What is Fractional Ownership and what are the pros and cons over timeshare and freehold/leasehold?
Fractional ownership sits very much in the middle of timeshare and whole ownership and can be a great alternative to buying a holiday home outright.
A buyer purchases a stake in a property which entitles them to a certain number of weeks depending on how many other owners are part of the scheme. In some high end developments there may only be 3 other owners giving each a quarter share but the norm is usually 10-13 ‘shares’ giving usage of four or five weeks a year. Unlike with timeshare, you actually own a part of the freehold or leasehold.
- The big advantage of actually owning a share in the property is sharing in its financial fate should it appreciate in value. Timeshare products rarely hold their value and are usually sold on for far less than bought from new. Of course it could depreciate too, but so could a freehold property.
- Many fractional schemes are in luxurious estates with outstanding facilities in exclusive areas. You could own a piece of a French Chateau, a slice of a Scottish Castle, a share in a beachfront Barbados Mansion or equity in a Ranch in Santa Fe. By sharing the cost between multiple owners you get to enjoy the advantages of a much larger, luxurious property than a freehold budget would purchase.
- Spread of weeks is another plus as schemes oblige their owners to use their weeks at different times during the year so each owner gets a chance to visit in all seasons. If there are very few owners or ‘shares’ this becomes even more flexible.
- You have a much greater chance (than with timeshare) of staying in your same property each time.
- The running costs are shared between owners, so unlike with freehold, if something goes wrong or the property needs updating the cost is usually less.
- You still get all the same timeshare advantages of a management company taking care of the property. This means you can simply arrive, unpack and relax without having to worry about cleaning, shopping or making up beds.
- The management company will also normally handle any rentals if this facility is part of the scheme.
- Friends and family can still use your property instead of you, without having to pay additional fees (like with some timeshare products).
- If your property is on an estate or farm you may also be entitled to a share in the produce (ie wine, olive oil).
- Much like the timeshare exchange system, some schemes have links with other fractional developments meaning you could try out a different location for a change.
- Short-term ownership is rarely offered and schemes are usually freehold with leases of 50 to 99 years.
- It is practically impossible to secure a mortgage on a fractional property so you will normally need cash to purchase. The main issue is lenders can’t take a security on it if there are multiple owners.
- Though we said above you my benefit from appreciation of your asset, the fractional market is very young and as such the resale market is still an unknown quantity. Owners are entitled to sell their shares on, and can usually use their own broker or the onsite representative but there is still no guarantee that the share will be worth the same as was paid for it.
- It is usually a LOT more expensive than timeshare. In some cases the cost of the share can be the same as a freehold property – although you will be buying into a much larger property. For example a one-10th share in a large five-bedroom property on a luxury estate could be in excess of £100,000. The advantage of course is you are buying the right to use a £1 million property (along with 9 other people) with all the space and luxury facility that comes with it, as oppose to spending the money on a small one bed apartment for example.
- Again although we said above that you should in theory be able to stay in the same property each visit, in reality this isn’t always the case and some resorts with multiple units may have additional regulations that allocate you a similar unit instead.
There are many different types of ownership and investment models popping up. In our new experience driven quest of holidays and leisure time that offer something out of the ordinary, you may well find that a ‘hybrid’ product suits you better such as a Real Estate Equity Fund.
This is another alternative to owning a property outright that offers a way of participating in the ownership of a luxury home. This type of real estate fund selects luxury properties in multiple locations which it will rent out to other high net worth individuals. The income is pooled to offset the high operation costs and investors are rewarded with holidays in homes in the portfolio. After a defined amount of time (ie 10 years) the portfolio of property is sold and the investors paid out with their initial investment and any appreciation gains.
With this model you get to holiday and make money at the same time! Of course ALL investments can go up as well as down, but as a return on capital is the goal for this product, making a profit should be more predictable and, unlike a freehold or timeshare, your money is only locked in for the defined period set by the fund.