Vacation Property Walkthrough: Timeshares And Fractional Ownership
Timesharing allows multiple purchasers to buy the rights to use a property for a specific time period, typically a one- or two-week period each year. A timeshare owner purchases only the right to occupy the property; the title typically remains with the principal owner. Essentially, a timeshare offers the opportunity to use a property for the same week or two each year, without the uncertainty and hassle of making reservations.
Timeshares can be structured in a number of ways. The traditional method is to purchase a fixed week (or two) at a fixed location. Another type of timeshare structure involves points or credits-based programs where people purchase points or credits that can be used at a variety of resort destinations. Certain programs allow the points or credits to roll over to the next year. Additional points or credits can be purchased for longer vacations, or for staying in larger or more luxurious units.
A timeshare has a one-time purchase price (much like a home), and many timeshare companies offer financing. In addition to the purchase price, each owner pays monthly, quarterly or annual maintenance fees. Maintenance fees are shared by all the owners and are used to pay for things such as property upkeep, taxes and insurance.
Ownership is priced according to a number of factors such as the location, resort amenities, season of interval and size of the unit. Some timeshares are offered in perpetuity, meaning they can be transferred to one's heirs or sold. Other timeshares last for a specified number of years.
Fractional ownership is another common investment structure for expensive assets including vacation homes. With fractional ownership, each owner holds part of the title. The deed to the property is split into several different pieces with one for each individual owner. As a result, if the property's value increases in value, so does the value of the fractional ownership. As with timeshares, each purchaser in a fractional ownership has the right to use the property for a specific time period; however, it is typically for more weeks than with timeshares. A property that is divided into 13 individual fractional interests would give each owner four weeks a year. Similarly, each owner would receive 13 weeks per year in a property that is split into four individual fractional interests. The larger the fractional interest, the more expensive the property will be (assuming all other factors are the same).
Like timeshares, owners pay monthly, quarterly or annual fees to help cover maintenance and upkeep costs, as well as insurance and property tax. The fees vary greatly depending on the property's amenities. A property manager usually handles the maintenance and scheduling responsibilities for the property.
As with all real estate purchases, it is important to consult with a qualified real estate professional and attorney when entering into a timeshare or fractional ownership program. Understanding the fine print can help buyers avoid disappointment and frustration down the road.
Vacation Property Walkthrough: Financing A Vacation Property