In the real estate investment industry, a fractional interest refers to the portion of an investment in a piece of real property that is less than full ownership. This is when an investor owns a part of a property, rather than the entire property. Fractional ownership is typically shared among several investors, each owning a “fraction” of the investment.
For instance, four investors may choose to pool their resources to purchase a commercial property. Each investor would have a fractional interest in that property, meaning they own a portion of the property, share in a portion of the rental income, and are responsible for a portion of the costs. The size of each fraction typically depends on how much each investor contributed to the purchase of the property.
This model is often used in real estate for properties such as vacation homes, commercial properties, and other high-cost real estate investments. Fractional interests allow smaller investors to gain exposure to real estate markets without needing the resources to purchase entire properties themselves.
Keep in mind, while fractional interests can make property ownership more accessible, they can also complicate matters of decision-making and can have unique legal implications.