Frequently Asked Questions
Fractional Ownership
What is vacation home fractional ownership?
Vacation home fractional ownership (sometimes also known as vacation home partnership) is an arrangement where a group of individuals and families buy vacation property together and share the costs and use of the property. A detailed co-ownership agreement (sometimes also known as an operating agreement or bylaws) allocates usage rights, costs and responsibilities among the co-owners. Day-to-day management is typically delegated to a professional management company located close to the co-owned property.
Although fractional vacation home ownership is not new, its popularity has increased significantly in recent years, particularly for relatively small (4-12 share) groups involving only a single condominium or home. The recent creation of numerous businesses offering support services for small fractional ownership groups, including financing, resale brokerage, property management, and exchange services, is testimony to the belief of many real estate industry insiders that fractional ownership is a great idea that is only beginning to be discovered by the public.
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Why buy rather than rent a Paris apartment?
Sidewalks outside Paris real estate offices are always crowded with travelers wistfully gazing at photos of apartments for sale. Here's why you should take the plunge.
- Predictability: Renting an apartment in Paris is a "hit or miss" proposition. Returning to a vacation rental you have used before is often impossible because it is not available when you want it. This leaves you renting a different Paris apartment each visit, with little reliable information about quality, location, or the trustworthiness of the owner or agency. Searching for a Paris rental also involves time and effort. As owner of a Paris apartment fractional, you know exactly what to expect, even how to plug into the internet and turn on the stereo. All you need to do is plan your social calendar and get on the plane.
- Traveling Light: Imagine traveling "carry on", but still having a month's worth of clothes, your favorite music, and your special pillow with you. In our Paris fractional apartments, each owner will have a private, locked storage area. There is nothing like dashing through the airport after the flight.
- Appreciation: Real estate is a great investment, particularly prime property in a location that is unlike any other. Paris real estate is spectacularly under-valued when compared with property in other great cities. Those dollars otherwise thrown away as rent or hotel costs can be put to good work in the Paris real estate market.
- Love: Let's face it: those other points may be valid, but the most powerful reason to buy rather than rent is to permanently attach yourself to something you love. As generations of travelers and most of histories greatest writers and artists have discovered, there is simply no better place to love than Paris.
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Why buy a fractional interest rather than an entire home or apartment?
Some people choose fractional vacation home co-ownership because they cannot afford to buy, furnish, and manage vacation property by themselves, but many who could afford to buy alone still choose fractional ownership. Why?
- More Cost-Effective: Statistics show that most people only use their vacation properties for about four weeks each year, but the costs of vacation home ownership continue all year round: property tax, insurance, utilities, and basic maintenance, not to mention the loss of use of, and investment return on, all the money tied up in the purchase and furnishing of the vacation property. Fractional ownership allows you to pay for just the usage you actually need.
- Less Management: Management of vacation homes is either time-consuming (if you do it yourself) or expensive (if you hire someone to do it for you), particularly if the property is far away and located in a place with a different culture and language. Fractional ownership allows you to share the management burdens with others, so that the property becomes refuge rather than headache.
- Avoids Challenge Of Operating a Vacation Rental Business: Renting your vacation home when you're not using it is a full-time job that is almost never profitable. First, there is the marketing, involving photographing and describing the property, discovering where and when to advertise, and placing and monitoring the ads. Next, there are the daily inquiries by perspective customers, most of whom have extensive questions, and require lengthy email and telephone correspondence. Next, there are the mechanics of collecting funds over a long distance, checking renters in and out, discovering and dealing with damage to or loss of the property and its contents, and preparing the property for its next tenant. Rental agencies can help, but they often charge 50% of the rent as their fee. To make matters worse, the vacation rental business in many places, including Paris, has become much more competitive in the past few years, increasing vacancies, forcing down prices, and causing owners and managers to spend more time marketing and coaxing. Not surprisingly, most people that try operating a vacation rental eventually decide it's not worth it, particularly when the wear and tear of tenant use is factored in. Fractional ownership allows you to avoid the need to rent out your vacation home by keeping your costs in line with your use.
