Fractional Ownership Vacation Property Defined

Fractional Ownership is the new, exciting and smart option for second home ownership.   It is the difference between whole ownership, with its sole responsibility and full exclusive use, and the commonly thought of time-share, where most often, you purchase “vacation time” in a resort, (usually about two-weeks) not in the real-estate itself.

Fractional Ownership consists of owning an interest (“Undivided fractional fee-simple”) in a specific property.  The property you are buying is in partnership with other owners, who share the cost and expense with you and when you are not vacationing there, another owner or partner is enjoying the home.

Fractional Ownership options defined

Within the industry, there are several options, for you to choose from in a fractional vacation home. Click here for more fractional ownership terminology in our Glossary.

In alphabetic order:

Condo-Hotel: This is a residential building that is used as both a condominium and a hotel. Condo Hotels offer a portion of their hotel room inventory for sale to individual buyers.  Often times the Hotel operator will manage the investment for you which includes the reservation system.  Each investor owns the condo deed to a specific hotel room or suite, and is responsible to pay property taxes, insurance, maintenance fees and other costs as they would, on a traditional single family condo.  This option offers the amenities of the Hotel to owners and renters. (Equity)

Destination Club: This is a membership based model of vacation home ownership which is non-equity based.  You pay a fee for the membership which provides consumers access to a portfolio of multimillion dollar luxury homes in multiple locations throughout the world. Generally, it is characterized by the absence of any equity or ownership of the underlying real estate (although there are some exceptions). There are annual management and maintenance fees that are paid monthly or quarterly according to the terms of your agreement (Non-Equity)

Fractional Ownership & Private Residence Clubs (PRC): These two terms are often used together and interchangeably with regard to vacation fractional ownership.  Fractional Ownership /PRC are the vacation home option that allows a person to purchase a portion of a vacation home anywhere in the world for a fraction of the cost and a fraction of the expense.  This form of co-ownership group can be anywhere from 4-12 undivided interests or shares in the property based on the model being offered for sale. Each ownership interest would share the expenses and maintenance prorated based on their ownership interest.  Vacation Fractional Ownership/ PRC intervals are smaller as people generally buy only what they will use.  This type of ownership can be offered by an individual seller, a real estate developer or hotel company. Typically, each co-owner owns a percentage of the property which is shown on the title and deed to the property as an owner. (Equity)

Private co-ownership: Private co-ownership is an alternative to full ownership of vacation homes. Many friends and families realize that whole ownership of a vacation home is often expensive or senseless given the amount of time they actually will use the property and therefore they create a private co-ownership model.  Title can be held as tenants in common, or an LLC (Limited Liability Company) can be set up.  The terminology for this type of co-ownership can have a variety of names; vacation fractional homeownership, timeshare, TIC, or simply private co-ownership. This form of ownership is characterized by “a small number of owners”, often times owning a single family home. It is the closest alternative to Sole Ownership. This type of co-ownership has been going on a long time among friends and affinity groups and is now being offered professionally. (Equity)

One off developer: This is one Seller who has one specific property that they are offering for sale in shares.  These shares are fractional ownership interests.  The Sellers create a usage calendar that is best determined by their location and specific to the area.  For example if the property is in a remote destination, it may be better suited to offer longer usage plans since the homeowner may travel great distances to enjoy the home, and most likely not be interested in short stays.  Conversely if the home is located in a metropolitan City, then perhaps the usage would offer shorter yet more frequent stays.  These developers will often seek outside service providers to manage and maintain the property, can include concierge services.  Additionally there could be other ancillary services provided, such as memberships to nearby golf clubs, spas, and / or wineries. 

How Fractional Ownership works?

Fractional Ownership is similar to most other real estate purchases, with the exception that you are purchasing a fraction of the property instead of the whole property.  Where you will find much of the difference between vacation fractional ownership and whole ownership is in the variety of options that developers and sellers offer regarding usage structures. 

Fractional shares can vary from a one twelfth (1/12th) interest to a one half interest (1/2).  Typically the one twelfth, (1/12th) interest provides four (4) weeks usage of your property.  This also can be offered in a combination of ways.  For example, you can purchase 4 weeks of deeded ownership that you will use as 2 fixed weeks, enjoying the same weeks each year and 2 flexible weeks that you will use on a floating, rotating schedule. Or you can choose to purchase four (4) weeks fixed usage, meaning you will always have the same weeks each year in your vacation home, year after year.  These 12th interest offerings may have extra calendar weeks which are often designated for maintenance, or if not necessary, they may be offered to the group on a first come first serve basis.   Another option is for the urban user in major metropolitan cities, is to offer a 30 day usage, where one can come and go based on availability of the units, as often as you like.  Once you have used your 30 days that comes with your ownership, you may be able to stay additional days on if space is available for just the cost of cleaning fees.  These typically are at the larger, Ritz-Carlton, Fairmount, Four Season type developments. 

Management /Maintenance of Property

Larger developers and hotel operators will offer in house management services and maintenance of your vacation fractional home.  They will also offer the rental of your unit when applicable.  With the smaller “one off” development the management of the property is most often taken care of by a third party, or by the Homeowner’s Association.   In most cases, an annual budget is established and owners make monthly or quarterly payments to cover utilities, insurance, taxes and operating expenses.  The one common denominator is that while you own the real estate, you need not manage or maintain it yourself.  This is one of the most attractive and appealing attributes to vacation fractional ownership. 

Benefits
Experience

A primary reason people buy vacation fractional homes is to lessen their responsibility, maintenance, management and expense; and at the same time maximize their experience and savings with a high quality lifestyle.  This truly makes second home ownership a vacation home.  Many buyers and investors could easily afford whole ownership purchases, but in lieu of the advantages now in offered by fractional ownership they enjoy having a deeded second home vacation property and have few of the headaches which can be typical of a wholly owned vacation home. 

The ability to pass the property down through generations in your family or resell it through a broker as you would with other real estate assets in your portfolio is attractive to many consumers. 

Some fractional developments participate in global vacation exchange clubs, which offers you the ability to travel elsewhere for vacations, while still maintaining the fractional ownership of your own property.

Many fractional developments are in highly sought after resort or destination locations, where property values are often extremely expensive.  The vacation fractional interest affords you the opportunity to purchase homeownership and have access to all the amenities in the resort area, while paying substantially less. 

Not only is fractional ownership an idea whose time has come; because of its economic value, but also very importantly it is for the EXPERIENCE it allows an owner to have by living and connecting more deeply with the lifestyle and culture of the area in which the property is located.