Fractional Ownership
By Susan Kramer
Ever wanted to vacation where the rich and famous do? Aspen, Hawaii, Bora Bora or Traverse City, well fractional ownership properties may be your chance to live the life.
A fractional ownership is not exactly new, but it just may be paving the way for the “new” style vacation. The ingenious concept started by Steve Dering of DCP International in Park City over a decade ago. The idea was to capitalize on the “unused” portion of those first class resort properties that were only being utilized a few weeks a year. The concept of fractional ownership is to purchase a mortgage and you own a percentage or a fraction of the actual property. Unlike a time share, the owner has a deeded interest similar to any other property or home purchased. In essence, as you pay off your debt you obtain equity in it and possible appreciation.
According to Vacation Finance of Birmingham, Michigan, most properties are typically sold from Fractional interests are often split in 1/4 (1 week a month, 12 weeks a year), 1/8 (1 week every other month - 6 weeks a year), or 1/10 shares. "Most people don't get more than 3 weeks of vacation time, so owning more than 25% of a luxury vacation property is overkill and cost prohibitive" agreed Bob Waun, CEO of Vacation Finance, "with fractional, a second and third residence becomes a justifiable (and lower) expense.” The remaining weeks become maintenance time for the property. The association maintains all of the landscaping, décor, painting, beach area and mechanicals.
Remembering that usage of the facility is what you pay for. You have no control over the furnishings or the style of décor. However, most destination clubs come fully equipped with all the finest necessities of luxury life. Including, jetted spas and hot tubs, wet bars, recreational areas, world class pools, steam rooms, and work out areas.
Owners weeks will revolve on a continuous schedule to assure each will receive prime seasonal usage. Switching weeks with other residents and the ability to offer unused weeks for rental income are other bonus opportunities. Many of the resort properties offer membership into large timeshare companies that will entitle you to trade off your property and scheduled weeks to utilize similar rated properties around the world.
The more upscale properties will offer services similar to a hotel; concierge, housekeeping, transportation, babysitting, private chefs, kids day camps, ski valet, golf caddies and boat or water toy rentals.
When it comes to financing your fractional ownership property you may be in for a bit of a headache, The owner or corporation selling the shares should be offering financing or providing mortgage companies or banks that are ready, willing and able to financing your purchase. Fractional purchases are a hard sell to financers who are not in areas familiar with these types of properties. Buyers should be aware of the financing challenges and be prepared to have a minimum of a 20% down payment with an excellent credit score before considering this type of purchase. This type of real estate is still in its infancy stages and it may take some time for other lenders and mortgage brokers to come around to this “new” way of second and third home purchasing. Regardless if the mortgage industry is ready or not, the fractional ownership concept is ready to say, “here I come.”
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