Co-ownership of luxury holiday homes abroad

Schenelle Dsouza  
Everyone wants the perfect holiday home in a perfect destination abroad. And while investing in international real estate is never considered bad, you can certainly turn this worthwhile investment into an even better one with co-ownership. 
A popular concept in the West, co-ownership is a great way to save on tax, and share maintenance costs around owning a second or holiday homes. To sum up the benefits, co-ownership can help people invest in multiple properties at different destinations, at an affordable rate, with the same benefits and an improved profit rate. “A second home or vacation home is a dream for many. However, finding the right home, vetting, and going through the legal formalities is a challenge, which is where the concept of co-ownership comes in,” says Sudeep Chandran of YOURS Luxury Homes, India’s first and only co-ownership platform based in Bengaluru.  
Sudeep-Chandran, Co-Founder and COO, YOURS Luxury Homes
Sudeep-Chandran, Co-Founder and COO, YOURS Luxury Homes
How co-ownership works 
As the name suggests, co-ownership of property is where the ownership is shared with another individual or group, with each owner holding a percentage of the asset. The rights of each owner are typically defined in accordance with a contract or written agreement, which often includes the treatment of revenue and tax obligations. Additionally, the amount of the share may vary depending on the form of co-ownership and the agreement between said owners.  
There are multiple forms of co-ownership including joint tenancy, tenancy in entirety, co-parcenary, and tenancy-in-common. The first three are associated with hereditary shares or shares between family members, the most common types of co-ownership. Tenancy-in-common (TIC) is a newly popularised concept, wherein a property can have as many owners as needed. There is no limit on the number of owners, and tenants may have unequal investment stakes, meaning owners can choose their per cent of share in the property and pay the corresponding amount for that share. For example, if one property is owned by three buyers and the shares are split into 50, 30 and 20 per cent, the investment cost in the property would also be split into 50, 30 and 20 per cent for each respective buyer. Furthermore, the owner with the bigger investment gets to spend more time in the home compared to the owner with the smaller investment. 
How does it work?  
The relationship between co-owners in case of TIC can vary as do the financial and legal obligations which depend on the relationship between each party. The details of co-ownership are established in a property deed and title which includes information about the mortgage and names of the owners, among other details. 
Photo Courtesy: Altacasa
The type of co-ownership is seldom stated in the contract in TIC; each tenant maintains a separate fractional interest in the property, the details of which are never mentioned in a contract. Another crucial factor in TIC is that unless it is specified contractually, the rights of ownership do not sustain the rights of survivorship. This means that if one of the co-owners of the property dies, their share is automatically transferred to an heir or next-of-kin and not to the remaining tenants. The owners can freely transfer their interest in the property if and when they choose to and can also rent out their share if permitted by the shareholders/business associated with the property. 
Co-ownership in the west   
While co-ownership is a fairly new market in India, it is a much more mature concept in the west. Surveys have shown that second homes or holidays are used for no more than 15 per cent of the year which is about 40-45 days at most. In such, second homes are lying vacant for most of the year, with no one living in or looking after them. “The beauty of co-ownership is that it allows you to pay a fraction of the amount which justifies the number of days an owner actually spends in that home. So, when it comes to a holiday home abroad, co-ownership is a mature grown market with quite a large audience in the west,” Chandran adds. “Abroad, there are finance options on co-ownership with a resale guarantee of up to 12 months which only eases the process.”
Photo Courtesy: Altacasa
Speaking about successful platforms for co-ownership, Chandran gives the example of London-based Altacasa. Founded in 2021 by entrepreneur Romain Saint Guilhem, Altacasa allows people to buy a share in a dedicated limited company that owns the whole property, allowing them access to larger, higher-quality homes for a fraction of the price. At Altacasa, people can hold a minimum sixth share in the home, where they will be able to use the house for at least two months of the year, depending on the size of the share. The scheduling, cleaning, maintenance, and management of each property is handled by Altacasa’s technology platform which ensures a smooth process for each of the owners. To improve affordability, the costs for taxes such as stamp duty are spread across the owners and bundled in with the property cost. Along with adding more properties to its name, Altacasa is looking to expand its horizon. The start-up is currently working to develop its technology and grow teams in London, Paris and Luxembourg to further widen its audience. 
