Fractional Ownership vs. Timeshare
The vacation ownership industry is huge, raking in billions of dollars with steady growth. This is in large part to the timeshare presentations you often see while on vacation. These presentations use high-pressure sales tactics to push timeshares and other types of vacation home properties on prospective buyers. And while timeshares are familiar to most people, the concept of fractional ownership properties may not be as well known.
These two types of vacation properties are very similar in many ways but are different in the investment valuation and the way owners use the properties, as well as other key differences. Unfortunately, with both of these types of properties, many Americans find themselves with a vacation property that they don’t use or don’t want anymore and can’t get rid of. Let’s take a closer look at the main differences between fractional homeownership and timeshare properties.
What Is Fractional Ownership?
Fractional ownership is quite similar to timeshare ownership, in that it is a method of property purchasing and ownership in which there is more than one owner. Typically between six and 12 buyers go in together on a fractional property, and each of the members then owns an equal stake in the property.
So, instead of 26, 52 or more owners for each unit as in a timeshare, there are fewer owners for each unit of a fractional ownership property. This also means that each owner has a longer time period available at the property, so they can have a much longer stay or visit the property several times each year. Each owner typically has five weeks of time or more at the property.
In this type of vacation property ownership, each buyer has partial equity and their ownership is considered a valuable asset and an investment that has the potential to appreciate in value. In this way, it is possible for one buyer to sell their share or for the group to sell the property as a whole, and the buyers receive their share of the selling price, plus any appreciation earned. Timeshares are usually considered a vacation expenditure, rather than an investment, while a fractional ownership can be considered an investment and is usually easier to finance.
Much like with timeshare properties, owners of fractional properties must also pay additional fees on top of the cost of ownership. These fees pay for general maintenance and repairs on the property, as well as housekeeping services or other community property updates, depending on the property and management company. Property taxes and insurance are also due on these types of properties, which can add to the overall cost.
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Many fractional ownership type properties also allow owners to exchange their time for vacations at other properties within the company. This is similar to the way that timeshare properties can be exchanged, and there may be limitations on certain dates and locations.
Fractional ownership properties are usually subject to slightly less wear and tear than a timeshare property, due to a much smaller number of people in and out of the same unit each year. And because of the investment quality, fractional owners often take greater pride and care in their properties, having a greater interest in how the property is maintained and taken care of. Many fractional properties are at higher-end resorts and properties, or in better parts of a resort that also hosts timeshare properties. Many have minimum household incomes that owners must meet to qualify, and are at higher income levels than with timeshares.
Common Issues With Fractional Property Ownership
Fractional ownership properties can be a good way to save costs on a vacation home for some people. However, there are many negative issues with fractional ownership — many of them similar to common timeshare problems — that many find out after it’s too late. Here are some of the most common fractional ownership problems:
- Difficult to sell: Even though fractional ownership properties are often seen as an investment, and have the possibility of the value appreciating over time, they are still challenging to sell. The resale market for these types of properties is usually not very strong, and many buyers are wary of getting into a property deal with other people that they may not know. Few real estate agents are interested in taking on fractional ownership properties.
- Difficult for all owners to agree: With so many owners having a vested interest in the property, it may be hard for everyone to agree on things like furniture and decor. It can be hard to personalize the space with artwork, family photos and other personal touches when other owners have different tastes. It may also be challenging for the group of owners to decide who gets to stay in the home for what parts of the year, or if someone can loan or rent out their portion to someone else. Some members of the group may want to keep it strictly for the group and others may see it as a rental opportunity, and it can be hard to get everyone to agree.
- Some neighborhoods restrict fractional properties: While this is not true everywhere, many areas and homeowners associations (HOAs) are cracking down on fractional ownership properties and may restrict homes to only one or two owners. If buyers are hoping for a much smaller fraction of the property ownership, they may be out of luck in some areas.
- How to structure the title and important documents: Some fractional ownership properties are handled by a management company, and this problem isn’t as much of a concern. However, if you go it alone with a group of friends, it can be more difficult to know how to title the property, as well as how to share taxes, tax deductions, insurance and liability issues. It’s not as easy to make each member equally responsible for all of these extra issues. It can also be challenging to know how to allocate extra expenses like maintenance or HOA fees, repair work and mortgage insurance. Even deciding just how the mortgage payments will be made can be a headache. Someone will need to be in charge of bill paying and collecting payments from all the owners, and it can be a hassle to organize and make sure everyone pays their share on time.
- Dealing with the death of one member: If one of the co-owners passes away, issues in knowing how to handle the share of the property are common. The remaining owners may not have any control over who inherits the other share of the property, or if the inheritors wish to sell their share immediately. Regardless of the outcome, it can be very easy for resentment to develop in the group if not everyone agrees on how to handle the situation.
