How Fractional Ownership Real Estate Works
A great way to vacation, not so sure about investment value
The most important thing to be cautious of when purchasing a fractional is the money you're spending, where it's coming from and exactly where it's going. Financing can be tricky because often lenders are unfamiliar with the concept of fractional ownership. Sometimes it will be necessary for a mortgage broker to seek out an appropriate lender, unless the real estate is in a major resort area for which your regular lender may already have a financing package designed.
Fractional ownership usually attracts customers who are between 44 and 55 years of age, with a base income of around $150,000 per year, and many with a net worth of over $2.5 million. This is a customer who can afford to wholly own a second home, but has chosen fractional ownership to get even more luxury service and amenities at a lower cost.
As a buyer, perhaps you've noticed that the cost presented to you for a fractional does not quite add up to what the property would cost if it were sold for full ownership. Your mind is not playing tricks on you. In North America , depending on the size of the fraction, standard premiums can be anywhere from 10% to 60%. This is typical of the market because fractionals require the employment of a developer who inevitably will face higher marketing, legal and financing costs once multiple owners become involved.
Though many projections suggest that fractional ownership in most properties are guaranteed to appreciate over time, there is somewhat of a gray area here. This concept has only existed for approximately 25 years. In most cases, examining this relatively short test period to date, the resale value of fractionals have experienced trends of quite dramatic increases, even up to 50%. However, as with any asset, there are no guarantees and it's easy to get excited. At this stage in the game, it is wise to purchase fractional ownership for enjoyment, not as an investment.
One constant when it comes to fractional ownership is the location. You purchase a marvelous second home and it is to this property that you will return time and time again. Though this reliability and sense of home is often the motivation for purchasing in the first place, you do not want to feel tied down by your investment. Checking your options before you buy is very important.
The solution? Consider participating in an external exchange program. Your property is assessed and given a point value based on the caliber of amenities and services, as well as the demand for the unit and a rating to measure quality of time spent. These points can then be exchanged for a variety of travel options, which not only include stays in other units around the world, but also special travel opportunities such as yacht charters or jet charters and even international tours.