Another successful venture Arrived Homes, a Seattle-based real-estate investment company backed by Bezos Expeditions has also successfully delivered as many as 100 single-family homes in cities across the US. The company received regulatory compliance from the U.S. Securities and Exchange Commission (SEC) to be qualified. Currently, Arrived Homes offers property shares to U.S.-only investors, who buy shares starting at US$100.  
Luxury real estate
Photo Courtesy: Grant Durr / Unsplash
Canada-based Addy, founded by Michael Stephenson, Stephen Jagger, and Jeff Booth, although a similar concept, serves as a mix between a landlord and property manager. Unlike other companies, Addy offers more than just residential properties, these include mixed-use, industrial, and commercial properties as well. The platform allows retail investors a chance to own property, in a co-ownership way, helping them capitalize on real estate deals. Addy breaks each property into investment increments valued at US $1. Units of each investment are listed for sale on the platform and an investor can invest anywhere from one dollar to $1,500 per property. For example, a $1,000,000 investment opportunity would be divided up into 1,000,000 units.
While all of the above platforms have their own successful models, the most popular platform in the US for co-ownership of property is Pacaso. Co-founded by former Zillow executives Austin Allison and Spencer Rascoff, Pacaso was launched in October 2020. With Pacaso, buyers can own around 1/8 to 1/2 of a share in any of their properties. Doubling its domestic market since the launch, Pacaso operates in 25 destinations, some of which include top locations like Napa, Lake Tahoe, Aspen, Malibu, and Miami, and aims to launch an expansion through Europe, starting with Spain around the end of the year. After purchase, Pacaso manages the home including interior design, repairs, utilities, and property management, with owners splitting those operating costs and also paying a $99 fee per month. 
Benefits of co-ownership   
Co-ownership is a relatively safe bet for real estate investments, especially for first-time buyers. With a low-cost investment, co-ownership can be of great advantage when looking to buy a large asset like real estate for a reduced cost. It also helps reduce other costs such as stamp duty, conveyancing and legal costs, mortgage insurance and property maintenance. One can acquire a home mortgage with great ease in co-ownership since lenders consider your total, combined income, living expenses, debts, and credit scores. Because the arrangement allows for cost sharing, it can render otherwise unattainable expenses within closer reach. Sudeep Chandran says that “With popular co-ownership platforms, owners can get a fully furnished home, filled with luxury amenities, state-of-the-art equipment and everything owners might possibly need, which once again saves up on the costing of the home.”
Photo Courtesy: Pacaso
In terms of management, co-ownership may also include a shared arrangement by which some of the responsibilities around the asset are divided between multiple parties. Joint ownership lets the owners share the less-than-fun tasks of home ownership and maintenance with their co-owners, thus lessening the burden of maintenance. 
Another bonus of co-ownership is the easy transfer of ownership rights, which depending on the form of co-ownership either go to the other tenant/s or to an heir of the original owner post their passing. This often involves a process that is automatic and requires little or no paperwork to transfer property. Leaving behind added legal work, court hearings and other tedious processes, the transfer of ownership can be carried out by merely recording notice of the death of the joint tenant. 
Risks of co-ownership  
As with any investment, co-ownership is not without its risks. Some of the risks can be minimised if one goes through a company that specialises in shared ownership of properties. However, other unavoidable risks could include taxation problems, affected credit score and property disputes.  
A lack of flexibility is one of the main disadvantages of co-ownership. Since these are bound by contracts and contacts are legally binding, they can be somewhat hard to get out of. While the option to staircase your share of ownership in small increments offers more flexibility, the legal and admin costs can render it tedious. 
Luxury Real Estate
Photo Courtesy: Tessa Wilson / Unsplash
Financial risks associated with taxing is another major problem in co-ownership, even in tenants in common. Because of a financial liability among the tenants, the bills and debts are shared equally regardless of the share of each tenant. In any case, if one of the tenants struggles financially and is unable to pay their share of taxes, the other owners must comply and pay the other owner’s share as well in order to avoid having a tax lien placed on the property. 
Adding to the lack of flexibility, owners in a tenant in common ownership cannot do much in legal terms, if either of the owners decides to share their share of the property. Even though holding property as tenants in common allows for fractional shares, where the shares are divided into a 50-25-25 per cent interest, none of the owners can claim ownership of the other shares of the property. Each tenant reserves the right to sell their share of the property to anyone, and the other tenants cannot legally do anything about it. 
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