Investing in real estate in Mexico has become a highly secure method for an individual to concentrate his or her wealth and obtain attractive returns over time. Currently, there are several modalities for investment in real estate. Discover below how fractional ownership works in Mexico.
What is a fractional ownership and how does it work?
Fractional Ownershipis an investment concept in which Several people purchase a residential property with the objective of using it for only a few weeks a year. In this business model, the costs, rights and benefits of a property are divided among several investors. In this way, owners can enjoy a high-end vacation property without having to cover all the additional expenses individually.
5 main characteristics of a fractional property:
- The total value of the property is divided by the total number of investors. Usually the number of investors involved is from 4 to 12 for a fractional ownership.
- Each of the investor participants is entitled to a certain number of months or weeks to inhabit the property.
- When acquiring a fraction, each investor is entitled to the title deeds.
- Each investor has the same right to sell or transfer his property whenever he wishes (as long as the obligations with the property are in order).
- There is a general property manager who is in charge of the general maintenance and organization of the property.
3 benefits of fractional properties
A luxury fractional property in a strategic vacation destination represents multiple benefits for both the real estate developer and the participating investors.
1. Use rights per year
This purchase scheme determines the time, in weeks or months, that a person in the company of family and friends can use the property for vacation purposes. The division of time and specific dates are established from the acquisition of the property with the broker or real estate developer.
Passive income
Fractional ownership allows for returns in two main ways: general appreciation of the property or leasing of the property. The value of the property will depend on the location of the residence, market trends and future urban development. For example, in Valle de Bravo we see cases where the capital gain on a property ranges from 20% to 30%.
Regarding leasing, the operation is really simple. The model involves allocating a fraction of the time per year that corresponds to you as an investor for people looking for a refuge to rest and vacation for days or weeks. In some cases, the leasing of a fractional property must be agreed upon by the other investors involved.
3. Shared expenses
The expenses involved in maintaining a property such as utility payments, property taxes, maintenance and general security may be factors why some people do not wish to invest in real estate if it is not their primary residence. In the fractional model, all these responsibilities are divided with more people, and there is usually a 24/7 administration in charge.
Tips for your first investment with a fractional ownership property
- Try to acquire a property in a tourist destination that is gaining relevance to obtain a higher capital gain. Nowadays many people are looking to disconnect from the pace of life in the big cities of the world, so properties in the middle of the forest or on the coast are highly attractive.
- Keep in mind the main features such as bedrooms, bathrooms, parking spaces and total square meters of land, as well as square meters built. The better the use of space, the more profitable and desirable your fractional property will be over time. Pay attention also to the quality of the materials used in the construction; if they are of higher quality, the less you will have to spend for the maintenance of the property.
- Lastly and most importantly, shop with companies and individuals highly experienced in this real estate financing scheme. At Nolab we currently have specialists ready to support you with all the information you require.
In recent years, Tulum has positioned itself as an investment destination and high capital gain for Mexican and foreign investors. This is no coincidence, since in the area there are real estate projects with unbeatable qualities to live all year round in the middle of the jungle, and with amenities to create complete resort experiences all year round. Discover below some of the best opportunities to invest in fractional properties on the coasts of Mexico.
Difference with timeshare and fiduciary rights
At this point you may be thinking…. What is the difference between buying a property or a timeshare? Even in this concept there may also be questions about the fiduciary rights of a property. Let’s look at it below.
First of all, timeshare should not be confused with fractional ownership. Timeshare, also known as vacation ownership, is not an investment modality, it is an option to buy vacation weeks. Normally in a tourist destination.
The main difference with the purchase of a fractional property is that you are not buying real estate, but rather you are acquiring the right to inhabit a place for a certain period of time on an annual basis. Therefore, you will not obtain capital gains, and in many cases a timeshare cannot be transferred to another person through a sale .
On the other hand, the purchase of trust rights allows a group of people to participate in the financing of real estate projects, and this same participation makes them owners of a percentage of the project.
In this scheme, the intervention of a trust is necessary for the management of the work in all aspects: supervision, permits, licenses, etc. On the other hand, this type of investment is mainly focused on the development of shopping centers, hotels, hospitals, universities and smaller housing projects.
The purchase of trust rights cannot be understood entirely as an investment since the profitability of the project is variable and depends entirely on the commercial performance of the property.
At Nolab we hope this information will be useful to make the best decision in real estate investment. Contact us at to receive personalized advice and discover more benefits about fractional properties in Mexico.
