Fractional Real Estate Ownership
FRACTIONAL REAL ESTATE OWNERSHIP
One Definition of Fractional Real Estate Ownership is a share in the ownership of real estate. For example, a large vacation property may be too expensive to be maintained by one owner so instead of buying the whole property, a person may purchase a share of it along with four other people, becoming the owner of 1/5 of the property. Each owner shares in the maintenance and taxes and they take turns in actually occupying the property.
In the case of income-producing properties, the purchase price of a high quality property may exceed the available investment funds of most persons. The solution to this problem may be for a number of persons to buy the property together; and then share the income, depreciation, management and value appreciation for a given length of time.
Formerly, a common legal structure for this type of Fractional Real Estate Ownership was for the property’s investors to purchase the property as Tenants-in-Common (TIC). However, the TIC structure often proved to have unwieldy management characteristics. In approximately the last decade, a legal ownership structure known as the Delaware Statutory Trust (DST) structure has largely supplanted the TIC structure in achieving a workable Fractional Real Estate Ownership structure for large income-producing properties, whereby numerous investors can share in the income and tax benefits of, in many cases, high quality and stable properties, such as apartments, retail, industrial, office, and oil and gas-producing properties. Also, under the DST structure, there can be multiple properties within a single DST, possibly providing internal property type and geographical diversification.
By advising numerous client in their purchase of DST investments, Sourcenet Investment Services, our affiliate, has assisted these clients in diversifying their real estate assets portfolios.