Fractional ownership provides buyers with a new paradigm for vacation home ownership.  When you think about it, why should someone pay full price for a vacation home that sits vacant and unused most of the year?  Sure, it can be rented out or loaned to friends and family, but if there were a way to pay for only what a person uses and still maintain deeded ownership and appreciation potential, wouldn’t that be the most desirable scenario?

Fractional ownership is not an entirely new concept.  Developers of high-end Private Residence Clubs (PRC’s) have been providing luxury fractional ownership arrangements since the early 1990s. Today, hundreds of luxury Private Residence Clubs are found in every corner of the country, with more under construction every day.  In addition to these planned developments, there are untold numbers of independent stand-alone vacation homes that have been converted to fractional ownership by groups of friends, family and even strangers to allow owners to share in the cost advantages of vacation home ownership. These fractional arrangements allow individuals to receive the benefits of vacation home ownership but reduce most of its cost.

Fractional ownership offers true deeded interest in a vacation home. That home can be part of a development or on its own, but either way the owner has something tangible backing up his or her interest – real estate. Fractionals are offered to no more than 13 owners – which means that depending on the use system, each owner will have a minimum of 4 weeks of use per year.

In general there are two main types of fractionals plus two categories people often mistake for fractional ownership. 

FRACTIONALS 

Private Residence Clubs

In a nutshell, Private Residence Clubs are luxury fractional developments. They will often have dozens of fractional units that can consist of individual homes, townhomes or luxury condos. PRC’s will typically offer fractional shares of 1/13th or smaller – thus giving the individual owners 4 weeks of use per year or more depending on the use system and share size. These luxury developments are found adjacent ski resort area, golf courses and tropical beaches. Most PRC ownerships come with a number of luxury services and amenities such as concierge, valet parking, pre-arrival grocery stocking and transportation services.

Private Fractional Arrangements

A private fractional arrangement is simply a single stand-alone vacation home that has been fractionalized. Private fractional arrangements can be arrived at in any number of ways: a group of family and/or friends can come together and purchase a home jointly, a seller can sell a portion of the ownership in his or her home and take on additional owners, a small independent builder can purchase or build a home and then sell it as a fractional.  Finally, an independent company or real estate professional can facilitate the creation of a fractional arrangement out of a standard full ownership home.

Just as there are many different ways to arrive at a private fractional arrangement, the details of the arrangement are equally diverse. In general though, private fractional arrangements consist of between four and 13 owners, with fewer owners being the norm. These owners then share all of the costs and responsibilities of the ownership of the vacation home. Generally there are fewer amenities and services than a Private Residence Club, but that doesn’t have to be the case – it will depend on owner preferences.

NON-FRACTIONALS

Destination Clubs

Destination Clubs are very similar to Private Residence Clubs in terms of the amenities they offer. There are two main distinctions, however. First, a Destination Club is based on a membership arrangement and no deeded interest is exchanged, second, members of a destination club pay for use in a network of homes across the world versus having ownership in a single home in a specific development like a Private Residence Club. While not a true fractional ownership arrangement, Destination Clubs attract buyers who want a diverse variety of homes and a high level of luxury accommodation. In general, members of Destination Clubs are not as concerned about deeded ownership as their Private Residence Club counterparts.

Timeshares

Timeshares are not in the same class as the above products but are often (incorrectly) lumped together with them. In general, timeshare buyers are buying a very small slice of time (a single week is most common) in a large resort development with exchange rights to other locations. Accommodations are typically small one or two bedroom units. If there is a deeded interest associated with the timeshare ownership it is often very small and very far removed from the base real estate cost.  In general though, the buyer of a timeshare is purchasing a week per year pre-paid vacation and isn’t concerned about appreciation.