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Are Fractional
Shares Right For You?
by Leon Altman
Fractional shares
("fractionals") are sometimes confused with other
vacation property options, such as time shares and condo
hotels. While there are similarities, there are a number
of things that make fractional shares unique, and thus suited
for a certain type of vacation property buyer.
Fractionals,
also referred to as private residence clubs, are similar
to condo hotels in that they can be put into a rental pool
when the owners are not using the property. Also, fractionals
are considered a second home purchase with interest and
equity benefits that go along with ownership. But unlike
a condo hotel, fractionals are typically luxurious private
homes located in the most exclusive areas.
Although they
are available in studio and one-bedroom units, most are
larger with several bedrooms, family rooms, pools, decks
and outdoor recreation areas, and a host of other features
that make them exclusive properties. A fractional property
would be out of the price range of most individuals, but
because ownership of the home is divided between a small
group of people, this upscale lifestyle becomes affordable.
Typically fractionals
are split in 4 to 8 shares, which means that arranging time
at the property is less competitive than other types of
shared ownership properties. There is no requirement that
you have contact with the other owners, but many do develop
friendships or at least get to know each other at annual
ownership meetings. How involved you want to be with the
other owners is up to you.
Even those that
could afford to purchase a million dollar vacation home
may only be able to use the property for a total of a month
or two during the year and might feel that it is not a wise
investment. Fractionals allow owners to decide how often
they want to use the property, with packages ranging from
two weeks to three months (not consecutively). Prices vary
accordingly.
This is an ideal
situation for those who enjoy staying at quality lodging
when on vacation and prefer to put money toward their own
investment, rather than putting that money into the pockets
of a hotel chain or resort management firm. When you own
a fractional, you can rent it out yourself or offer it to
friends and other family members. And if you decide that
you want to sell your share of ownership, you are free to
do so at any time. Or you can will it to your children or
other designee.
Fractionals
first became popular in the posh ski resorts of Colorado
and Utah and beach communities of California and the Caribbean
but have spread to other areas of the country, including
Florida. In fact, fractionals are the fastest growing sector
of the timeshare industry, growing over three times faster
than the industry as a whole
One of the reasons
they are so popular is because since you purchase deeded
ownership to your share of the property, banks offer more
favorable financing for fractionals than for other shared
ownership options, often treating them as second home purchases.
Because there are far fewer fractionals available than timeshares,
their value tends to increase, making them a better bet
for banks to finance.
Another benefit
of fractionals that makes them popular to buyers is that
many of them come with an option to upgrade to a larger
residence if one is available. And some fractional properties
are owned by organizations with units in other parts of
the country or world, and they will allow you to transfer
your scheduled time to one of these other properties. So
you may own an oceanside unit in Florida, but can spend
a weekend skiing in Aspen, while staying in the same luxurious
comfort, often for no additional cost.
And with a fractional,
you don't have to worry about maintenance, repairs, or other
ownership responsibilities that can get overwhelming with
a second home. All of these services are included in your
annual maintenance fee, which is similar to membership fees
paid by those who belong to a homeowners association or
gated community.
Many fractional
properties are managed by lodging and hospitality experts
like Ritz-Carlton and Four Seasons. This ensures that your
property will be well maintained and offer the best in guest
services and amenities. And if you have the option of placing
your unit in a rental pool on a rotating basis, the reputation
and sales clout of the management company increases the
likelihood that the unit will be rented.
Perhaps the
biggest appeal of fractionals is the personal service you
receive from the staff. Prior to arriving, they will ready
the residence for you, decorating the home with photos,
artwork, books, DVDs, bedding and other personal items you
keep in storage. They will purchase food according to your
instructions and add a hide-a-bed or crib if needed. Everything
is ready for you when you get there.
If your home
is located in a resort community or luxury hotel property,
you also receive the services and amenities that go along
with the location. This often means access to golf courses,
marinas, spas, and other desirable extras. All of this comes
at an average price of $100,000 to $500,000 depending on
the total sale price of the home, the number of weeks in
your package and the number of other owners.
There are many
benefits and perks that come with fractional shares, but
they can come at a hefty price. Before searching, make sure
fractional shares are right for your budget. If not, there
are other vacation property options that may suit your needs.
For more on
finding and buying fractional shares, check out Make Your
Next Home a Resort, the 2005 Guide to Condo-Hotels, Fractional
Shares and Resort Residences. You can download the Guide
as a pdf file at http://www.InvestingIN.com/realestate/resorts/fractionals.htm
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