractional ownership can be for any type of property, including homes, cars, and solar power systems.

Timeshares also typically have a set time period that you can use the property, while fractional ownership usually gives you more flexibility in terms of when you can use the property.

Finally, timeshare ownership typically requires you to pay maintenance fees, while fractional ownership does not.

Overall, fractional ownership and timeshare ownership are similar, but there are some key differences that you should keep in mind before making a decision.

Fractional ownership vs crowdfunding

While fractional ownership and crowdfunding are similar, there are some key differences to keep in mind.

Crowdfunding is typically used to finance a project or business, while fractional ownership is used to finance the purchase of an asset.

Crowdfunding usually involves multiple people investing small amounts of money into a project, while fractional ownership usually involves a smaller number of people investing larger amounts of money into an asset.

Finally, crowdfunding is typically a short-term investment, while fractional ownership is typically a long-term investment.

Overall, fractional ownership and crowdfunding are similar, but there are some key differences that you should keep in mind before making a decision.

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