Fractional interest definition
/What is a Fractional Interest?
A fractional interest is an ownership share in real estate. For example, three families jointly purchase a vacation property, under an agreement to split their use of the property based on their ownership percentages. The owners must also pay for their respective shares of the property’s maintenance and taxes. This approach allows a number of owners to acquire a property that would otherwise be too expensive for any of them on an individual basis.
Examples of Fractional Interests
Here are three examples of fractional interests:
Tenancy in common (TIC) in a commercial building. Three business partners purchase a commercial office building as tenants in common (TIC), each owning a 33.3% share. Each partner has the right to use and lease out their portion of the building, while collectively sharing expenses such as maintenance, property taxes, and insurance. If one partner decides to sell their share, they can do so independently, without needing approval from the other owners.
Family-owned vacation home. A group of four siblings inherits a lakefront vacation home, each receiving a 25% ownership interest. They establish an agreement outlining their usage schedule, responsibilities for upkeep, and how major expenses like repairs and property taxes will be divided. If one sibling chooses to sell their share, they may sell it to an outsider or offer it to the other siblings first.
Shared ownership in a farmland investment. Five investors form a partnership to buy 200 acres of farmland, each holding a 20% fractional interest. They hire a management company to lease the land to local farmers, and each investor receives a share of the rental income based on their ownership percentage. The investors also split costs for land improvements, property taxes, and legal fees, ensuring the farmland remains productive and profitable.