When we first tell people about our business here at International Property Shares they often exclaim, “Oh you mean it’s a timeshare?”
That very statement reinforces the most common misconception – that fractional ownership is a timeshare by another name. We thought we should straighten things out so it’s clear because while fractional ownership is a trend gaining ground around the world, no one seems to be able to explain just what it is and is not – and why it’s not really much like a timeshare.
Although each type of arrangement offers people the right to use a vacation property, the distinctions are many and misunderstood. So here is our response to the “What, why, who and how is it different?” questions we find ourselves answering all the time.
What is it?
Fractional ownership simply means the division of a property (or any asset) into portions or shares. Instead of owning the property yourself, you own a share. The property’s title or deed is legally divided into shares for each of the owners. It is typically used for high-value tangible assets, such as a vacation home, yacht or jet. In our case, for luxury real estate in Italy or a property in Languedoc, Umbria, Catalonia or a simple apartment in the Cotswolds, England.
Why do it?
The two primary benefits people gain when they share ownership are: greatly reduced costs (purchase and maintenance) and mitigated risk of ownership. As properties appreciate in value (or not), so do the shares.
What’s are the differences between a Timeshare (TS) and Fractional ownership?
The most fundamental difference is that the purchaser always owns a percentage of the bricks and mortar with a fractional title – as opposed to renting the right to use the property. Although a TS can be deeded, they are just as likely not to be. Ownership entitles you to use the property for a certain number of weeks a year, and also to transfer or will ownership or sell your fraction.
Fractionals tend to appreciate over time. Hence, risk is mitigated and he return on investment is greater. Upon resale, fractional properties have been performing like whole ownership vacation real estate in their local market. Unlike TS which, in general, do not hold their original market value. Consider also that the expense of sales/marketing that goes into selling a vacation unit 52 times (which could amount to 50% of the original price) is passed on to purchasers and not recovered.*
Take for example, our Cotswolds property – perfectly preserved original architecture and unspoiled towns and villages, some dating back six hundred years. Can England’s largest conservation area do anything but appreciate in value?
Number of owners
Another obvious disparity is the number of owners. A TS is typically for 1-2 weeks per year, while fractionals are for 1-2 months per year.
This increase in volume has some consequences you may not at first think about when considering spending your vacation there. For example, having fewer fractional owners means that they spend a longer period of time there and consider the property their other home – they are emotionally invested in it. They care more about how it feels, looks, and works personally for them.
The timeshare property’s much higher traffic results in wear and tear that comes with frequent changes and so many people using it. Consequently, the property tends to degrade over time; and the furnishings, carpets and damages are normally in some state of disrepair. Understandably, weekly vacationers are not invested in trying to keep up the property in the same way.
A minimum qualifying household income for a timeshare starts at about $75,000. The minimum qualifying household income for fractional is about $150,000. With a higher household income twice as high* they can afford to seek higher quality standards and more personalized service. See IPS and other websites to look at actual property costs to purchase.
Slower Paced Vacation
If you scan the many travel forums, websites, blogs, newsletters and shows about European vacations, you’ll see one key descriptor appearing over and over: Slow Travel. It applies to so many items of interest for a good reason. Slowing down allows us to immerse ourselves in the culture and ambience and truly enjoy our time at the deepest level.
And why do you think fractional owners move at slower pace? Because they can! They have chosen this lifestyle because they value their leisure time and those with whom they share it. A search for luxury real estate in Italy or a villa in Provence brings you to the types of properties sought after by fractional owners.
Maintenance and Operation
Annual maintenance for vacation properties is a key driver for people who buy fractionals. Why keep up a property for a whole year that is rarely used? As one owner told us, “I had a lovely lake cottage for over 10 years but could never use it more than 4 weeks a year, and all the maintenance and upkeep became an increasing burden. Now, I live in a villa in Provence, France for 6 weeks a year, and that’s all I have to think about – those four glorious weeks in another culture! It’s the part of my life I value the most!”
Each owner pays a portion of the annual management fees and maintenance, relative to the % of ownership. They do not have to do the work themselves, and the costs are reasonable in our comparisons.
A couple from the US told us, “My Florida timeshare maintenance costs were $900/year for one week. The fractional maintenance costs for my Dordogne holiday property are $550/year for one month.”
We’ve heard similar disparities from other owners, and of course, much of it comes from the fact that the wear and tear on a TS is significantly higher.
Quality & Value
Some of the above items speak to the fractional quality factor, but it shows up in the location and aesthetics of the property. Not only the of construction, finishes, materials, and furnishings, but the desirable and exotic locations, which are always very high quality in fractionals.
Timeshare owners have filled TS websites and blogs with comments like, “Don’t do it! They are not a worthwhile investment. The quality was not as advertised. It was very hard to sell. I could vacation annually for less than what it cost me here.”
So we are no longer confused with timeshare and neither are our owners, and it’s not hard to draw conclusions. They believe as we do, that fractional ownership is a wonderful evolution that grew up with the idea of shared ownership and finally took its place at the pinnacle of vacation property ownership. It seems to say, “This is how to do it right.”
Want to know more? See our fractional FAQ page or drop Ginny Blackwell a line at: firstname.lastname@example.org.
Did you know?
The idea of shared vacation property originated in the 1970s in France. A resort developer in the Alps decided to sell shares in his property rather than trying to rent out the rooms. It worked!
*Footnote: data per fractional consultant DAVID M. DISICK