- Easier To Buy: Any American who has spent an extended period in Paris will tell you that the very things that make French culture and lifestyle fascinating and attractive make many practical aspects of living here difficult and frustrating. There are few endeavors where this observation is more accurate than in buying, renovating, furnishing and outfitting a Paris apartment. You should spend their precious time in Paris taking long walks, sitting in cafe's, visiting museums, watching opera and ballet and, of course, shopping (for things other than cabinet knobs, towels and dishwashers). DwellParis has cultivated relationships that allow us to be the first to know when great property becomes available. We understand what apartments should cost, and have the banking and legal resources in place to make the purchase. We know how to get contractors to show up and do quality work quickly. And we keep an enormous database of what is available where, allowing us to fill the property with the practical and the unique. Fractional ownership allows you to leave the legwork to us and simply enjoy.
- Own More Than One Vacation Home: Imagine owning a Paris apartment, a Greek island retreat, an Alps ski chalet, and a wine country farmhouse. For many, the costs and burdens of owning an entire Paris apartment would eliminate the possibility of owning a third, forth or fifth home elsewhere. Fractional ownership allows you to live more than just one of your dreams and, someday, to spend your retirement years moving among all of your favorite places in the world.
- Diversify to Maximize Profit and Minimize Risk: Whatever you may think about the prospects for the U.S. economy versus those of Europe or France, it can't hurt to hedge your bets. The Euro has significantly advanced against the dollar over the past five years, and many currency experts expect the trend to continue. Here is an easy way to obtain a European asset and expand your investment horizons. Moreover, fractional ownership allows you to tie up fewer of your financial resources in your Paris apartment, freeing funds to be invested in non-real estate assts, or in other real estate, or both, perhaps spreading your exposure and opportunity among different currencies and economies across the globe.
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What is the legal structure of your fractional ownership properties in Paris?
Each co-owner will be a shareholder in an US-based company, which in turn will hold the shares in a French real estate entity, called a société civile immobilière, or SCI. This double company structure is set up in order to ensure the simplest and most transparent ownership structure for the property, as well as to make shares easily transferable without disrupting the underlying ownership structure of the property. In this way, re-sales, gifts, or inheritances of fractional shares will occur in the United States, thereby avoiding the administrative intricacies of French real estate transactions.
This ownership structure will also provide a platform for mortgages from U.S. lenders which are just beginning to appear for non-U.S. fractional ownership properties, and are expected to become more readily available to finance foreign properties.
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How does fractional ownership differ from timeshares?
While the hassle-free ownership, full management and shared usage benefits of fractional ownership may sound similar to timeshares, there is a fundamental difference. Fractional owners actually own a proportional share of the title of the property. Timeshare owners simply own days or weeks of usage time. If the property appreciates in value, the fractional shareholders share in that appreciation. With a timeshare, this investment aspect does not exist.
This important difference is also what distinguishes fractional ownership properties from the recent wave of destination clubs. Destination club members purchase a fixed amount of time to use the club's properties. Like a timeshare, they do not hold any ownership right in the real property, and thus do not enjoy the capital appreciation of those properties.
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How are decisions made concerning the maintenance of the property? How are the expenses determined?
The costs associated with cleaning and maintenance, property management, property taxes, utilities, building assessment fees, and a reserve fund for repairs and replacement are incorporated into the annual operating budget. The budget is prepared by the management company and presented to the co-owners every year for their review. Ongoing maintenance decisions are designed to keep standards high and costs low. Owners will have full visibility and oversight regarding maintenance and upkeep.
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Will I have to deal with paying French taxes on the property or the rental income? What is the likely tax treatment for my share ownership in my home country?
