Fractional Interest in a Nutshell

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TP LEGAL GROUP - Fractional Interest

Fractional Interest in a Nutshell

By – Lic. Mauricio Tortolero.

Fractional interest is a manner of acquiring a residential unit in which each fractional owner acquires only a fraction or a part of the ownership of such unit, and shares with other fractional co-owners the use and maintenance of same.

Fractional interest provides to the fractional owner with a combination of the rights and benefits of a real estate owner and the comfort of having a property manager handle the maintenance and care of the residential unit at a low cost.

By purchasing a fractional interest, each fractional owner acquires rights to an undivided co-ownership of a specific percentage interest in a residential unit, in addition to an interest in the development facilities and the common areas and the assets of the development in which the residential unit is located.

If a residential unit is divided into eight fractional interests, each fractional owner will acquire at least one-eighth co-ownership interest in such unit, in addition to the corresponding co-ownership of the common areas and common assets of the development in which the unit is located.

The main difference between fractional ownership and timeshare developments is that in the timeshare the owner acquires the right to use any residential unit in a development for a fixed period of time while in the fractional ownership the owner acquires “ownership rights” to a specific residential unit. Thus, through fractional ownership, the owner is actually investing in real property.

Timeshare developments are not considered real property investments and usually, there are 20 to 40 owners of timeshare per each unit in the development. They do not provide the opportunity for appreciation of the timeshare membership. Fractional interest is structured as a true investment in a real property shared by a very small group of persons, typically 5 to 8 co-owners. A share in a fractional interest represents a real estate asset with the opportunity for appreciation.

In view of the above, some of the characteristics of fractional interest are:

  • Co-ownership and use of a residential unit in a luxury and prime location.
  • Payment of a percentage of the residential unit price and the corresponding costs and taxes.
  • Ownership of real property interest subject to appreciation.
  • A choice between personal use or rental income.
  • No management nor direct maintenance responsibilities. A property manager handles and markets the fractional interest.
  • Real property ownership without the risk of being the sole owner.

Non-Mexican citizens may acquire fractional interests in a real property in Mexico. However, based on the Mexican Constitution, if the residential unit is located within the “restricted zone”, foreigners may acquire real property only by means of a trust agreement.

The restricted zone encompasses all lands located within 100 kilometers (about 62 miles) from the Mexican border and 50 kilometers (about 31 miles) from any Mexican coastline. Real properties under fractional ownership are commonly located in the “restricted zone”.

In the event that you would like to receive further information relating to Fractional Interest or ownership, please contact one of the following attorneys:

Leobardo Tenorio-Malof   |   ltenorio@tplegal.net
Héctor Torres-López   |   htorres@tplegal.net
Alejandro Pedrín   |   apedrin@tplegal.net
Mauricio Tortolero   |   mtortolero@tplegal.net
Daniel Gancz-Kahan   |   dgancz@tplegal.net

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