MONEY & ENTERTAINMENT

If there is one place in the world where you are happier than any other place, don’t you think you should spend at least a few weeks there every year? Have you ever looked into real estate in your favorite vacation destination only to be discouraged by the outrageous prices?

With people having more and more disposable income, but less and less time to actually enjoy themselves, relax, and spend that money, it is not surprising that the concept of fractional ownership, also called private residence clubs, are becoming increasingly popular. It gets you a piece of an exclusive piece of property that you would normally not be able to afford, or that would not be worth the investment for the amount of time you are able to spend there.

Fractional Ownership vs. Timeshares
If this article is beginning to sound like a timeshare sales pitch you once had to sit through in order to get a free scuba diving lesson, rest easy. Fractional ownership and buying into timeshares are two very different animals that are loosely based around the same philosophy. When you buy into a timeshare, you basically buy the right to use a property one or two weeks out of the year. When you buy into fractional ownership, however, you are actually buying a portion of a deeded property (properties are usually sold in quarter, eighth or thirteenth shares, with each owner having an equal number of days per year in the property). What this means is that you can sell, rent out, bequeath, put in trust, or do anything you wish to do with your piece of the property when you are through with it, just like any other piece of property you own. It also means that how much time you spend there depends on how big of a portion of the property you own. You could spend from two to thirteen weeks a year in your fractional.

Another difference is that fractionals are usually much more exclusive properties than what is available in timeshares. The higher end the fractional property, the more amenities they offer. These amenities can range from clubhouses to spas and gyms, to luxury restaurants. The management company is responsible for maintaining the property, and they are also responsible for taking care of you while you are staying in your property. This means that you can arrange airport shuttles, golf tee times, activities, restaurant reservations, groceries, or any other things on your wish list, through them so that it is all arranged for when you arrive.

Perhaps one of the biggest differences between fractionals and timeshares are the financial ones: the cost as well as your ability to finance this endeavour, are, as usual, your two biggest concerns.

Financing
Fractional ownership started in the aviation industry. Owning and operating an airplane, or personal jet, is an incredibly expensive undertaking, and the idea of fractional ownership eased the financial burden in order to make ownership—albeit partial ownership—feasible. In 1994, the concept finally made its way into the real estate business.

The primary difference between fractional ownership and timeshares is the price tag. Timeshares are aimed at the Everyman who would like to have a regular spot in one or several vacation destinations. Fractional ownership properties, however, are aimed at a more exclusive crowd: the busy professional family with little time, but a desire to have a piece of paradise. The properties are usually offered in exclusive spots, such as the Caribbean and oceanfront properties, ski areas such as Aspen and Colorado, and, increasingly, in exclusive golf areas. With a little research, you can see that fractionals can run anywhere from $100,00 to a price tag in the millions. Add onto this an annual maintenance fee of $5,000-$10,000, and you can see that, in many fractional ownership situations, only the well-off need apply.

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These properties are running high for many reasons: as stated, there is no responsibility for maintenance, the amenities are often excessive, and the locations are among the best in the world. Another reason is that the market has stayed fairly conservative. Unlike the timeshare market, the fractional ownership market has managed to keep its supply just below the demand, driving up the price on what is available.

On the other hand, because you are buying property in the most exclusive resort areas in the world, chances are that, if you can afford the investment, the property value is only going to continue going up. Because your ownership portion is only fractional, however, don’t expect to make a killing on this real estate deal. It is a sound investment, but not an aggressive one.

In terms of getting financing for a fractional, it is certainly easier than getting financing for a timeshare. A large part of the price tag for timeshares is actually the agent’s commission, which can run up to 50% of the fee. Due to market saturation, they are also difficult to get rid of if the bank forecloses on the loan. As it stands, many banks still hold this view of fractional ownership as well. Many do not see a property, of which you own only a portion, as a stable investment on their part. Regardless of your credit rating, expect this financing to be a little more challenging to obtain than a primary residence mortgage.

If there is financing available, it is usually though the developer, although you should keep in mind that these properties are large investments, so many developers are also shy of lending the money. Again, for the super-rich, a nice cash payment is great. You can also look into a home equity line. Since this is going to be a secondary residence, do not expect the same kind of loan that you might receive on a primary residence. It will likely be a percentage or two higher, even with a 20% down payment.

Management Companies
As with any purchase of this calibre, make sure that you are working with a reputable management company. One thing you will notice is that there is not the same desperate sales pressure that is stereotypical of timeshare sales. If you are looking in a specific area, a smaller management company will probably suit you. Ask them for references before you sign up, however.

If you are looking for more selection, or more geographical flexibility, there are a few major corporations that are in the business, who can offer properties in multiple locations, with the option to switch time with other property owners. These include established entertainment and luxury mavericks such as Disney, the Four Seasons, Ritz-Carlton, and Mariott, among others.

As with any major purchase, make sure that you are getting the best deal. You are not only making a financial investment, you are choosing the place where you can go for a few weeks a year to truly get away and escape, where you can reap the benefits of all your hard work.

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