Is a piece better than the whole pie?

Castles in the Sand

A very long time ago in the history of writing this column, I discovered fractional ownership as a new and interesting real estate topic. I quickly dropped the subject when I realized it wasn’t something that had caught on in great numbers across the vacation real estate industry. Well, recently there was an extensive piece in The Wall Street Journal about fractional ownership which sparked my interest again, so I took another look.

As all of us who live in Florida, and certainly on Anna Maria Island, know, second homes are the ultimate discretionary purchase. Many people would like to have one but no one really needs one. Therefore, it would appear that fractional ownership arrangements would be the perfect fit for potential second homeowners. But are they and how do they compare to timeshares?

Timeshares and fractional ownerships are very similar in that they can be sold, gifted or inherited, and require annual maintenance fees. Fractional owners receive a real property deed whereas timeshare owners receive a type of deed but specifically for an assigned period of time, usually one or two weeks. In addition, fractional properties are usually organized into residence clubs, which appeal to more upscale buyers with higher prices, nicer amenities and fewer owners than timeshares, making the concept as well as the properties more exclusive. But be careful. The more fractions that are sold, the more they resemble timeshares.

Also, proponents of fractional properties point out that a purchase of a fractional property can be arranged for much longer periods of time, creating more of a second home concept instead of just a vacation getaway. In addition, the case can be made that fractional ownership provides equity benefits with more of the possibility of making a profit when it’s sold, but like all real estate, there are no guarantees. Although timeshares can appreciate in value, depending on the property and location, typically they do not. Of course, conventional financing for both fractional ownerships and timeshares is near to impossible.  Purchases are generally made with cash.

So, who are the buyers of fractional ownership? They are generally people who can afford a vacation home but don’t have the time to use it on an annual basis and just want a winter or summer getaway. Or, as the Wall Street Journal piece pointed out, they may be people who want to spend months hopping from one fractional to another around the globe.

Although there are fractional ownership properties in Florida, I couldn’t find any on Anna Maria Island. Two of the big players in fractional ownership clubs are Timbers Resorts and Elite Destinations. There is also the Luxury Fractional Guide online to check out if anyone is interested in further research, and you should do your research. Since fractional ownership clubs make their money on selling the properties and reselling the properties, it’s important to verify that their maintenance program is well funded and well managed.

The fractional ownership concept makes me a little uneasy, but for owners who want a property in an area with escalating property values, it may be the only way to spend time there for more than just a quick visit. While I was doing my research, I found that Cabo San Lucas, Mexico, had several fractional ownership clubs. It just so happens that I’m headed there at the end of the month. What are the chances of me coming back with a new deeded property? I don’t think so; I want all of the pie.

More Castles in the Sand:

2019 real estate trends

Red tide, hurricanes and interest rates

No Christmas gifts for foreign buyers