Fractional ownership is percentage ownership in an asset where individual shareholders share the benefits in the asset. These benefits may include income sharing, priority access, reduced costs, or other usage rights. Fractional ownership occurs when an individual splits the costs of an asset with others while retaining a portion of the ownership and usage rights to the asset. This makes fractional ownership ideal for expensive items such as vacation homes, yachts, sports cars, high-end motor homes, and private jets.
Understanding fractional ownership
Fractional ownership requires the individual to only pay for the portion of the asset they use. For a vacation home, this may be the number of days or weeks per year they intend to occupy the premises. For a private jet, it may be the number of air miles. Individuals can also enjoy the benefits of part ownership in an asset. For instance, they may be able to collect rent on the vacation home or make money if the property appreciates in value.
In business, shares are sold to individual owners with a dedicated company managing the asset on behalf of the owners. These owners pay a monthly or annual fee for management services plus a variable fee based on usage.
Fractional ownership should not be confused with timeshare. While there are obvious similarities between the two approaches, fractional owners own part of the title of an asset while timeshare participants purchase units of “time”. This means a fractional owner can sell their stake in an appreciating asset to realize a capital gain.
Advantages and disadvantages of fractional ownership
In addition to realizing a capital gain, here are some more advantages of fractional ownership:
Lower entry costs – fractional ownership makes expensive assets more accessible to those who are unable to meet the costs of full ownership.
Lower maintenance costs – the approach also reduces maintenance costs since each fractional owner can share the cost of maintenance with others. Depending on the asset, maintenance costs may include property taxes, repair bills, utilities, fuel, service staff, insurance, and vehicle registration.
Diversification – fractional ownership gives investors exposure to a wider portfolio of assets. The average consumer may never own a seaside apartment or luxury sports car outright, but diversified part ownership is a viable and sometimes lucrative strategy.
With those advantages in mind, let’s take a look at some of the drawbacks:
Smaller returns – with only part ownership in an asset, any capital gains are not as significant as those that could be enjoyed from outright ownership.
Fewer financing options – it is almost possible to fund the purchase of a fractional asset with bank finance. This is because the lender cannot use the asset as collateral when there are multiple owners.
Less flexibility and freedom – important decisions must be made with consensus from all ownership partners, which can be problematic. For example, the sale of a fractional property must be approved by every partner before it can proceed. There can also be disagreements around usage, with one wanting to use a property for family vacations and another wanting to rent it out. What’s more, it may also be hard to find a buyer since many are cautious about entering into a partnership with people they don’t know.
Key takeaways:
Fractional ownership is percentage ownership in an asset where individual shareholders share the benefits in the asset. These benefits may include income sharing, priority access, reduced costs, or other usage rights.
Fractional ownership is not the same as timeshare, though the two are often confused. Fractional owners own part of the title of an asset, while timeshare owners are essentially purchasing time to use an asset.
Fractional ownership results in lower entry costs, lower maintenance costs, and gives investors access to a diversified portfolio of assets. However, fractional ownership also reduces freedom, flexibility, and capital gain potential. It is also very difficult to secure traditional financing to fund fractional asset purchases.
In a functional organizational structure, groups and teams are organized based on function. Therefore, this organization follows a top-down structure, where most decision flows from top management to bottom. Thus, the bottom of the organization mostly follows the strategy detailed by the top of the organization.
In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.
Project portfolio management (PPM) is a systematic approach to selecting and managing a collection of projects aligned with organizational objectives. That is a business process of managing multiple projects which can be identified, prioritized, and managed within the organization. PPM helps organizations optimize their investments by allocating resources efficiently across all initiatives.
Harvard Business School professor Dr. John Kotter has been a thought-leader on organizational change, and he developed Kotter’s 8-step change model, which helps business managers deal with organizational change. Kotter created the 8-step model to drive organizational transformation.
The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.
The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.
Lewin’s change managementmodel helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams based on the main corporate functions (like HR, product management, investor relations, and so on).
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
