What Is Fractional Ownership?
Fractional ownership vacation homes are something that has been around for years but are just now hitting the investment real estate market (i.e. vacation homes, townhouses, condos, etc.). For years business men and women have been using the fractional ownership technique to purchase everything from private jets to expensive jewelry. Fractional Ownership, suitably structured, allows several unconnected buyers, or family & friends, to combine their resources and collectively own a beautiful vacation property.
Fractional Ownership meets the needs of today's potential buyersthose who would love to buy their dream home but find their budget won't stretch to fit; others who may have the funds but recognize that it makes no economic sense to own a property but only visit 8 weeks or so each year; and those who are cautious, preferring to test the idea of ownership at home or overseas before further commitment.
By owning a fraction of the equity a buyer is only committed to paying the same proportion of the annual costs.
For example, the owners of a quarter share in a property, can each enjoy up to 3 months a year occupancy and only pay 25% of the total annual management, maintenance and administration costs. Financially this makes great sense.
For those desiring the perfect vacation home to call their own, yet not wishing to spend hundreds of thousands of dollars for somewhere they will only use for a few weeks out of the year, fractional ownership is ideal. If planning only on using the vacation home one month out of the year, who would really want to pay the mortgage and upkeep costs the other 11 months of the year? This financial strategy is a wonderful choice for those cash conscientious investors.
For those believing that fractional ownership is nothing more then a fancy way
of saying timeshare, do not confuse the two
as being the same. Many aspects make this investment a much better choice when associated with some of the horrors of a timeshare investor can face.
Here are some of the major differences between buying a fractional ownership vacation home versus a timeshare:
Fractional ownership vacation homes are usually larger and much nicer. Timeshares are typically pawned off to unsuspecting tourists by pushy salespeople who don't take no for an answer. Fractional ownership properties are normally very classy and are actually worth the combined total of the investment from each investor.
Usually 50 to 100 or more people pay from $30 thousand to $60 thousand or $3 million, sharing 3,4 7 days or more on predetermined same weeks.
These properties are usually valued well below the amount invested.
4 to 12 investors $150,000 to $300, 000 or $1,200,000 property sharing 4 to 12 weeks determined by formula or rotation every year.
Fractional ownership houses are valued at the amount invested.
Comparing timeshares to fractional ownerships, timeshares are normally more expensive for a lower class and smaller home with less (if any) equity appreciation.
Banks and lenders consider fractional ownership homes to be similar to a second home, being easier to finance a fractional over a timeshare, therefore again proving its distinction from the dreaded timeshares.
Fractional ownership is an actual investment. Timeshares, on the other hand, are like buying a new automobile. These investments tend to plummet in price as soon as you sign the paperwork. The Internet at any time will show hundreds of people trying to sell their timeshares. The price is a very small portion of what they paid for it just a few months prior. With fractional ownership the property value increases and so does your investment. This is especially seen if you invest in "Pre-Construction" fractional ownerships. These investments are associated with a slightly higher level of risk but generally reap a higher return.