From: NuWire Investor
Fractional Ownership: Owning a Piece of the Pie
Written by: Brad Zimmerman
From the south of France all the way to the sandy beaches of San Diego, the idea of fractional ownership is taking hold, and interested buyers are beginning to see why.
Much like a timeshare, fractional ownership allows buyers the chance to use a property for a certain amount of time each year. Fractional ownership gives buyers a portion of real ownership, meaning they can profit from an increase in property values. Timeshare owners, too, own a piece of the property, although their interest is diluted and the mark-up is sky high.
Fractional ownership is an actual, deeded interest: It can be sold, left in a will, put it in a trust—practically anything that can be done with any normal deeded property, according to CNN Money.
Take, for example, the Ritz-Carlton Development Company, which next year will begin selling a one-twelfth interest in units in its new project in Vail, Colo., according to the Denver Business Journal. Buying into one of these units will give owners the equity and share of time at the complex, but will also help them avoid any headaches associated with decorating and furnishing the unit, as well as paying for the daily upkeep—all of which will be taken care of, though of course one-twelfth of those costs will be passed along to each owner.
Fractional ownership, also known as residence clubs, is growing rapidly in the vacation home market. Sales totaled nearly $1.5 billion in 2005, up 42 percent from the previous year, according to CNN Money.
Across the Atlantic, fractional ownership has become popular in Europe, where a Texas couple paid roughly $81,200 for about five weeks at a home in the south of France, according to the Chicago Tribune. Vacation homes such as these will even provide storage space for fractional owners, helping them to avoid the trouble of lugging items back and forth.
What is making fractional ownership such a popular idea, even in today’s downtrodden market, is that the average person can buy into a million-dollar property for just a fraction of the cost.
One example is paying $179,000 to be a one-eighth owner of a $1 million San Diego beachfront home, a price which guarantees buyers roughly six weeks at a fully furnished and cared-for property. While there are still yearly dues for upkeep, reasonable prices for part ownership of luxurious vacation homes are becoming popular.
While fractional ownership may seem less risky for the owners, those operating fractionally owned properties depend heavily on those buying in, much more so than if they were the sole owner. Some of the worry is that the market for these types of properties could begin to fail if high-end amenities and luxury services aren’t continually offered to fractional owners, according to CNN Money.
Fractional ownership could seem like an attractive investment, should property values on some of these foreign homes rise, but some experts are warning that fractional properties should remain a luxury item and not an investment, according to the Chicago Tribune.
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