The ownership structure – a US company that holds shares in a French company (the SCI), which, in turn, owns the property – means that each individual owner can avoid the tax filing and other formalities that normally come with owning a property in France. All French taxes are paid by the SCI, a process entirely managed on behalf of the owners so that they have no confusing foreign documents to fill out or legal requirements to fulfill. Each co-owner will receive a concise tax statement for their portion of the income (if applicable) and expenses, which they can then include in their personal income tax statements in their home country. We strongly suggest that each of our clients obtain individual tax advice, to understand the possible tax benefits or liabilities in light of their personal tax situation and planned usage of the property.
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Can I sell my fractional ownership share at any time? If I want to sell my share, can it be done privately, or must I sell it through you?
Each owner is fully vested for his or her share ownership and is free to sell it privately at any time. The solvency of the buyer will be evaluated so that the shareowner can be released from all future liability for mortgage and upkeep/maintenance expenses.
We do not buy back shares from individual investors. However, through our database of interested shareholders-to-be, we are glad to assist you in locating a willing buyer. We are constantly being contacted for our fractional offerings, and currently have a waiting list for upcoming Paris fractional ownership properties.
Existing owners may also be interested in purchasing additional shares and they will be offered the opportunity to do so.
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Can I review the purchase and governing documents with my accountant or financial advisor? When are these documents available for me to see?
All the structural and financial documents are available for your review before making a full commitment to fractional ownership of one of our properties. Upon executing the purchase agreement, investors will have 60 days to review all the documents and decide whether or not fractional ownership is the right investment for them.
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Are taxes and other closing costs represented in the ‘total share price’? Are there any hidden fees?
The total share price includes all closing costs and title transfer taxes, legal and financial fees, supervision of the purchase, furnishing and renovation. There are no additional fees, taxes or hidden charges for the owners.
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Will I get to meet the other co-owners in advance of buying?
To the extent possible, we will try to make sure that each of the original buyers has the opportunity to contact the others. The co-ownership agreement will require that this contact opportunity with new owners continues as interests are resold or transferred.
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When will each owner use the Paris Apartment?
Each Paris fractional will have a permanent usage structure so that each co-owner can be certain of his/her usage rights. Each owner will have a fixed number of weeks of usage each year, allocated in either two- or four-week blocks. In some cases, an owner's usage weeks will be "fixed" meaning, for example, that the owner will always have the right to use the apartment during July. In other cases, an owner's usage rights will be "floating" meaning, for example, that the owner will select his/her usage weeks each year based on a rotating system of priority. In still other instances, an owner will have a combination of "fixed" and "floating" usage weeks. The usage structure will vary from apartment to apartment, and a detailed explanation and calendar will be provided with each offering. Often, buyers will be able to choose whether to buy fixed usage, floating usage, or some of each. In all cases, each co-owner will know the exact dates of his/her usage rights well in advance to allow plenty of time for planning.
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What if I can't or don't want to stay in my Paris apartment during my usabe periods?
Co-owners will also be allowed to exchange their usage periods with other co-owners, give them to friends or family, or rent them and retain the rental income. When non-owners use the property, a rental manager will check them in and out, provide an orientation, and monitor the condition of the property.
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Will the property management frim rent out my usage rights at my request?
You will be free to set up arrangements with the company managing your Paris apartment, or with one or more independent rental agencies either in Paris or in the U.S., to solicit rental tenants and manage your rental arrangements, but you will be responsible to pay for these services.
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How will the co-owned apartment and co-owner group be managed?
Each apartment will have a property manager who will be in charge of administering the usage system, collecting assessments, paying the bills, and keeping the property well-stocked and maintained. During the initial year of co-ownership, we will either provide these services or hire and supervise another property management company to provide them. Later, each co-owner group will decide whether to continue with our original management arrangement or choose a different one. Unlike large timeshare developments or apartment-hotels, we do not require any permanent relationship with, and endless stream of fees from, our co-owner groups. We only want to be there for you if you need or want our help.
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How can I know my Paris apartment will be nicely cleaned and fully outfitted each time I arrive?
Each apartment will be cleaned, inventoried and monitored during a permanently set block of hours on a particular day once each week. This cleaning period will coincide with the period between check-in and check-out time, so that your Paris apartment will have been prepared for you just before you arrive.
