7 Questions you should ask when purchasing a Fractional Property
Fractionals have transformed the vacation ownership industry over recent years and are emerging as preferred alternatives to wholly owned vacation homes. Fractional ownership attracts consumers who can afford luxurious vacation homes but can't justify the cost and inconvenience of whole ownership when their use of the property is usually limited to only several weeks per year. Learn more: Fractional Real Estate 101 . Consumers are also drawn to the extensive amentities, five star hotel like services, high quality furnishings and finishes, desireable locations, exclusivity and maintenance free lifestyle offered by fractional projects.
While fractionals offer vacation home benefits at a fraction of the cost of owning an entire vacation home, the decision to purchase a fractional is significant. Fractional prices range from under $75,000 to several million dollars, depending on the size of the share, the square footage of the property, the location and the degree of luxury amenities provided. Consequently, your purchase of a fractional could prove to be a costly mistake unless you hve sufficient information regarding a particular fractional project and ask the right questions of the developer, the saleperson and yourself. The following 7 questions should be your guide to ensure you get the basic information you need in order to avoid the most common pitfalls and turn your purchase of a fractional into a successful, cost-effective and worry free venture.
1) Is this the lifestyle for me?
2) What is the ownership structure?
3. What is the purchase price and what are the maintenance fees?
4. What is the usage plan?
5. What amenities are included?
6. What are the rules and regulations?
7. If your purchase is out of the US, what additional things do I need to consider?
Is this the lifestyle for me?
Buying a fractional property is truly a lifestyle choice. Whether your second home is an hour away or a days travel away, you would be wise to make sure that the property you want to buy fits in with your lifestyle and the way you will use it. I caution you to set aside the emotion for a moment and use the more rational side of your brain to consider all the factors before you make your decision to buy. I have met way too many buyers who fall in love with a property and make a rash decision because they got caught up in the emotions of the moment without taking into consideration all the factors. I'm sure I'm not the only one who has come home from vacation having just bought a week at a timeshare and got home and wondered "what DID I do?" My suggestion would be to spend some time in the location of the fractional you want to purchase to ensure the locaiton, the property and the timeframe you are buying suit your needs.
What is the ownership structure?
With fractional ownership this is rarely an issue, but still needs mention to confirm your ownership position. A fractional purchaser typically receives an undivided percentage interest in fee simple title to an individual residential accomodation or property through a Tenents In Common or TIC. Fractional purchasers pay a one time purchase price in relation to his or her fraction, or share and puportional yearly maintenance fees that cover the expenses of operating and maintaining the fractional property. I some cases separage fees may be assessed to the use of certain amenities.
WHAT IS THE PURCHASE PRICE AND MAINTENANCE FEES?
Typically the purchaser of a fractional property pays the initial purchase price in purportion to his ownership interest, fraction or share. If you are buying a 1/12 share in a $1.2 Million luxury slope-side condo in Aspen, your purchase price would be $100,000. Your maintenance fees would be based on 1/12 of the cost to maintain the property. Ongoing maintenance includes the expected such as, utilities, housecleaning services, basic upkeep to the property, landscaping, snow removal if applicable and the like. In most cases there are provisions for major repairs and periodic replacement of furnishings, etc, know your financial responsibilties with regards to these items. The industry averages for maintenance fees (normalized to a weekly basis in order to allow for the differing sizes in shares) range from $750 to $2000 per week. In 2007, maintenance fees were up 9% from 2006. In order to spare yourself from any unpleasant surprises, understanding your fees is critical.
WHAT IS THE USAGE PLAN?
Second only to location in order of importance in my opinion is the usage plan. When you use the property, how often and for how long is obviously critical to getting what you want from owning a fractional property. There are fixed use plans and rotating plans and space available plans. There are hybrid plans that utilize a mixture of use plans. The key is to understand your usage plan. Understand how the reservation system works to avoid dissappointment in not getting the time you thought you were entitled to. For more information on the types of use plans available stay tuned for upcoming posts.
WHAT AMENITIES ARE INCLUDED?