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What Is a Timeshare?
A timeshare is a partial ownership in a vacation property. A buyer purchases a timeshare at a particular property, usually while on vacation. The timeshare allows the buyer to stay at that resort for a pre-determined amount of time, usually a particular week every year. Some timeshares allow for trading for a different time or time at a different location within the same management company. It’s similar to the idea of owning a share of stock in the vacation rental.
Timeshare sales presentations often sell the idea that a timeshare is an investment, but this is generally not the case. Timeshare properties almost always decrease in value over time and are very difficult to sell or get out of without professional help. Often, a buyer’s situation changes, and the vacation property that sounded like such a good deal goes unused and becomes a major financial burden.
Timeshare properties are most often sold to buyers while they are on vacation, as they will be more likely to buy in while they are enjoying themselves on a trip. Most timeshare properties also come with extra fees paid monthly or annually, depending on the timeshare and management company.
How Is Fractional Ownership Different From a Timeshare?
Timeshares and fractional ownership properties are similar in that they are both ways of purchasing vacation property while sharing and reducing the total costs of the home. They both provide the owners with a way to enjoy a vacation property while spreading out the costs and without many of the downsides and risks of owning an additional property outright. But what is the difference between a timeshare and fractional ownership? Let’s take a look at what makes these two types of vacation home ownership different:
- Number of owners per unit: One of the most basic differences for fractional homeownership vs. timeshares is the number of owners involved in each unit or at each vacation property. Depending on the type of timeshare property agreement, a large number of owners share the vacation unit. Anywhere from 26 to 52 owners for each unit is common with timeshares. With a fractional property, six to 12 owners are common with managed properties, but the number could be even lower in a privately shared property.
- Amount of vacation time in the unit: Both types of vacation properties can vary in just how much time each owner is allowed to use the unit each year, depending on the property and management company. But in general, many timeshares allow each of the 26 to 52 owners one to two weeks at the property. With a fractional ownership property, the higher cost and lower number of owners per unit generally mean that each owner gets much more time at the property. Five weeks or more of vacation time at the unit is common for fractional ownership agreements.
- Types of resorts offering the units: Various resorts and locations offer both timeshare units and fractional ownership properties, but often timeshares are found at well-known resort and hotel chains. The units themselves usually resemble hotel rooms, available as studios or multiple bedroom units. Some timeshare plans allow for trading time at different resorts and locations within the company. Fractional ownership condos are often found at high-end luxury resorts in popular vacation destinations. These resorts are known for a higher level of service and amenities, and the units themselves may be larger and more luxurious as well.
- Costs of ownership: The total cost for both timeshares and fractional ownerships can vary widely depending on the management company, location, size of the vacation unit, length of stay at the unit, resort amenities and more. However, because fractional ownership properties are often at more high-end luxury resorts and have far fewer owners per unit, with longer vacation stays, these units are generally more expensive than timeshare units. The maintenance fees are usually higher as well, driving the total fractional ownership costs even higher.
- Equity distribution: One of the main differences in these two types of vacation properties is the way that the equity is divided. A timeshare property involves a right-to-use agreement, in which the owners don’t actually own equity in the property. In a fractional ownership property, the owner does own a small portion of the property, and the value can go up or down over time.
- Investment value: Neither timeshares nor fractional ownership properties are good investment opportunities. Both are incredibly challenging to sell or get out of and should be seen as a vacation expenditure instead of an investment. Some lenders may see fractional ownership properties as a better investment, so it may be easier to finance these types of vacation purchases. Timeshares usually depreciate in value at a very fast rate, leaving very little of the original value if the owners choose to sell the unit later on. Fractional properties are also difficult to sell, but more of the original investment value is preserved in some types of these arrangements.
Exit Your Timeshare or Fractional Ownership Property
If you’re like the millions of Americans with a vacation property and find that you don’t use it enough, don’t want it or can’t afford it any longer, you need the expert help of a timeshare cancellation company like EZ Exit Now. Both timeshares and fractional ownership properties can be notoriously difficult to sell or get out of on your own. The knowledgeable and trained staff at EZ Exit Now have the experience and expertise to help you get out of your vacation property ethically, quickly and easily.
We will meet with you at whatever location is easiest for you, and discuss your unique vacation ownership situation. Our team will draw up the paperwork and provide you with a solution once we find out if we can assist you to exit your timeshare or fractional ownership property. Contact EZ Exit Now to schedule a consultation and get on the right path toward getting out of your vacation property.