What you should know about fractional homeownership

Eddie Hanline and his wife bought their first house in Durham, North Carolina, in 2020, back when mortgage interest rates were super low. Then as the years passed, with their family growing — along with two small businesses they’d started — they realized they needed more space. But the market had changed.

“With the increase in the interest rates and having such a good interest rate on our current house, it was a tough sell,” Hanline said.

That’s when they found out about a company called Acre Homes, one of a handful of startups that offer a form of fractional homeownership, an arrangement in which a group of people share ownership of a property.

Hanline found a bigger place in a suburb of Raleigh. Acre Homes bought the house on his behalf, with cash. Hanline put 5% down upfront and makes a monthly payment to Acre, comparable to what he would have paid for a mortgage. But he saved about $100,000 that he could instead invest in advertising, staff, and software for his business.

“Investing in all of those things would have taken a back seat to qualifying for a mortgage,” he said.

At the end of three years, the couple can buy Acre out, renew for another term, or walk away with 50% of any appreciation in the home’s value.

Pete Crawford, Acre’s co-founder and COO, said it’s a way to build some wealth without all the costs of homeownership, assuming home values increase over time — with less of the risk if prices fall.

“They don't have any transaction costs,” Crawford said. “The major maintenance of the home is on us, and they have this option to purchase the home later or to walk away, and in either case, they get to participate in that appreciation.”

So far, Acre Homes is just available in the Carolinas and Georgia, with plans to expand in the southeastern United States. But it’s one of a handful of startups offering a form of fractional homeownership.

With Jubilee Homes, customers can buy a house but rent the underlying land, reducing their down payment and monthly expenses. They get a 99-year lease, and after an agreed-upon term, the rent rises 3% a year.

It’s a new twist on an old idea, said Brian Elbogen, the company’s founder and CEO. Land leases are common in Hawaii and Baltimore, Maryland, and in mobile home parks, and many people already pool their resources with others to buy a stake in the American dream.

“About 20% of people today co-buy a property with someone that's not their immediate spouse,” Elbogen said. “It could be a family member, it could be a friend, it could be an investor.”

Jubilee Homes started operating in California earlier this year, and has since expanded to Colorado, Texas, Florida, and seven other states. Customers have the option to buy Jubilee out at any time, and if they decide to sell instead, they share the appreciation — or loss — based on the original split.

“If we bought 60% and you bought 40%, you would own 40% of the total appreciation,” Elbogen said. “We are winning and losing together.”

Customers can paint the walls, build an addition — do whatever they want with the property. They also bear most of the cost, including property taxes, insurance, and property maintenance.

Tradeoffs like these are one reason fractional ownership hasn’t really taken off, said Jenny Schuetz, a housing economist with Arnold Ventures, a national philanthropic organization.

“There are versions of this that have been floating around for a long time,” said Schuetz. “They haven’t really gotten to scale, and I think part of the problem is when people buy a house, they want all of the upside.”

While shared ownership can offer people otherwise locked out of the market a way in, it’s important for buyers to understand what they're giving up, Schuetz said, “particularly for people who aren't financially sophisticated or who feel like this is really their only option.”

For some, the tradeoffs may be worth it. Two years into his arrangement with Acre Homes, Hanline said he’s leaning towards renewing for another year or two. Qualifying for a traditional mortgage can be challenging for small business owners, because their income fluctuates, and interest rates remain high.

“I do want to buy them out eventually,” Hanline said. “I think we are going to stay in this home.”