What is Fractional Ownership?
Fractional Ownership is the term used to describe the shared ownership of a vacation property by multiple, independent owners under an agreement which provides each owner with separate usage rights based on their percentage of ownership. Each owner enjoys the exclusive use of the vacation home or apartment for a specific period of time, and the costs of property maintenance and management are shared by the owners based on their percentage of ownership.
What is the difference between Fractional Ownership and Timeshares?
Fractional owners of a property have legal and fiduciary rights similar to the owners of whole properties. Owners of timeshares typically purchase a specific period of time in a vacation or resort property that is owned by someone else, usually a property development company.
There are important distinctions between most "timeshare" and "fractional ownership" properties, as summarized below:
Qualifying
Annual Household Income
Fractional owners are wealthier and more financially sophisticated, which makes them more reliable co-owners. Foreclosure rights are the same as in whole ownership.
Number of
Owners
per Residence
Up to 52 owners
per residence
Fractional owners have a higher financial stake and are better able to pay management and maintenance costs.
Owner Use
and
Vacation Ambiance
Typically from 5 to 12 weeks per year; Light traffic and wear and tear; Owners become acquainted over time; Personalized services.
Typically 1 or 2 weeks per year; Heavy traffic and wear and tear.
With fewer owners and less occupancy, fractional ownership residences are more relaxed, intimate, and “clubby.” They undergo less wear and tear.
An attractive alternative to owning an entire vacation home that is financially astute and less hassle.
An affordable alternative to staying at hotels and vacation rental
properties.
Fractional owners often can afford to buy an entire vacation home, but prefer not to be tied to one destination.
Buyers seek mid- to long-term increase in the value of their real estate as well as diversification of their portfolio as a hedge against inflation. Some may want rental income.
An affordable alternative to staying at hotels and vacation rental properties.
Re-sales of fractional real estate tend to track with sales prices of whole ownership vacation properties in the same market area.
Personal use
vs.
investment use
Both are important.
Fractional ownership enables buyers to afford a higher quality vacation experience and frees up discretionary funds for other purchases. Fractional ownership is often a good long-term investment resulting in capital appreciation.
Personal use is of primary importance.
Timeshares make possible vacations that might otherwise have been unaffordable or not a regular part of one’s lifestyle. Timeshares do not typically offer the opportunity for capital appreciation.
Fractional buyers want a very high-quality vacation.
They also expect to benefit from the appreciation of their real estate investment upon its resale.
Most fractional owners establish emotional attachments to their second homes and enjoy returning year after year to make the local area and people an intimate part of their lives. However, several exchange networks specifically for fractional owners make it is easy to take "free" vacations almost anywhere in the world.
Many timeshare buyers are more interested in the exchange possibilities open to them than in the particular property where they originally purchased the timeshare.
Since affluent fractional owners feel more loyal and connected to their “second home” property, they are more able and willing to spend the funds needed to maintain it in excellent condition.
Fractional ownership interests are relatively easy to resell, often at a profit.
Fractional interests can be resold through the original developer or through general real estate brokers just as whole properties are sold.
Commissions and marketing costs typically range from 12 to 15% of the sales price.
Timeshares are relatively difficult to resell and rarely yield a profit.
Most general real estate brokers do not sell timeshares, so owners must usually rely on the original developer to find a new buyer.
Commissions and marketing costs are typically 50% or more of sales price.
Savvy Investors avoid time timeshares because the high commissions and marketing costs almost always result in a loss from the original value when a timeshare is resold.
Because the decision-making process used to buy a fractional ownership property is nearly the same as buying a whole property and because compatibility with the other owners is important, sales personnel typically use low-pressure, "relationship" sales methods to build trust through repeated contacts with customers over weeks and months.
Although recent laws have cracked down on the deceptive sales practices that were used to sell timeshares in the 1980s and 1990s, most timeshare sales personnel still employ high-pressure techniques to close a sale during a customer’s first visit to the property.
Many consumers are turned off by high-pressure sales methods and choose to avoid timeshares for this reason alone,
Good.
Fractional owners have a commitment to their "second home" that is nearly as strong as if they owned the entire property. Over time, they develop an intimate connection to the local area that makes them "honorary citizens" who promote the economy, protect the environment, and participate in the civic and traditional activities.
Improving.
Developers are cleaning up their sales approach, and trade associations are educating the public on the advantages and disadvantages of buying timeshare vacations.
Fractional owners have long enjoyed same the legal protections as owners of whole properties, and many countries have enacted new laws increasing the protection for fractional owners.
Laws now protect consumers from misdeeds of the early timeshare developers. and the
Involvement of branded hotels has increased timeshare’s respectability.
Quality
of
Property,
Amenities
and
Services
Fractional ownership properties are often similar to 4-star or even 5-star hotels and resorts.
Depending on the preferences of the owners, amenities and services can range from the attention of a personal concierge to relaxed self-catering.
Most timeshare buyers are looking for budget vacations, so most timeshare properties provide only basic hotel/resort services.
Newer timeshare properties may reach 3-star or 4-star quality.
Fractional ownership properties typically offer a much higher quality vacation experience than timeshare properties because the buyers of fractional interests have higher expectations and more disposable income than the buyers of timeshares.
