Okay, today we are diving into fractional ownership or
a fractional owned property and what that means. We're gonna talk about some pros
and cons. It is related to real estate.
Surprise, surprise. But have you ever been in a,
so I scroll on, like I'll be on Zillow,
like a lot of times instead of social media, I'll just go look at
real estate just for fun. But if you go to Zillow,
or some of these property, like any website that shows properties for sale,
and you're like, if you're looking at an area of properties that go, okay,
that one's a million, that one's a million, that one's a million,
then you come across one, and you're like, that one's 200,000.
Like. Why is that one so different? You click on it, you're like, oh,
maybe I just found a steal of a deal, and you click on it,
and you're like, okay, it's six bedrooms. and Sourcetree.
Just some of the explanation of it, and it says,
like, fractional share or one-fifth ownership,
or one out of five shares, or one, twenty percent ownership of this,
of this property, and a lot of you I may have just, like, kept
scrolling and, like, I don't want to deal with a partially owned property,
but I want you to stop by. Stop and think about that.
Stop and think about what it means, what it means for potential tax benefits,
just for general overall benefits. Benefits of owning real estate and who it might
make sense for. So here's who I think it might make sense for.
And I'm going to mention who I think it would not make sense for.
So if you want, like truly want a vacation home.
And say, you're like, okay, well, I could,
we could vacation for a couple weeks a year or a month a year.
And like, we just want a property and a cool place.
We're only going to use it like one month a year. If you go
and spend. A million dollars on that property and it sits empty for
10 or 11 months out of the year. It's just completely empty and you're
paying for the property taxes and you're paying for the mortgage interest and the
maintenance and the upkeep and all that. That stuff. And you only use it
one month out of the year. It's like, well,
what have you shared that property with?
With other people, and you,
you're able to split the cost of it, and you could still use it
for a month out of the year. I think this fractional ownership stuff really
makes sense for those type of situations,
where there are people that want to own get into a property.
You don't want to spend the full million dollars, but you want,
you're fine spending $200,000. You're good. You're getting a loan and,
and, and paying on that $200,000.
You can have the benefits of having the vacation property.
You can say you own property. If it goes up in value,
you've got some skin in the game. You've got some share of that upside
in equity. Like, that's the pro of it.
That's the upside compared to just renting Like,
and that's people if you like to vacation to the same places and you
want a potential crack at the upside of it.
Uhm, but if you're like,
if you really don't like vacationing to the same places year after year or
month after month. It might not make sense for you to have fractional ownership
in that property. But I do see there's some really great companies,
some people we work with pretty closely at our firm,
that do this fractional ownership. They sell, and I'll explain what
it is, they're not technically selling shares,
they're selling it's, they're typically selling a,
a percentage of a partnership. It's typically an LLC that owns a property.
And they go, Hey, we got four partners.
We want to bring in an extra partner and we're each going to own
20. 20% of this thing. That's,
they would bring them in as, uhm,
as owners. Typically it starts with one.
One owner, so it's like, whether it's a builder,
a developer, someone bought it, or someone just wants to bring on other owners,
or they want to sell it outright. And they want to sell it in
shares to try to maximize value, they go,
okay, I'm going to put it in an LLC, let's go sell this LLC.
But what are, so there's like, I think you could all,
we could all have different, like think of different things that we might value.
Benefit from by owning a property, like just for fun,
like just using it for fun, but this is the Wealth Game Podcast.
So how does it, how does it play into your wealth?
How does it play into your taxes? Are there tax deductions?
Is there? or income you could get? The thing that I like about it
is there are some potential tax deductions.
And people raising funds for these or selling these,
a lot of times they'll throw that out there and they'll mention like, hey,
you can get a big depreciation tax deduction for this.
For these, I would,
it's, it's a little more complex.
It's, if you're buying into a partnership and they've,
if they've already depreciated the property and they're bringing in an extra owner.
We've seen some issues with people buying in or,
or buying part of a share of a property when that property's depreciated.
The property had already been depreciated and they're not getting the tax depreciation
or the deductions they thought they were going to get. And even the people
selling the property, they were just confused on how it worked.
So just watch out for this.
But, uh, I'm going to start from, like, say it's a brand new property
and it's all new owners. Say it's one owner.
Putting in an LLC and that whole LLC sells to a group of owners
and I'll run just kind of some hypotheticals. for you on that.
So let's just say it is a million dollar property.
And if you, if you listen to some of the other episodes. It's on
like cost segregations and accelerated depreciation.
I get really excited, right, about all these big deductions that we can do.
And the big deductions that we can get.
Uhm, so for example's sake,
let's say it's a thousand three hundred thousand dollar deduction you can get on
a million dollar property. Uhm, And let's say you bring in,
there's five partners. So you go, okay,
cool. Well, this partner, they pay two hundred.
They two hundred thousand dollars for their shares and they're going to get a
portion of those deductions. So you take three hundred thousand dollars.
