You may have heard a lot lately about fractional ownership. Companies are probably targeting you with ads that include pictures of luxury properties on a beach or as part of a ski resort. There are hot tubs, amazing food, and exclusivity.
This can all be yours for a week at a time. Whether you prefer summer vacations or winter trips, all you have to do is sign the dotted line and become a fractional owner.
Sometimes property owners and fractional ownership companies put ads online and in forums where real estate listings are posted. You wonder, “How can these incredible places be priced so low?”
Then, you read the fine print and discover that the ad or listing is for a fractional ownership property. You buy into the building or apartment at a certain amount that grants you a share of use every year.
Hmmm, this sounds an awful lot like a timeshare, right? Well, it’s close. What is the difference between timeshare and fractional ownership?
There are a lot of similarities between timeshares and fractional ownership. They both have their benefits, but there are also a lot of drawbacks to make you wary before you sign.
Let’s explore a bit about where they are the same and what sets each apart.
The Fractional Ownership Basics
At a high level, fractional ownerships are simply a way of repackaging the timeshare. For years, the timeshare industry has been beaten up and gotten a bad reputation for scams, inflexible contracts, and poor value for money. This happens, despite their efforts to mask their track records.
Now, they’re rebranding similar agreements as fractional ownership. “No, it’s not a timeshare! Totally different!”, companies will swear.
Basically, fractional ownership properties are like timeshares except they are done on a smaller scale and usually cost you more money.
There are fewer owners, so you have more control over what happens at the property. You’re not subject to the whims of an adversarial management group over which you have no control. You hire and employ the management group, and you can change if you want.
With fractional ownership you have to manage:
- Booking Arrangements
- Other operating expenses
Pro Tip: The other owners matter much more in fractional ownership agreements. You’re going to have to make management decisions with them and relationships are much closer. The people you partner with matter.
Here are some of the things you should know about fractional ownership:
Rule 1 – Fractional Ownership Property is More Expensive
If you’re wondering, “What is the difference between timeshare and fractional ownership?”, the first thing you should know is that fractional ownership will cost you more money.
With timeshares, the timeshare companies can spread the cost of building and maintaining properties across more owners. Timeshare companies have thousands of customers, all paying contract fees, maintenance fees, services fees, and a slew of other fees.
Still, there are more of them, so, in general, timeshare ownership is cheaper than owning a fractional property.
With fractional properties, there are fewer owners, usually eight or so of them, and the properties are more in the higher-end of the market. Think beachfront property in California or a chalet in a luxury ski resort.
You’re going to be paying more money every year to stay in the fractional property. Besides general ownership costs. You’re paying for all of the landscaping, cleaning, and other upkeep.
Perhaps the only bargain with regards to cost is that, in fractional properties, you’re not paying for hundreds of employees’ salaries as part of the plan.
Bottom line – Expect to pay more with fractional ownership because there are fewer owners and properties are generally more expensive. Fractional ownership can run you into the six figures, while a timeshare contract can be as little as $2,000.
Rule 2 – What is the Difference Between Timeshare and Fractional Ownership? – You Actually Own a Fraction of the Property
This is one of the biggest differences between timeshare and fractional ownership. At least fractional ownership gives you a claim over the property. With a timeshare contract, essentially you have a claim to what is essentially a service.
Yes, in a timeshare you can own a claim on a specific unit, etc., but fractional ownership actually means you have title rights over the property. Yes, that is correct. You own the property instead of entering into a contract with a company.
There are contracts you’ll need for a fractional property like cleaning, landscaping, etc., but your name is on the title.
Rule 3 – Fractional Owners Have More Upside
Sure, there are some nice timeshares out there. Amazing properties even. But you only get to enjoy the benefits of timeshare ownership when you’re walking around the property for two or three weeks a year.
You’re getting a service, and sometimes that can be a lot of fun. However, when you think about how many thousands of dollars you’re putting into owning a timeshare, it’s a real shame you don’t get to participate in any of the upsides.
If anything, owners don’t have much incentive to keep properties in as good condition as fractional properties. They have people paying them thousands of dollars a year, and the more costs they can cut, the more money goes into their pockets. That’s why you hear a lot about timeshare properties in disarray or resorts where service has fallen off.
Imagine if timeshare companies paid you a dividend of their profits or let you participate in the appreciation of their property. Yeah right! That’ll never happen.
A positive about owning a fractional property is that you participate in the upside. Because your name is on the title, the property is yours, and you get a fraction of any appreciation when it comes time to sell.
Rule 4 – It’s Easier to Get Out of a Fractional Property
We all know the nightmares of trying to get out of a timeshare property contract. It is often a long, frustrating process.
Timeshare companies know they typically present something much different than reality. Unscrupulous timeshare presentation sales representatives stretch the truth and sometimes outright lie to get people to sign.
The contracts are incredibly strict.
Fractional ownership is more complex than selling a house or commercial property with a single owner, but it’s still a ton easier than getting out of a timeshare contract.
When you want to get out of your fractional ownership property, you simply have to sell your shares to an interested party. The property is appraised and divided by the number of owners. That’s how much it will take to sell your fraction.
The good news there is, as we stated, fractional owners, get to keep proceeds. You get the difference between what you paid and what you sell the property for.
Insider Tip – While the fractional property will be more liquid than a timeshare contract, a sale will still take longer than selling your typical home because there is a smaller pool of buyers. Only people with investments or large amounts of cash will be able to buy.
Rule 5 – Fractional Owners Have to be Involved
Your average fractional property will have anywhere from four to over ten buyers. Generally no more than 20 owners.
If you’re buying into a property that’s worth millions of dollars, that’s a relatively small number of people in charge of an expensive asset.
The expectation is that fractional owners will be involved in decisions that impact the property.
You’re not going to be scheduling cleaners or deciding what type of flowers to plant in the garden.
You can if you want, but most fractional properties hire property managers to manage operations.
However, when there is money that needs spending to fix things or make additional investments to help the property retain its value, you make the call.
If you’re not satisfied with the service you are getting from your property manager, you and the other owners can decide to fire them. Ultimately, the fate of the property is in your hands.
This is a far cry from what timeshare owners get. If you have complaints or suggestions, you call a toll-free number and wait on hold. You’re treated like a customer rather than an owner.
The Bottom Line
Comparing fractional ownership with timeshare ownership can help you decide which suits you best and learn some of the pitfalls of each. They’re quite different, though they operate on similar concepts.
There is some overlap, but they are each distinct. With fractional ownership, you own part of the property. You can exit more easily.
Getting out of a timeshare contract requires professional support from experts with industry experience who know the way timeshare companies work.
The problem for most people is that, even though they may want the benefits of fractional ownership, they can’t afford the higher costs associated with the property.
Their budget leaves them feeling like the timeshare ownership is the best option for them when they would be better off staying away from the timeshare altogether.
Every year, thousands of people end up in timeshare contracts that they regret and spend thousands of dollars that they don’t have. Learning more about the timeshare industry can help you avoid some of these common pitfalls.
For more information on timeshare exit support and to hear more about timeshare and fractional ownership, contact us today!