One of the key differentiators between timeshares and fractional ownership is the level of amenities included with fractional properties. Luxury furnishings and fixtures properly maintained, access to common area amentiies such as infinity pools, restaurants, on-site gym and spa, access to off-site activities are a few of the types of amenities typically included. Are there memberships or discounts to associated golf courses, spas, and other activities available? Is airport pick-up available, what is included in the concierge service? Is maid service included? Refrigerator and bar stocking? Is in room chef services or massage? Know what additional services are available and what is the cost. The beauty of owning a fractional property is the feel of a five star resort, with ownership at a cost the covers only what you use. It's a beautiful thing.
WHAT ARE THE RULES AND REGULATIONS
Take the time to understand the rules and regulations regarding your property. The rules and regs are there to ensure your optimal enjoyment and that of your co-owners and neighbors. Ask for a copy of the rules and regs so that you fully understand the any restrictions regarding such things as guests, pets, quiet hours, common area useage rules and or restrictions, etc. Know the rules around the rental and sale of your fraction share. My recommendation is to look at the purchase of a fractional share as a personal use purchase, not an investment. Many do rent out part of their fractional to offset the cost but that is more exception than the rule. Luxury resorts in great locations as most fractional projects are generally appreciate over time. Historically fractional resales have held their value and appreciated, but as the industry is in it's infancy there is just not that much data available to justify a purchase solely as an investment strategy.
IF YOU PURCHASE IS OUT OF THE US, WHAT ADDTIONALS THINGS DO I NEED TO KNOW?
Given the current state of the real estate market in the US, many fractional buyers are looking abroad to find their fractional home away from home. Places like Mexico and the Carribean are seeing tremendous growth in sales of fractional properties as the baby boomers begin to retire and seek warmer climates in which to retire. Before you fall in love with that beach front condo in Cabo San Lucas, do your homework. My first suggestion would be to simply spend time there. Get to know the locals, the culture, the climate. Understand the language requirements, the currency, your ownership rights as foreigners. Understand the medical services available and the quality of care. If you have special needs, make sure they can be acoomodated. Mexico for instance has a top notch healthcare system on parallel with the US, but that may not be the case everywhere. Take the time to get to know your new home and you will ensure year after year of memorable experiences.
Most of what I have included here is not rocket science, but some suggestions on the things to consider when purchasing a fractional property. At the end of the day, it all comes down to basic due diligence with some gut instinct thrown in. For a list of due diligence questions go to http://www.breakawayllc.com/paradise.html and download a chapter from Paradise By The Slice. The best of luck to you in your purchase of your home or homes of your dreams.
While fractionals offer vacation home benefits at a fraction of the cost of owning an entire vacation home, the decision to purchase a fractional is significant. Fractional prices range from under $75,000 to several million dollars, depending on the size of the share, the square footage of the property, the location and the degree of luxury amenities provided. Consequently, your purchase of a fractional could prove to be a costly mistake unless you hve sufficient information regarding a particular fractional project and ask the right questions of the developer, the saleperson and yourself. The following 7 questions should be your guide to ensure you get the basic information you need in order to avoid the most common pitfalls and turn your purchase of a fractional into a successful, cost-effective and worry free venture.
1) Is this the lifestyle for me?
2) What is the ownership structure?
3. What is the purchase price and what are the maintenance fees?
4. What is the usage plan?
5. What amenities are included?
6. What are the rules and regulations?
7. If your purchase is out of the US, what additional things do I need to consider?
Is this the lifestyle for me?
Buying a fractional property is truly a lifestyle choice. Whether your second home is an hour away or a days travel away, you would be wise to make sure that the property you want to buy fits in with your lifestyle and the way you will use it. I caution you to set aside the emotion for a moment and use the more rational side of your brain to consider all the factors before you make your decision to buy. I have met way too many buyers who fall in love with a property and make a rash decision because they got caught up in the emotions of the moment without taking into consideration all the factors. I'm sure I'm not the only one who has come home from vacation having just bought a week at a timeshare and got home and wondered "what DID I do?" My suggestion would be to spend some time in the location of the fractional you want to purchase to ensure the locaiton, the property and the timeframe you are buying suit your needs.
What is the ownership structure?
With fractional ownership this is rarely an issue, but still needs mention to confirm your ownership position. A fractional purchaser typically receives an undivided percentage interest in fee simple title to an individual residential accomodation or property through a Tenents In Common or TIC. Fractional purchasers pay a one time purchase price in relation to his or her fraction, or share and puportional yearly maintenance fees that cover the expenses of operating and maintaining the fractional property. I some cases separage fees may be assessed to the use of certain amenities.
