Differences Between Fractional Ownership and Timeshare
Are today’s fractionals really different from yesterday’s timeshares?
The common wisdom is that timeshares are a scam perpetrated on the naïve. Relaxed during their vacation in a storybook location, hapless couples are lured into high-pressure presentations by offers of free meals, lodging and recreational activities, then sold on the idea of an annual “prepaid vacation” for the rest of their lives. Soon afterward, they discover that their “prepaid vacation” is difficult to use, in undesirable facilities, more expensive than a regular hotel, or all three. When they try to sell, they find their investment worthless. Sometimes they can’t even walk away without credit agencies hounding them for ownership dues.
Whether or not this picture is accurate, developers of today’s fractional resorts struggle mightily to distance themselves from this perception. Central to this effort has been renaming and repositioning the product. Regardless of how similar or different they are from the timeshares of the past, today’s arrangements are called fractionals, condo hotels, condotels, private residence clubs, destination clubs, or something else, but rarely timeshares.
Are today’s fractionals really different from yesterday’s timeshares?
In general, the answer is yes, but this generalization can be misleading, especially if one puts too much stock in the name of the arrangement, and not enough in the arrangement itself. The idea behind traditional timeshares was every bit as logical and compelling as the idea driving today’s fractional explosion. The problem was not the concept; it was the execution.
In virtually every state, any arrangement involving time-based sharing of an asset falls within the legal definition of a timeshare, and is regulated under timeshare laws. This means that, from a legal standpoint, all fractional are timeshares. But it does not mean that all fractionals share the same problems that have given timeshares a bad name.
Key Differences Between Fractional Ownership and Timeshare
The most important distinguishing factor between modern fractionals and traditional timeshares is the number of owners per home or apartment. Most timeshares involve as many as 52 owners per unit, and many of the rest involve 26. The main consequence of having so many owners is short and/or infrequent owner stays. Most timeshare owners visit their property only once a year, often for only one week. This means there is little emotional connection between the owners and the property, often called “pride of ownership”, and this lack of connection translates into lack of care and apathy. Higher traffic also means more wear and tear.
By contrast, most fractionals involve 2-12 owners per unit, meaning owners visit the property more frequently and stay longer. Larger ownership shares and more time spent at the property gives fractional owners a greater stake in how the property looks and feels, and in how it appreciates over time. Fractional owners care about their property and their investment, and it shows in how the property is maintained and operated.
Higher quality and cost also distinguish fractionals from timeshares. In general, fractionals involve larger apartments or homes, more amenities and better finishes. Fractional buyers pay more to purchase and expect to pay more in maintenance and management fees. Higher quality construction and finishes, coupled with more resources for maintenance and management, and fewer users, tends to keep the property looking good and operating smoothly. By comparison, timeshare properties often degrade over time, causing them to become less desirable for original purchasers and lose most or all resale value. This degradation results from lower initial quality, inadequate maintenance and management, and higher user traffic.
Another common distinguishing factor between modern fractionals and traditional timeshares is the degree of owner control. Properly structured fractional associations operate much like homeowners associations, and retain ultimate authority and control over their property. Day to day operational responsibility is delegated to a manager or management company, but owners retain the right to replace management if it is not performing. In contrast, most timeshares are permanently controlled by a developer or hotel operator, and timeshare buyers are viewed more as repeat hotel guests than as property owners. This arrangement provides little incentive for the operator to maintain high standards after the last timeshare interest is sold.
Is Fractional Ownership Better Than Timeshare?
The fact that most fractionals do not share the characteristics that have made most timeshares bad deals does not mean that all fractional are good deals, or even that fractionals are always better than timeshares. Rather, it means that fractional buyers need to assess the details of the arrangement before buying, and not be distracted by the label attached by the seller. How many owners per unit will there be? What is the quality of the construction and furnishings? Is there a realistic budget that will provide money to operate the property as well as to replace the furnishings and equipment regularly? To what extent can owners exercise control over the property and the management?
For more information about the various types of fractional vacation property, and how to compare a timeshare to a private residence club, destination club, vacation club and other types of fractional, shared and co-ownership of vacation residences, see “Analyzing, Comparing and Choosing Among Fractional Vacation Ownership Options“. For answers to the most frequently asked questions about fractional vacation home sharing and co-ownership, including partnerships with friends and family, see “Fractional Vacation Property FAQs“.
About SirkinLaw APC
SirkinLaw APC has focused on real estate co-ownership since 1985, and has been involved in the creation of more than 5,000 co-ownership arrangements throughout the United States and the world. This breadth of experience allows us to draw on a huge library of fractional project documentation as well as extensive knowledge of marketing and registration requirements for virtually any location where a project might be located or potentially marketed. We pride ourselves on our ability to write legal documents in plain English, develop simple and elegant usage and organizational structures, and offer efficient, reliable and cost-effective services for fractional projects ranging in size from a single house or condominium up to hundreds of factional interests. Our firm has offices in San Francisco California, Evergreen Colorado, and Paris France.
About The Author
Andy Sirkin has been a recognized expert in fractional ownership for more than 35 years. Since 1985, he has focussed on advising and preparing contracts for small groups of families and friends who want to buy and share vacation homes as partners, and on advising and preparing contracts for sellers and real estate agents who want to market and sell fractional interests in a particular vacation home. While work with individual owner groups, buyers, sellers, and real estate agents remains a major part of Andy’s fractional ownership practice, his work now encompasses advising and preparing contracts for web-based platforms (such as Pacaso) that organize, facilitate and manage fractional ownership arrangements for specific homes, and advising and preparing contracts for fractional ownership developers (who buy properties to renovated and furnish for sale as fractional ownership interests), fractional ownership marketing and sales firms, and fractional ownership management companies.
Andy has worked on fractional ownership of properties located throughout the U.S. and the world, and has also advised fractional ownership startups, platforms, developers and related businesses based in, or focussing on, locations throughout the U.S. and many other countries. However, most of his work has involved fractional ownership in the U.S., the U.K., Western Europe, Mexico, and the Caribbean. He has been a featured speaker at many fractional ownership and timeshare conversions and symposia, an accredited instructor with the California Department of Real Estate, and a frequent interviewee on fractional ownership for podcasts and news coverage throughout the world. Andy is based in Paris, and can be contacted via the contact form.