Fractional ownership has expanded to private jets, yachts, luxury motor homes and cars. Property Frontiers, a UK-based international property investment specialist reports that investors are rethinking the property market with great interest in fractional ownership of luxury developments. Although Property Frontiers is a service provider to investors of real estate developments in emerging markets, the comment shows a trend if not a shift in the concept of real estate ownership.
At the consumer level, the concept started with models such as vacation ownership of deeded and un-deeded timeshare, interval, and vacation club. Based on industry reports and market statistics, the search engine Report Linker indicates that timeshare use in 2009 was higher than hotel stays. It predicts the growth of the industry.
Consult a Real Estate Lawyer and Know What you Buy
A real estate lawyer specialized in timeshare, or the local legal authorities will let buyers know, for example, if the land is free hold (not leased). The U.S. Federal Trade Commission (FTC) defines the various models as follows:
Fractional ownership refers to a property share of up to 26 weeks. It is run by a fractional ownership management company.
Deeded timeshare bestows “legal rights” to buyers of week(s) who become collective owners of the development, and usually manage it through an elected board of (owners) directors. The deed is transferable to heirs.
Un-deeded timeshare refers to buying the “right of use” of an interval in a resort owned by a developer who manages it. It is “legally considered personal property.”
Point-based vacation club refers to buying points tradable for intervals according to location standard.
The Reality of Timeshare Resale
A resale is usually the result of the financial burden caused by the cost of ownership, especially with a mortgage.
Owners of un-deeded timeshares are frustrated by the residual value of their “investment.” Since they bought time, not real estate, the key is to “consume” the product, or a premature sale will turn into a loss.
In fractional ownership, the property value can be blurred by the services attached to luxury lifestyle.
To determine the breaking point, buyers must consider how much they would have spent per week in a similar setting, and further compare it with single ownership.
Dividing the investment by that number gives the number of years that a week should be used to recoup the price paid. Maintenance fees must be factored in as additional years of use towards amortization. “Profit” comes after amortization in the sense that buyers got their money back through the value of used time. Maintenance fees still apply.
Fractional Ownership Means Fractional Financing and Cost
In spite of its detractors, the concept attracts buyers who want cost-effective alternatives.
- A mortgage for shared ownership shares the investment risk
- Funds can be invested instead of tied in real estate
- Single-owned vacation homes are mostly unoccupied
- Fractional ownership is reflected in operating costs, property taxes, and renovation
A recent survey by Interval International reveals that almost a third of its U.S. members is considering upgrading or increasing ownership.
The Case of Timeshare Scams
Timeshare is burdened by a stained reputation because unscrupulous developers led buyers into high risk deals. And, it is wrongly called "scam" as a backlash from buyers having difficulty to sell due to the large market inventory.
Partly to blame, is the pressure and excitement created by marketing techniques, yet buyers are the ultimate decision-makers. The FTC warns that a contract should include a seven-day cancellation right, and advises not to sign at the time of a sale presentation.
Marie-Claude Arnott is a happy timeshare owner.
Sources
- Linker Report: Timeshare Industry Report 2010 Edition
- U.S. Federal Trade Commission (FTC): Time and Time Again: Buying and Selling Timeshares and Vacation Plans
Marie-Claude Arnott - Marie-Claude Arnott writes about topics that interest her, from experience and with passion.
