What is fractional ownership?
A Smart Investment

Fractional ownership vacation homes have existed for years but have only recently become known to more people based on the national trend to this type of shared ownership investment within the real estate marketplace. (i.e. vacation homes, townhouses, condos, etc). For years the fractional ownership technique has been applied to purchase everything from private jets to expensive jewelry. Fractional ownership, in simple terms, basically means that you and a group of people (typically friends, family, and business associates) pool their resources together to purchase an otherwise expensive product. This approach reduces the investment risk and provides more flexible use of capital without being over-invested in one asset. The two basic types of fractional ownership properties are outlined below.

A Perspective…The History of Fractional Ownership Residential Properties
Fractionals, often also refer to private residence clubs (PRC), which form one of the fastest-growing segments of the vacation-home market. New sales totaled $1.5 billion in 2005, up 42 percent for the year. The big selling point is that fractionals facilitate one’s desire to add to their lifestyle options with an enriching residential alternative during the year to enjoy with their ‘significant others’ and families.

Resort industry data confirms that on average buyers uses their vacation or second home about 28 days a year. This is why fractional ownership originated and continues to grow. It was created because there truly is a market for it. Fractional ownership opens a door for the thousands of investors that want a luxury vacation home but do not want to pay hundreds of thousands or millions of dollars for it. These properties are in greater demand than typical real estate investments. With this said, if you are interested in any fractional ownership opportunities you should start looking now.

The industry began in Utah little more than 10 years ago when Steve Dering, of DCP International, started the first fractional-ownership community in Park City. Many of the very expensive lodge-type homes there were under-utilized and he figured owners were spending a lot of money for just three or four weeks of use. "Do the math," he says. "Those are very expensive ski days."

The average Aspen ski-country house costs around $4 million. A one-eighth share of a three-bedroom lodge in the Timbers Company fractional ownership development runs about $430,000, plus yearly dues of about $10,000.

Additionally an increasing number of luxury hotel chains, such as Ritz Carlton, W, and Viceroy are involved in fractional ownership. Lately, they have also been started in cities such as New York and San Francisco and internationally, in places like the Tuscan countryside.

Of course, there's no confusing fractional ownership with full ownership. You can't redecorate or even hang photos of your grandmother or your kids crayon drawings on the wall. But fractional owners are guaranteed four-six weeks in residence including two prime holiday season weeks - these are prioritized on a rotating basis among all owners - and additional off-season weeks. Owners can also call on short notice to see if there are additional openings. Another plus: Owners don't have any responsibility for daily care. The management company / operator mows the lawn, shovels sidewalks and paints the trim.

Fractional ownership works very well for the couple or family that wants a luxury vacation home to call their own, but is ideally structured for those who do not want to spend $700,000 to over $1,000,000 or more on a residence they will only use a few weeks of the year. If you are only planning on using the vacation home one month out of the year, do you really want to pay the mortgage and upkeep costs for the other 11 months of the year? Probably not! This investment strategy is a practical lifestyle alternative and future investment benefit choice for those cash conscientious investors.

Equal Fractions of Fully Deeded Properties
Following each fractional interest purchase, the residential property is then split up evenly among the investors where each investor owns an equal fraction of the investment. With ViewPoint Desert Villas, this means that each investor/owner has approximately five weeks to use the villa residence in each calendar year. The number of usable months per property for each owner depends on the number of investors. In this method of investment, the common policy utilized is a rotational availability reservation system successfully employed and accepted by the resort industry which assures all fractional ownership residents fair and equal access to each unique ViewPoint property on an ongoing basis.


The difference between fractional ownership and timeshares
Now, it must be understood that ‘fractional ownership’ is not a fancy way of saying 'timeshare.' While it is true that fractional ownership vacation homes do share some similarities, the two should not be confused as being the same. Many aspects make deeded title fractional ownership investment a better choice when compared with some of the horrors timeshare investors can, and often do face, based on historical resort industry data. Here are some of the major differences between buying a fractional ownership vacation home vs. a timeshare. Deeded title fractional ownership vacation homes are generally much larger and usually more customized, refined and luxurious in all interior/exterior accommodations. Timeshares tend to be small, cheap, cookie-cutter housing. Deeded title properties are not timeshares, which are merely membership/usage contracts specifying a right to use a property on certain weeks. The investment potential or liquidity of membership club time shares has been disputed lately and some large operators have encountered well publicized problems in not being able to fulfill commitments to re-purchase memberships from those who sought to do so under the terms of their membership agreements. They can even be a good investment. Helping that has been the roaring real estate markets, which have been especially good in many of the locations where fractionals are sited. Fractional ownership properties are generally based on much higher quality standards of material and construction details and are intrinsically worth the combined total of the investment from each investor. This may sound a little confusing so here is a comparative review:

Timeshare:
25 investors (each investor buys 2 weeks) x $65,000 = $2,565,000 house. *Usually these timeshares are generally valued well below $50,000 and remain unstable in terms of near and long term valuation, as do destination-based private residence club memberships (PRC). In pre-construction projects where the developer promises to complete construction of homes on the homesites, the time frames for completion add to the near and long term risk.

Fractional Ownership:
8 investors (each investor buys 5 weeks usage per year) x $150,000 = $1,200,000 house. Each investor owns either
1. a membership interest in the destination club residences which offer different properties to buyers in a range of locations or
2. fully deeded interest and legal title to their pro-rata share of the home with all the attendant financial and investment benefits of home ownership but without the year ‘round expense and maintenance which are provided by a professional management company.

High end luxury fractional ownership homes are generally valued in a range from $800,000 to $1.5 million. In fact if you compare timeshare to fractional ownerships, you will notice that per week timeshares are considerably more expensive for generally less space and lower class furnishings without any ownership benefits.