Fractional Ownership Resources and Articles
Introduction To Fractional Ownership
The phrase “fractional ownership” is typically used to describe shared ownership of a vacation or resort property by people in an arrangement which allocates usage rights based on time. In other words, only one owner will be allowed to use a particular home or apartment at a particular time. The terms, private residence club (or “PRC”), destination club, vacation club, quartershare, timeshare, and vacation home partnership are also used to describe variations on these arrangements, and there are no consistent distinctions in the use of these descriptions. Fractional ownership arrangements should not be confused with condohotels or condotels, in which each participant has whole ownership of a particular hotel room or suite.
Fractional ownership arrangements can be applied to a single home or apartment (typically referred to as a “one-off fractional”) or to a multi-unit building or resort development. In multi-unit developments, each co-owner may have ownership rights to all the units, some of the units, or only one unit, and his/her usage rights, and cost obligations, may or may not correspond to his/her ownership rights. Groups can be assembled by a real estate development or hotel company, an individual builder, Realtor or seller, one or more of the prospective buyers/users, or groups of friends or family members.
In recent years, there has been an explosion of interest in fractional ownership arrangements involving a single home or apartment led by the launch of several web-based platforms designed to organize, facilitate and manage these arrangements. For example, SirkinLaw client Pacaso locates suitable properties, solicits and qualifies prospective members for each owner group, provides purchase money financing, renovates and outfits the shared home, provides ongoing calendaring, maintenance and management services, and even offers an “assessment guarantee” under which it effectively removes the risk theoretically created when a group member does not pay his/her share of costs.
The advent of well-capitalized and comprehensive marketing and support platforms has created a disruption or inflection point in the fractional ownership/timeshare industry similar to those spawned by Uber in the taxi industry and AirBNB in the hotel industry. Recall that there was a time when private, independent car owners carrying paying passengers, or individual homeowners hosting paying guests on a nightly basis, were considered fringe economic activities that would never become serious alternatives to taxis and hotels (respectively). For may years, that same skepticism applied to the idea of small groups of strangers sharing a vacation home. (Believe me, I know: for over 15 years, I touted the idea of single-home fractional ownership at fractional ownership/timeshare industry conventions and symposia around the world, and was routinely treated with respectful dismissiveness.) Today, single-home vacation fractionals represent the fastest-growing segment of fractional ownership.
The Difference Between Fractional Ownership and Timeshare
It is incorrect to say that timeshare involves the sale of time, weeks or usage, while fractional ownership involves full titled ownership. Today, many timeshare properties involve titled ownership. The real differences between timeshares and fractional ownership arrangements are:
- Fractional ownership typically involves more usage than timeshare for each owner each year
- Fractional ownership typically involves fewer owners than timeshare
- Fractional ownership is typically more expensive than timeshare
Why Is Fractional Ownership Becoming So Popular?
Although many people dream of owning vacation property, most either can’t afford the type of property they want, or reason that they would not use the vacation home often enough to justify the expense. Fractional ownership provides a solution to these problems by allowing each co-owner to pay only a fraction of the costs and ongoing expenses of vacation home ownership, and share the risks of unforeseen maintenance problems and value depreciation with others.
Fractional ownership is increasingly popular among those who already own a vacation home (or even a primary residence in a resort community) but feel burdened by the expense, upkeep and management of a property they use infrequently or are regularly absent from during certain seasons. Rather than sell a home they love, these people opt to sell one or more fractional ownership interests to others who will use the home when the original owner does not and will help share the costs and burdens. Besides lowering cost and time burdens, shared ownership can free capital for the purchase of other resort property, or for alternative investments. It can also provide an alternative when selling the entire home proves difficult due to market conditions.
Fractional ownership can be a significantly less expensive and more attractive alternative offering in a new development, giving some buyers an incentive or opportunity to purchase that would otherwise be lacking. The builder or developer can thus open up a new market and access a different group of potential customers by offering fractional ownership, a particularly attractive opportunity when whole ownership sales are slow. Marketing a less costly ownership option may also increase the overall visibility of, and traffic to, the project sales sites, and increase sales volume of whole ownership. Finally, opening a project to fractional ownership will generally increase overall usage of the property, which can enhance the viability and financial performance of amenities and ancillary services such as a spa, golf course, ski resort, or restaurant.
Learn More About Fractional Ownership
This page is a gateway to many articles on all aspects of fractional ownership, categorized for easy navigation under the links below.
Get started with the basics of fractional ownership and other vacation home sharing arrangements with a short overview of fractional ownership, a more comprehensive explanation of fractional ownership, definitions of fractional ownership terms and lingo, characteristics of fractional ownership and timeshare product categories, and essential tips for smaller, less formal vacation home sharing partnerships and family ownership groups.
Guides and tips for vacation home owners, developers, and real estate professionals interested in selling property as fractional ownership, and individual buyers interested in organizing a fractional ownership group. Step-by-step instructions for analyzing the fractional ownership potential of individual homes and condominiums, and assessing the feasiblity of offering fractional ownership within a resort or other real estate development. A detailed article describing the various fractional ownership usage arrangements, and another explaining how to price fractional ownership offerings.
Learn the most effective marketing and sales techniques for fractional ownership, private residence clubs, destination clubs, and quartershares. Most people quickly understand the benefits of fractional ownership arrangements, but can find many reasons to delay the decision to buy. To sell out a fractional ownership project quickly and cost-effectively, it is critical to understand how to expose the property to the right customers, explain the concept of fractional ownership in a clear and compelling way, and then convince the customer to buy now instead of later. These articles will explain the best practices used with the most successful fractional ownership properties, from individual homes to large private residence clubs.
Discover how to compare and choose between different fractional offerings.Which fractional is the best deal, and why? Which one will remain a good deal over time when owner dues are compared with other accommodations? Which ones will remain attractive and make you want to return? Which will best hold resale value? How valuable are exchange programs, and which ones are best? Get the tools you need to make an informed fractional buying decision.
Everything you need to know to smoothly start and operate a fractional ownership group, whether you are a professional property manager or just someone who wants to manage a fractional with your family and friends. Learn what tax and governmental filings you need to make, how to open bank accounts, what records to keep, how to call and run meetings, how to create a budget and collect dues, how to keep repair replacement reserves, and how to organize and control decision-making. Most important, learn how to keep your fractional ownership associations running smoothly and without arguments or disputes.
Articles on fractional ownership and timeshare law throughout the United States and Europe as well as resources to help you find the law in your jurisdiction.
Additional articles, podcasts and lists on various fractional ownership related topics including a list of books on fractional ownership, and sources for fractional ownership financing.