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What if something is broken, like a TV or oven; who pays?
Your annual dues will include an allowance for repair and replacement of all the things in the apartment. When something breaks or wears out, it will be repaired or replaced at group cost. But if someone using the apartment damages something or takes something, the responsible user (or the owner renting to that user) will be required to reimburse the group.
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How much will each co-owner pay in fees or dues to the fractional owners association?
Each apartment will have an annual operating budget including the costs of ongoing expenses like taxes, insurance and utilities, and an accumulating reserve for repair and replacement of the systems and apartment contents. Each co-owner will pay monthly or quarterly assessments to the owners association based on this budget. The initial budget and assessment amounts will be provided with each offering. Assessments will be substantially less than those associated with large timeshare developments or apartment-hotels with elaborate overhead, services, and management costs.
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Can an individucal fractional owner decorate or modify the Paris apartment?
When you purchase your Paris apartment it will already be fully decorated and outfitted with attractive and high quality furniture, bedding, linens, kitchenware, appliances, and audio-video equipment. Permanent addition to and modification of the fractionally owned apartment and its contents will require approval from the owners association. This insures that the style and quality that entices you to buy your Paris fractional will remain in place throughout your ownership, or that you will have a say in any decision to change it. But you can keep your personal photos, decorations, and other belongings in your apartment while you are there, and store them in your personal storage closet when you leave, so that your apartment always seems like home.
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How will decisions be made within a Paris apartement fractional ownership group?
Although the property manager will have the authority to make small day-to-day operating decisions, and to handle emergencies, major decisions and supervision of the property manager will remain with the co-owners. Depending on the importance and potential impact of the decision, it will either be made by an annually elected governing board of three fractional owners, or by vote of the entire co-owner group. The decision-making process will be organized and administered by the property manager, using mail, email, or conference call, depending on the owner group and the situation, Each group's governing agreement will specify which types of decisions are made by the manager, board or entire group, and what procedures must be followed for notice, discussion and voting.
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Can I sell my fractional interest?
You are free to sell your ownership interest at any time, for any price you and a buyer agree upon. In some cases, we may be able to assist you in finding a buyer or completing the sale process.
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Can more than one family or individual own a single fractional share?
Yes, but the fractional share owned by the "subgroup" will continue to be treated as a single share from the standpoint of usage assignment, voting and assessments. This means that each member of the subgroup will be individually responsible for payment of all assessments and compliance with owner association rules.
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How does the purchase process for a Dwell Paris fractional interest work?
Once you decide you are interested in one or more of our Paris fractional offerings, we hope you will come to Paris to meet us and see the property. If you like one of our apartments, we will work with you to explain the details of the co-ownership, and assess which of the available usage options will work best for you. Once you decide to buy, you will sign a conditional purchase contract and make a good-faith deposit to lock in your right to purchase the interest you have selected. Then you will have a period of 2-4 weeks to carefully consider your decision, conduct professional inspections of the property, and consult with attorneys and other professionals of your choice in France, the U.S., or both. At the conclusion of this reconsideration period, you will have the option of either canceling your purchase and receiving a full refund of your deposit, or finalizing the transaction. Should you choose to go forward, you would pay the balance of the price and receive an assignment of your ownership interest in your new Paris home
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What if a fractional owner does not pay his/her dues or otherwise violates the co-ownership agreement?
Through 22 years experience advising co-ownership groups, we have learned that when a co-ownership group is well organized, and the co-ownership agreement is thorough, clear and fair, violations are extremely unusual, and legal enforcement is statistically very rare. But should a problem arise, the responsible owner would have a reasonable opportunity to make the late payment or cure the violation, after which the owners association would have the right to initiate a foreclosure-like procedure to force a sale of the defaulting co-owner's share. Sale proceeds would be applied to pay any arrearages, penalties and sale costs, with the balance going to the defaulting owner. Where necessary, the process can be enforced through binding arbitration in the U.S. conducted under U.S. law.
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FRACTIONAL