Housenomads

Holiday properties are a great way to enjoy holiday, while saving money at the same time. However, there are a number of issues associated to them. The biggest problem is that it requires a lot of money to purchase one. Another disadvantage is that you need to spend great amount of time and energy to administer the property such as paying bills and taxes. One also needs to spend significant amount of time and energy to repair it, furnish it and maintain it. Furthermore, there might be big fixed ownership costs such as common parts maintenance fees, furnishing the apartment, repairs. One needs to consider that you might need to refresh the property with new furnishing, maybe also renovate the property every 10 years or so. All the time, money and energy spent on repairs, maintenance e.t.c. are only worth it, if you are going to use it very often, for instance 100 or more days a year. That is not the case for most people. Holiday properties are used 30 days on average annually. Another way to save money and enjoy holiday at the same time is fractional ownership. Fractional ownership allows multiple people to co-own and use a holiday property together. It has many advantages over standard vacation property ownership.

More affordable

It is more affordable, because it requires significantly lower capital to purchase a fraction rather than a whole vacation property.

Less fixed expenses

It has a lower fixed expenses per day compared to a whole property that is only used 30 days a year, because all fixed expenses are shared between all co-owners.

Zero maintenance

Zero time and energy spent on property repairs, renovation, management, administration. A management company is doing this for you.

All in all, with fractional ownership you:

spend less money to buy a property,
spend less money to own, run and use a property,
use no effort in maintaining the property.

Of course, this only makes sense if you are not using your vacation property very often.

Vacation Properties 11 months empty

Our research shows that people that can afford to buy a vacation property in Bulgaria can afford to spend 50 000 EUR on average. A one or two room apartment in a resort in Bulgaria cost about that much. As we have already mentioned, you are most likely going to use the property about 30 days a year. Other 11 months your vacation property will be either empty or you would need to rent it out, which has a lot of drawbacks. Dividing all of the property expenses to these 30 days will most likely result in an amount close to what you would have spent on short term renting (or pretty close to this amount).

Co-own with others

If you join forces with 7 other people, you can afford to buy a luxury house together for about 400 000 EUR. 365 days year divided by 8 people makes about 45 days a year per co-owner. This is more than what an average person in Bulgaria spends in their holiday property. The best part of sharing a vacation property with others is that you also share property’s fixed costs with the rest. Hence, your annual fixed obligations towards the property would be much lower compared to standard ownership.

Co-ownership practical questions

8 people buying a house together? Sounds crazy, doesn’t it? Probably, many questions pop up in your head right now:

How do I find other people to co-own a property with?
How do I know that they would behave appropriately?
Who is using the property when?
Who is maintaining the property?
Who administers the property such as paying utility bills, taxes etc?
Who cleans the property?
Who is using the property on special days such as Easter, Christmas and New Year’s Eve?

You might be asking all of these questions and perhaps many more. The answer to all of those questions is co-ownership management company.

Co-ownership management companies

Such companies sell appropriate vacation properties as fractions to their end clients. In addition to that, they also:

define common rules for property usage by all co-owners,
maintain the property,
provide property administration such as paying utility bills, taxes e.t.c.,
some of them (such as housenomads.com) provide online booking system,
some of them (such as housenomads.com) divide and distribute the costs to all co-owners proportionally to the size of their co-ownership stake. Others charge a flat fee per month or annually, which covers all of your expenses,
some of them (such as housenomads.com) provide secondary market, where you can sell your fraction when you no longer need it,
some of them (such as housenomads.com) provide easy booking of any property within a network of real estates.

Equal number of days vs points based system

Modern fractional ownership companies on the market these days provide online booking systems that enable each co-owner to book their stay conveniently online. Such systems also keep track of who has used their co-ownership usage rights for a specific year. There are two main usage rights systems:

Equal number of days

Such a system divides all days within a year to all property fractions and this allocates an equal number of days to each fraction. Typically, a property is divided into 8 fractions, which gives each fraction a total of 44 days a year. In addition, such a system usually defines further restrictions. For instance, each co-owner might be allowed to use a maximum of 7 days of their total 44 days for a year in the high season and hence rest are used in low and mid seasons. There might also be special restrictions w.r.t. how holiday days are used as well.

Points based system

Such points based usage rights system has sophisticated algorithms that quantify each day w.r.t. its expected demand. This means there are no fixed 45 days per co-owner. Rather than that, each fraction is allocated equal amount of points, which can be used according to co-owners preferences. In high season, a co-owner could gets less than 44 days for its points, while out of season one can get more than 44 days for the same amount of points. Such points based systems also factor in weekends, public holidays etc. Furthermore, day points are adaptive, which means every year points required to book a specific date might change depending on the previous years demand and current year’s expectations. The advantage of “points” over “equal number of days” based system is that it is flexible. Some days might be assigned more points than others. Thus, some co-owners might decide to book smaller number of days, but more demanded dates (in season days, weekends, special days etc.), while others might book bigger number of days, but the dates would be less demanded (out of season days, weekdays). This gives much more flexibility to co-owners.

