FREQUENTLY ASKED QUESTIONS
Is fractional ownership the same as timeshare?
No. A typical timeshare involves the purchase of a week-long use of a small condominium during the same week every year. Fractional ownership permits the use of premium, resort residence (or several residences) for various weeks throughout the year. Fractional ownership can include a fixed week as well as unlimited access through a space available program, subject to availability.
Fractional ownership is often represented by a deeded interest in the residence, held as tenants in common.
Tell me about fractional ownership.
Fractional ownership is a new, exciting, intelligent second home ownership alternative. Fractional owners purchase an interest in a residence or pooling of residences, in partnership with other owners. All fractional owners share time in the residence as well as its ongoing costs and expenses.
Typically, fractionals oversee residence management and maintenance, allowing ownership to be hassle-free.
Clients who do not want the day-to-day burdens and heavy costs of whole, outright vacation home ownership but who are looking for a property and usage program that is substantially greater than what is typically found with a traditional timeshare find fractional ownership to be ideal.
Fractional residences can be found in world-class destinations such as Cabo San Lucas, Hawaii, San Francisco, Napa Valley, Lake Tahoe, Vail, Aspen, Telluride, Deer Valley, Jackson Hole, New York City, Canada, Paris, Tuscany, London, Caribbean, Costa Rica, Thailand, Fiji, South Africa and much more.
Fractional ownership has been noted as “the biggest news in real estate” according to Conde Nast Traveler. And, they state, “it's not hard to see the appeal of this new generation of second homes. With real estate hitting record highs even affluent buyers are experiencing sticker shock. And when you consider that the average vacation-home buyer uses the property just three to four weeks a year, well, a fractional begins to seem not only practical but downright preferable..” The Wall Street Journal agrees that it is “the sensible way to own and enjoy luxury assets”.
How many fractional ownership interests are sold in a residence?
This varies and is dependent on the owner or developer’s designated fraction size. Fraction size is influenced largely by buyer feedback regarding desired ownership time at a specific destination.
Some typical fraction sizes are 1/2, 1/4, 1/6, 1/7, 1/8, 1/12, 1/17, 1/20.
How are reservations made?
Owners make reservation requests via phone or online through their designated owner assistant or reservation agent.
With fractionals, who has ownership privileges?
Typically, ownership privileges extend to the spouse of the owner, their children and to direct family members (i.e. grandparents and grandchildren) but this varies and is based on the individual fractional’s usage program.
How often can fractional owners use their residence?
Each fractional property has unique reservation policies and procedures which outline several different ways an owner may use their residence. Typically, these reservation policies and procedures are designed so that owners can make multiple reservations well in advance plus additional vacation reservations utilizing unallocated time and last-minute reservation requests. Many of these policies and procedures permit owners to request consecutive week vacations.
Can fractional owners use properties at other locations?
Typically, yes. Most fractionals have an established exchange program, portfolio or partnership whereby owners may vacation at other properties and destinations. Exchange programs are outlined through a fractional’s individual reservation policies and procedures and subject to availability.
Owners may be required to pay an exchange fee and/or associated housekeeping charges.
May guests utilize a fractional residence?
Typically, yes. Most fractionals allow guests of the owners to utilize their residence. Guests may visit on an owner-accompanied or unaccompanied basis, subject to the fractional’s individual reservation policies and procedures.
Beyond the purchase price, what fees are associated with fractional ownership?
Annual, quarterly or monthly dues are typically part of fractional ownership. The dues include pass-through costs such as utilities, insurance, improvements, maintenance, repairs, management and HOA fees and dues remove daily bill-paying obligations from owners . Dues may also include a reserve for replacement or, funds set aside for repairs or improvements which will someday be necessary for the residence.
How do fractional owners avoid the hassles, costs and aggravation of vacation home ownership?
Typically, all ownership costs (utilities, insurance, improvements, maintenance, repairs, management, HOA fees) are included in the fractional’s annual dues which are divided and shared among the owners. Additionally, many fractionals assure reserves are maintained to replace and update furnishings and accessories as necessary in the future.
Many fractionals also manage the usage program, day-to-day operations, maintenance, administration and accounting for their property or properties.
Is financing available for a fractional purchase?
In today’s challenging financial market, financing options are limited, especially for a specialty real estate purchase like fractional ownership. Banks who offer standard mortgage options do not typically offer these same options for a fractional purchase. However, some sellers and developers will offer financing and a few fractionals do have bank financing available. Clients should inquire with the individual fractional of interest to learn if financing is a possibility.
How does a fractional owner sell their interest?
Resale of an interest varies and is dependent upon an individual fractional’s rules and regulations. Typically, owners sell their interest by themselves, through a local real estate broker or utilize their fractional sales team for this effort. Additionally, many fractionals permit owners to transfer the ownership to another party, subject to the provisions of their ownership documents.
How are important decisions made among the group of fractional owners?
Typically, each fractional will have an established set of management and ownership documents that are read, understood and approved by each owner prior to their purchase of an interest. These documents clearly outline items such as usage, reservations, priority, exchange, maintenance, upkeep and even improvements and furnishings. Virtually all owner-related matters are addressed in these documents so all co-owners are aware of the procedures for their fractional residence’s future. Larger decisions within a specific fractional are often put to a vote with a majority wins protocol.
Buyers are advised to carefully and thoroughly read the fractional management and ownership documents.
What happens if an owner defaults on their fractional residence or dues-paying obligations?
Typically, each fractional will have an established set of management and ownership documents that are read, understood and approved by each owner prior to their purchase of an interest. These documents clearly outline items such as what happens in the instance of a defaulting or non-performing owner. Successful fractionals have guidelines put in place to safeguard owners from these type of unfortunate situations. Financial reserves or dues deposits collected in advance can be utilized to temporarily aid a fractional while appropriate action is taken against the non-performing or defaulting owner.
Buyers are advised to carefully and thoroughly read the fractional management and ownership documents.
Can families share a fractional ownership interest?
Typically, yes however this is dependent upon an individual fractional’s rules and regulations.
Can a corporation, trust or other legal entity own a fractional interest?
Typically, yes however this is dependent upon an individual fractional’s rules and regulations.
Does a fractional ownership represent a sensible investment opportunity?
It is recommended that you contact a professional real estate advisor for specific information relative to the investment potential. While no one can predict what the future holds for any real estate investment, many fractional ownership properties have experienced increases in value and offer reduced purchase, maintenance and upkeep costs as compared to a whole ownership purchase.
Do fractional owners enjoy the tax benefits of vacation home ownership?
It is recommended that you contact a tax professional for specific information related to the deductions which may be available. In some instances the normal tax deductions available to vacation homeowners are available to fractional owners.
Is smoking permitted in a fractional residence?
Typically, no however this is dependent upon an individual fractional’s rules and regulations.
Are animals permitted in a fractional residence?
This is dependent upon an individual fractional’s rules and regulations. There are some fractionals which permit pets or designate a specific residence(s) for owners with pets and some fractionals prohibit pets altogether.
