Fractional ownership: Getting your piece of a vacation home
by Pat Curry of Bankrate.com
A second home has been called the ultimate discretionary purchase -- something that many people would like to have but no one needs. People who do own a place at the beach, the lake or in the mountains often are quick to express frustration at not being able to spend more time there. It hardly makes sense to have the expense of a mortgage, upkeep, insurance and taxes for a place you don't use more than a few weeks each year.
To deal with that situation, family members and friends often have joined forces to buy a place together. It cuts down on the cost and everyone gets to enjoy a place that's more than just a hotel room. In 1994, a new concept debuted in the United States -- fractional ownership of vacation homes. Patterned after fractional ownership of private jets, the concept formalizes the idea of a group of relatives or buddies pooling their resources to buy a getaway place.
Fractional ownership offers individuals the opportunity to buy partial ownership of a really nice place in a resort area. We're talking luxurious oceanfront estates, island properties in Florida, the Caribbean and Europe, or chalets and condos with walk-out skiing in the Rockies, often with resort-style amenities including on-site restaurants, fitness clubs, golf courses and a concierge service.
The arrangements usually divide the ownership into fourths, eighths, or more shares, with each ownership share having an equal number of weeks a year to use the property. The owners buy their shares from a general partner or management company, which handles maintenance and scheduling everyone's time.
Similar to time shares If it sounds like a time share, there are similarities. Both can be bought as deeded properties, but fractionals may also allow ownership of a proportionate share in a total development. Purchasing fractionals can be an excellent value and smart way to own expensive properties that only get used occasionally. Typically one's use of a property can be shared with family and friends, rented out, sold, or left to someone in a will like any other owned asset.
Like time shares or any kind of resort property, there are small players and big guns in the business. If you're in love with one or two locales and could see yourself going back to the same places over and over, a small company development that owns multiple properties in areas that you like to visit can be the perfect way to own.
One difference: Money
The big differences between time shares and fractional ownership properties are prices, financing and fees. While time shares can be had for a few thousand dollars, fractional ownerships can run $1,000,000 or more -- much more.
Like fractional ownership of jets, fractional ownership of luxury real estate is most often used as a way to make ownership of multi-million dollar real estate more affordable.
"We have a property in Aspen now that the quarter shares are $1.5 million," says Doug Freyschlag, president of Denver-based Alpine Quarters. "Even at that price level, it still makes just as much sense as any other level."
"When one considers the cost of staying at Richard Branson's Necker Island, Island Partners provides an incredible value to its owner-partners," says Mark Wolkos, Sales and Marketing Manager for Manatee Investments, general partner of Florida-based, Manatee Investments. The company enables investors to own shares of a portfolio of spacious, unique island estates through ownership in an Island Partners limited partnership.
"Island Partners makes island living in a luxury home affordable. Ownership in an Island Partners limited partnership ranges in price from $200,000 to $500,000, less than the price of a single three week stay at Necker Island. The beauty of owning in Island Partners is that you own it, not just rent it, so any appreciation in value benefits the owner-partners."