They own one-fifth of that, right? So they're going to get,
what is that, sixty thousand, a sixty thousand dollar deduction.
So they put in two hundred thousand dollars of cash.
Or a loan to buy their portion of equity,
and they get a sixty thousand dollar deduction that reduces their taxable income.
There's a catch. There's some very specific things.
Like, it doesn't stop there. Like, if you think you see anything on social
media, it's like, a lot of times people just hear that,
they go, cool, $60,000 deduction.
They're off to the races, and then they're, they're sad,
or they're upset when they're doing their taxes. They're like, why is it not
getting me the tax benefit, I thought. So,
this type of structure, when it's not you,
you're not the one managing the property, you're not the one.
Swinging the hammer, if you're doing a build-up,
like, this is a passive investment. So,
these losses come over to you as passive losses.
And so, there are some other episodes on this,
but passive losses are great,
but there's only a few. There's, like, a unique set of circumstances when we
can use passive losses, and if we can't use them in that year,
we have to just cancel them. Pick them off into the future years,
carry them forward into future years. But if you have a lot of passive
income, say you're a business owner, and you're a passive investor in businesses or
in other real estate and it starts kicking you off income,
this is the is a great example. This is a great use of a
passive loss because you, those passive losses from this partnership K1.
K1 can offset passive income from other sources.
So that, that's the scenario. Passive losses are good when you can use them
and you've got passive income to offset. But what's different,
so we've talked about like the short-term rental loophole,
which is like if you buy an Airbnb property and you're managing it yourself.
That can be non-passive, like that can be income which
is awesome, which can be really good, uhm,
but when you own part of a partnership and you're not the person.
You're the one doing it, even if it's a short-term rental,
which one of the benefits of these fractional shared properties is a lot of
times you can, if you have unused weeks or months that you're not using,
there's typically a rental pool. You can put it into a rental pool and
you can get a share, someone else is managing it,
and then you get a share of that income. It's a great way to
help offset some of the costs of, say, your loan payments or other,
the other maintenance costs. But it's still,
even though it's a short-term rental, it's not the short-term rental loophole because you're
not the one managing it. So watch for that. But that's on Atlassian.
I had yesterday, just yesterday, and,
uh, I think it was Instagram, and this guy talking about the short-term rental
loophole. And they're pooling people's money together, and you're going to get these big
deductions, but there's going to be a lot of people upset when they run
out because they they're passive losses,
and you can't automatically use them for everything. Uhm,
so let's see, one of the other, some of the other Other benefits,
yeah, just owning real estate if you don't have the time to
spend in managing it yourself, you just want to get into a property,
you really like the property, you don't want to buy a property on your
own or you're just kind of dipping your, your toe. your toes into real
estate ownership, it's a way to kind of,
I guess, reduce some of your risk. Like,
reduce the risk of, like, you just running out of time, or not knowing
how to buy it, or it not being maintained properly.
It's very helpful in that regard. What I do see,
it's, these properties are typically a little more expensive.
Then if you were to just buy the whole thing, so like that,
I gave you the example of like the million dollar property.
They're just splitting it into five shares. 20% each.
That property, it might normally sell for like 900,000 if you were just to
go buy it. There's usually a little bit of a premium,
like, by operating in this structure.
Uhm, but, there's, that, that's one of the cons,
but there are definitely pros and cons to it, but I,
I like it, I like real estate,
I like that people are doing this,
like, the, the partnership structure is not,
Just something to think of, you owning this with four other partners,
it's a partnership structure. It's an LLC,
you file a partnership tax return, you get a K1.
Think of that as like, or I want you to think of that.
if you wanted to go buy a property with friends or family or
acquaintances, just other people,
It's the same or similar thing, uhm,
so normally if you're wanting to buy a property,
or you're thinking about that, like, think of it,
think of forming your own LLC, think of forming your own partnership.
That's a lot of what we do, a lot of the tax returns we
file are partnerships for people that own a property.
with other people and they just need to split the income,
split the profits, split the, split the deductions.
But, yeah. It's kind of a, yeah, an exciting thing. But,
so remember I'll kind of wrap up here, but as you are looking at
fractions. It's a way to get into real estate.
You actually do own, the LLC owns a deed and you own a portion
of the LLC, so you actually do own it directly.
Just a different way to think of it. Uhm,
just another way to get into an investment,
another way to get into, uh, a portfolio.
Real estate. So things to watch out for.
I did bring some of them up, but to wrap it up here,
the promised deductions. Just make sure,
and they'll promise like a cost segregation, which we do and we love and
we like to do that. We want to accelerate depreciation.
And deductions where we can, but just remember the question you're going to ask
your tax advisor when you're working with them. With us or whoever you're working
with, you go, can I use this deduction and where can I use it?
And what type of income can it allow? Offset. That's a key question to
ask, but that's it. That's the kind of some of the pros and cons
on fractional shares. Share properties and fractional,
fractional share to, uhm,
yeah, real estate. That you can buy. And have a great rest of the
day. See you later.
