Fractional shares (“fractionals”) are sometimes confused with other vacation property options, such as time shares and condo hotels. While there are similarities, there are a number of things that make fractional shares unique, and thus suited for a certain type of vacation property buyer.
Fractionals, also referred to as private residence clubs, are similar to condo hotels in that they can be put into a rental pool when owners are not using property. Also, fractionals are considered a second home purchase with interest and equity benefits that go along with ownership. But unlike a condo hotel, fractionals are typically luxurious private homes located in most exclusive areas.
Although they are available in studio and one-bedroom units, most are larger with several bedrooms, family rooms, pools, decks and outdoor recreation areas, and a host of other features that make them exclusive properties. A fractional property would be out of price range of most individuals, but because ownership of home is divided between a small group of people, this upscale lifestyle becomes affordable.
Typically fractionals are split in 4 to 8 shares, which means that arranging time at property is less competitive than other types of shared ownership properties. There is no requirement that you have contact with other owners, but many do develop friendships or at least get to know each other at annual ownership meetings. How involved you want to be with other owners is up to you.
Even those that could afford to purchase a million dollar vacation home may only be able to use property for a total of a month or two during year and might feel that it is not a wise investment. Fractionals allow owners to decide how often they want to use property, with packages ranging from two weeks to three months (not consecutively). Prices vary accordingly.
This is an ideal situation for those who enjoy staying at quality lodging when on vacation and prefer to put money toward their own investment, rather than putting that money into pockets of a hotel chain or resort management firm. When you own a fractional, you can rent it out yourself or offer it to friends and other family members. And if you decide that you want to sell your share of ownership, you are free to do so at any time. Or you can will it to your children or other designee.
Fractionals first became popular in posh ski resorts of Colorado and Utah and beach communities of California and Caribbean but have spread to other areas of country, including Florida. In fact, fractionals are fastest growing sector of timeshare industry, growing over three times faster than industry as a whole
One of reasons they are so popular is because since you purchase deeded ownership to your share of property, banks offer more favorable financing for fractionals than for other shared ownership options, often treating them as second home purchases. Because there are far fewer fractionals available than timeshares, their value tends to increase, making them a better bet for banks to finance.