WHAT IS THE PURCHASE PRICE AND MAINTENANCE FEES?
Typically the purchaser of a fractional property pays the initial purchase price in purportion to his ownership interest, fraction or share. If you are buying a 1/12 share in a $1.2 Million luxury slope-side condo in Aspen, your purchase price would be $100,000. Your maintenance fees would be based on 1/12 of the cost to maintain the property. Ongoing maintenance includes the expected such as, utilities, housecleaning services, basic upkeep to the property, landscaping, snow removal if applicable and the like. In most cases there are provisions for major repairs and periodic replacement of furnishings, etc, know your financial responsibilties with regards to these items. The industry averages for maintenance fees (normalized to a weekly basis in order to allow for the differing sizes in shares) range from $750 to $2000 per week. In 2007, maintenance fees were up 9% from 2006. In order to spare yourself from any unpleasant surprises, understanding your fees is critical.
WHAT IS THE USAGE PLAN?
Second only to location in order of importance in my opinion is the usage plan. When you use the property, how often and for how long is obviously critical to getting what you want from owning a fractional property. There are fixed use plans and rotating plans and space available plans. There are hybrid plans that utilize a mixture of use plans. The key is to understand your usage plan. Understand how the reservation system works to avoid dissappointment in not getting the time you thought you were entitled to. For more information on the types of use plans available stay tuned for upcoming posts.
WHAT AMENITIES ARE INCLUDED?
One of the key differentiators between timeshares and fractional ownership is the level of amenities included with fractional properties. Luxury furnishings and fixtures properly maintained, access to common area amentiies such as infinity pools, restaurants, on-site gym and spa, access to off-site activities are a few of the types of amenities typically included. Are there memberships or discounts to associated golf courses, spas, and other activities available? Is airport pick-up available, what is included in the concierge service? Is maid service included? Refrigerator and bar stocking? Is in room chef services or massage? Know what additional services are available and what is the cost. The beauty of owning a fractional property is the feel of a five star resort, with ownership at a cost the covers only what you use. It's a beautiful thing.
WHAT ARE THE RULES AND REGULATIONS
Take the time to understand the rules and regulations regarding your property. The rules and regs are there to ensure your optimal enjoyment and that of your co-owners and neighbors. Ask for a copy of the rules and regs so that you fully understand the any restrictions regarding such things as guests, pets, quiet hours, common area useage rules and or restrictions, etc. Know the rules around the rental and sale of your fraction share. My recommendation is to look at the purchase of a fractional share as a personal use purchase, not an investment. Many do rent out part of their fractional to offset the cost but that is more exception than the rule. Luxury resorts in great locations as most fractional projects are generally appreciate over time. Historically fractional resales have held their value and appreciated, but as the industry is in it's infancy there is just not that much data available to justify a purchase solely as an investment strategy.
IF YOU PURCHASE IS OUT OF THE US, WHAT ADDTIONALS THINGS DO I NEED TO KNOW?
Given the current state of the real estate market in the US, many fractional buyers are looking abroad to find their fractional home away from home. Places like Mexico and the Carribean are seeing tremendous growth in sales of fractional properties as the baby boomers begin to retire and seek warmer climates in which to retire. Before you fall in love with that beach front condo in Cabo San Lucas, do your homework. My first suggestion would be to simply spend time there. Get to know the locals, the culture, the climate. Understand the language requirements, the currency, your ownership rights as foreigners. Understand the medical services available and the quality of care. If you have special needs, make sure they can be acoomodated. Mexico for instance has a top notch healthcare system on parallel with the US, but that may not be the case everywhere. Take the time to get to know your new home and you will ensure year after year of memorable experiences.
Most of what I have included here is not rocket science, but some suggestions on the things to consider when purchasing a fractional property. At the end of the day, it all comes down to basic due diligence with some gut instinct thrown in. For a list of due diligence questions go to http://www.breakawayllc.com/paradise.html and download a chapter from Paradise By The Slice. The best of luck to you in your purchase of your home or homes of your dreams.
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