Fractional ownership things to consider

Even though fractional ownership has numerous advantages, it comes with its own particularities. Here are some of them:

Usage rights limit

A co-owner cannot use the property more than its corresponding usage rights or number of days allowed for each year.

You need to be flexible

A co-owner might not be able to use the holiday property whenever they want to. Even though modern co-ownership platforms provide fair distribution of usage rights and prevent some issues such as one owner booking all demanded days in a year, bookings are still usually created on first come, first served basis. Hence, if the most important thing for you is to use your holiday property on New Year’s Eve, then you would need to buy your own holiday property and not rely on fractional ownership. Fractional ownership requires some amount of flexibility over the dates you are using a vacation property.

Fractional ownership is cheaper

While fractional ownership requires some sort of flexibility, it is both cheaper to buy and it comes with less annual operating expenses per co-owner. We have already discussed in this article above that with 50 000 EUR one can buy a 1/8 fraction in a house worth 400 000 EUR, which obviously shows that it is cheaper to buy a fraction of a house rather than a whole house. In the next section, we will focus on comparing average week long stay costs between fractional ownership and sole ownership.

Annual cost analysis of a vacation property

The time and energy spent on owning a second home is hard to measure. Therefore, in this section we will focus on the analysis of a vacation property annual costs with sample parameters.

Property parameters

Property type	Purchase price	Size	Backyard size
House	500,000.00 EUR	200 ㎡	800 ㎡

Fixed annual еxpenses

Fixed expenses are costs that must be paid, regardless of the property’s occupancy level. Property tax is an example of a fixed cost. Another example is insurance. In both cases, a property owner pays a fixed amount regardless if they use the property or not.

Fixed expenses	Value
Maintenance (common parts)	800.00 EUR
Interiors depreciation	2,000.00 EUR
Insurance	250.00 EUR
Property taxes	250.00 EUR
Cable TV and Internet	150.00 EUR
Total per year	5,450.00 EUR

Depending on the duration and frequency of use of the property, different values of the fixed costs per day can be derived. The following table shows the size of the average daily fixed costs of our example holiday home for different durations and frequencies of use. If we only use it 44 days a year, our average fixed costs would be EUR 123.86 per day. However, if we use it for all 365 days of the year, the average fixed costs would drop to EUR 14.93 per day. The numbers are clear: the more often we use the property, the lower our average daily fixed costs for the property will be.

Total fixed costs per day	Value
Used 365 days a year	14.93 EUR
Used 44 days a year	123.86 EUR

Variable еxpenses

Variable expenses are costs that fluctuate with the level of a property’s occupancy. The following table reflects the variable cost amounts per day depending on the season of occupancy.

Variable expenses per day	Summer	Winter	Average
Electricity	5.00 EUR	5.00 EUR	5.00 EUR
Heating/air conditioning	5.00 EUR	30.00 EUR	17.50 EUR
Water	1.00 EUR	1.00 EUR	1.00 EUR
Total	11.00 EUR	36.00 EUR	23.50 EUR

One-time costs

Similar to variable expenses, one-time costs only occur if the property is occupied, but these are paid once for an entire stay and regardless of its duration. A good example for such a cost is the cleaning fee.

One time costs	Value
Cleaning	25.00 EUR

Week long stay costs

Now that we've got the full list of cost types and sample values, we can do a comparison for a week long stay in different seasons.

The costs associated to a week long stay in our example luxury holiday villa is just over 1000 EUR if the villa is only used 12,5% of the time and solely own by one owner. If there are 8 people co-owning the same villa and each of them use the villa 12,5% of the time, then the average cost of a week's stay will drop to around €380 in the winter and around €200 in the summer. This makes total savings of around €750 per week or around €4,500 for 6 weeks a year for each co-owner.

The bottom line

We can conclude that there are various advantages of fractional ownership over standard vacation property ownership. Some of these are:

More affordable

it is more affordable. You might be able to buy a fraction of a luxury villa with own swimming pool, jacuzzi and sauna for the same amount of money where you could otherwise buy a small two room apartment.

Cheaper to operate

week-long stay is much cheaper. As you are sharing the annual expenses with others, you pay only a fraction of the total fixed vacation property costs.

Zero maintenance

you do not need to do maintenance, administration or renovations. A management company is doing that for you.

More variety

You can in some cases use more than one property.

Of course everything comes at a price. With fractional ownership you might not be able to book and use the property for your wished dates, if someone else have booked it for these dates before you.

In this article, we have tried to introduce the fractional ownership concept, its pros and cons and compare it to traditional holiday property ownership. Even though it provides a lot of advantages over traditional ownership, what is right thing to buy depends largely on your current situation, your needs and wishes.

Holiday Property Fractional Ownership