Unwind In Paradise! Vacation Homes Through Fractional Ownership

Vacation homes are the most extensive use of the fractional ownership model. After growing in popularity in Europe, the practice first reached the ski resorts in the U.S., then to the East and West coasts. Now fractional vacation homes are being developed all through the country, chiefly in Florida, in golf developments and in other resort areas.

Fractional ownership is also available at destination or residence clubs currently being constructed and operated by some key players - Ritz Carlton, Starwood, Four Seasons, Hyatt and others. These corporations manage sizeable resorts in California, Florida, and the East Coast. Residence clubs also exist on a smaller scale, often as a portion of a hotel or residential development whose major purpose is to lodge short-term guests or to sell residences to individual buyers.

In spite of the diversity of structures a fractional ownership vacation home may take - from luxury single-family coastal properties to what are essentially 5-star hotels and resorts; from coastal condo developments to residence clubs that are a portion of a larger development –- they all share a lot of general characteristics.

Most importantly, fractional ownership is not a timeshare. The distinction is that a fractional share owner has possession of a deeded share for a percentage of the property. In contrast, timeshare "owner" is entitled to use his property for specific periods of time; he does not have ownership rights in the property.

An alternative structure that is used at times for single-family vacation homes is the Fractional Property LLC, basically a holding company in which each share owner has an equivalent interest.

Whether the fractional share owner holds a deeded portion of the property or a interest in an LLC, there are a number of benefits. If the property goes up in value, owners' shares also go up in value. Share owners can buy, sell, trade or otherwise convey their fractional share of the property. Share owners, as members of the Property Owners' Association, have say in choices affecting their property. There may be tax benefits to the share owner from deducting mortgage interest or the fractional share of the depreciation on the asset.

A number of fractional vacation companies manage properties in numerous locations around the world. Owners can buy a fractional share in one of these properties, but are able to trade right of use to their vacation home for use of a property in a different location.

Fractional ownership vacation homes are administered by a property manager who sees to all business affairs, coordinates scheduling of owners' visits and may take care of numerous things to make the owner's arrival easy and effortless. Owners' individual possessions may be removed from their private storage area and placed in the home, prepared for their arrival. It is possible to have the refrigerator and/or liquor cabinet supplied with specified items; tee times, tennis lessons, child care, spa appointments and charter fishing can be set up.

A fractional share of a vacation home entitles the owner to a specified amount of use of the property. A 1/13 share means the owner enjoys four weeks in the property each year; a 1/6 share entitles one to eight weeks each year. Some fractional properties provide a fixed calendar, with owners' weeks rotating during the year so there is fair allocation of favorite holiday times. Some developments permit owners to trade time among themselves; others have clearly defined bidding procedures where an owner may have a number of fixed weeks per year and several floating weeks, to be determined year by year.

All the details of the legal and monetary structure of the fractional vacation property are transparently described in the deed, LLC Operating Agreement, and other management instruments. Most fractional homes have a monthly or quarterly fee assessment that provides for operating costs, management, taxes, insurance, repairs, landscaping, and a fund for furnishings replacement. Annual accounting of all costs and budget projections for the approaching year are made available to share owners for approval and comment.

The increasing popularity of fractional ownership vacation homes is explained by the striking benefits they provide –- particularly, that of having access to a luxury vacation home without the expense, liability or worries of owning it outright. No repairs, no shopping (unless you want to), no worries. All the owner has to do is show up, unpack the suitcases and – enjoy.

Financing options for fractional vacation homes will be covered in a separate article.