Fractional Ownership – VS – Timeshare

What’s the difference between fractional ownership and timeshare? Even seasoned investors are frequently confused about the distinctions between these two vacation properties. Over time, the lines have been blurred; but for the sake of security and satisfaction, it’s important to know how they differ. You could find yourself with something that doesn’t meet your financial needs if you have misconceptions or unrealistic expectations about benefits offered by either one.

 

What is Fractional Ownership ?

 

Fractional ownership is partial ownership or “co-ownership” in property and land. A group of investors each own a fraction or share of the property. The fraction of ownership depends on how many people buy into it. So if eight people buy in, they each own 1/8th of the property, or if up to sixteen people buy in, they each own 1/16 th of the property.

 

The higher the fraction of ownership, the less time you have to access the property for your use. Most fractional ownership terms limit the number of owners to keep it appealing to each owner.

 

With fractional ownership, you and the other co-owners own the building(s), the land and the contents of the buildings (furniture, appliances, etc.) Think of it as a regular house. If you own a house with another family member on the deed, each person technically has a 50% stake in the ownership of the building, the land, and all the contents. It’s the same with fractional ownership, except your fraction is smaller and in many cases, you won’t know the other owners.

 

As far as your using the property, your time is allocated in weeks according to structure and your fraction of ownership. Depending on how many shares you own, you may have two to six weeks or more available for your use. A minimum of two to four weeks are usually reserved for the maintenance of the property. During this time, owners do not have access so that work can be completed without disturbances or interruptions.

 

Expenses associated with fractional ownership include things like maintenance and repairs or replacements, property management, property insurance costs, HOA fees, accounting, and tax preparation.

 

Many of these expenses are rolled into one annual fee, for which each fractional owner is responsible. Expense required like a new roof or replacement of a broken appliance are handled and allocated to owners as they arise.

 

There is a great deal of freedom with fractional ownership of real estate. The rules are determined, not by a corporate governing body, but by the owners or management. As such, owners can choose to use their fractional ownership in a variety of ways. They may personally vacation a couple of weeks a year at the property and rent out their remaining weeks for passive income. If owners are unable to use the property or take a vacation, they may rent the weeks that they own.

FRACTIONAL OWNERS CAN :

What is Timeshare ?

 

There are several different forms of timeshare. The most common form is “undeeded.” That is, the timeshare participant doesn’t own any portion of the property. The timeshare contract simply grants rights and use of the property to each member for a pre-determined length of time.

 

In a timeshare, a corporate entity sells members the right to use a block of time in the property to each participant.
The blocks of time are in weeks. There may be 51 timeshare interests in one property, with one week allocated to each participant.

 

You usually have the option (at a price) to purchase the weeks you can use the property if the time has not been committed. In some cases, the timeshare corporations offer multiple properties, possibly in different countries.

For instance, subject to the cost, your time-share buy-in may entitle you to a choice among a condo in Florida, a villa in France or a luxury hotel in Ecuador. If you have sufficient shares and that week is available, you might be able to stay in the property of your choice during your week.

Timeshares include annual costs and monthly fees that members pay on top of what you paid for your “right of use week(s)”. The fee varies but can be upward of $3000 and more annually, depending on the timeshare. This fee goes toward property management, taxes, repairs, and maintenance. Also, most timeshares charge a daily use fee. Currently, this fee generally ranges between $30 and $100 + per day of use during your week, but again it depends on the timeshare company and where you stay.

 

These fees are in addition to buyer’s original buy-in. If you don’t use your reserved week for whatever reason,
most timeshares still hold you responsible for paying the daily use fee for your week.

 

Depending on where your timeshare is, you may or may not be able to rent out your week if you’re unable to vacation that year. The subleasing terms depend on your timeshare corporation and on terms of the resort where the property is located.

Timeshares are often sold under tense, “heavy sell” conditions. They may involve long-term contractual agreements that are often hard to end or transfer. It’s important to make financial decisions carefully, including the purchase of a timeshare.

 

KEY DIFFERENCES

 

Fractional Ownership

Time Sharing and Membership

 

If the corporation who owns property that sells membership, and if the corporation decides to sell the property including the membership asset or (subject to it’s structure and /or economic times) end the membership including timeshare contracts and create new ones with the new owners; your membership may be passed on to new owners and subject to new structure – the rules may change.