Fractional ownership is a method in which several unrelated parties can share in, and mitigate the risk of, ownership of a high-value tangible asset, usually a jet, yacht or piece of resort real estate. It can be done for strictly monetary reasons, but typically there is some amount of personal access involved.
In the past several years, the term “shared ownership,” has been used increasingly as a catchall phrase to encompass timeshare, fractional ownership and even both types of destination clubs.
At first glance, this seems quite logical and appealing. Isn’t it nice to have these disparate ownership types classified under one all-inclusive category?
Isn’t it convenient for professionals in different areas of the vacation home industry to attend the same meetings, share ideas online and read the same publications?
While I appreciate the attractiveness of this new-found togetherness, I’ll pass on the opportunity to sing kumbaya.
Fractional ownership, I believe, is significantly different from timeshare and must be clearly distinguished from it in order to maximize sales success.
The reason, simply and bluntly, is that significant numbers of buyers still figuratively “runs for the hills” at the mere suggestion that a property may be a “timeshare.” (The reason will be discussed shortly.)
I write this reluctantly and with apologies to my numerous friends active in timeshare and to the industry leaders who have labored long and hard over the decades to improve timeshare’s public image. I believe that a negative attitude toward timeshare is no longer justified; nevertheless, it continues, regrettably, to exist in the mind of some potential purchasers.
For this reason, fractional ownership has everything to lose and nothing to gain by being identified as “shared ownership” or as “timeshare.”
To clarify some of the major distinctions between the two property types, let’s examine some objective differences between fractional ownership and timeshare:
1. Number of owners per unit.
Timeshare is designed to have fifty-two owners per unit. Fractional properties have about sixteen to four owners per unit.
2. Ranges of owner vacation use per year.
Timeshare owners usually purchase one week of use per year or sometimes a package of two weeks. (Owners on a budget may choose to vacation for one week every other year.)
Fractional owners enjoy from about three to twelve weeks of vacation use per year.
3. Differences in the atmosphere between fractional ownership and timeshare properties.
With about fifty-two owners per residence, timeshare properties will experience considerably more traffic and more wear and tear.
With fewer owners per residence, fractional properties offer a more relaxed vacation experience. There is far less hustle and bustle from transient vacationers arriving and departing. Also, service is more personalized, since the staff can get to know owners better.
4. Differences in household income of fractional vs. timeshare owners.
The minimum qualifying household income for timeshare starts at about $75,000.
The minimum qualifying household income for fractional properties is about $150,000. (This is approximately in the top five per cent of American households.)
For private residence clubs, minimum qualifying household income is about $250,000. (This is approximately in the top two per cent of American households.)
The significant differences in household income result in a clientele for fractional ownership that is distinctly different from the clientele for timeshare.
The fractional clientele is more demanding. The owners want what they want when they want it. They require very high levels of quality and personalized service. They value on their precious vacation time and are willing to pay for the convenience of having others serve them.
5. Differences in quality level between fractional ownership and timeshare properties.
Most fractional properties tend to have a better location within the resort, a higher level of construction and furniture, fixtures and equipment as well as more amenities and services than most timeshares.
Since owners of fractional properties have a larger financial stake in their property and higher disposable household income, they have the motive and means to keep their property in good repair.
6. Differences in numbers of total units in fractional vs. timeshare properties.
Timeshare developments tend to be large—sometimes in the hundreds of units.
Fractional developments don’t often exceed fifty units. As a result, vacations at fractional properties feel more intimate, personalized and exclusive.
7. Differences in purchase motives of fractional vs. timeshare buyers.
Timeshare purchasers are often motivated more by vacation exchange opportunities than by the particular property to which they have a deeded week. They may feel little loyalty to the property where they just happened to enter the exchange network.
Fractional owners have usually visited the resort or city where they own their property a number of times prior to purchasing. They think of their fractional property as their second home, and have feelings of loyalty to it and to the area.
Nevertheless, many fractional owners appreciate the potential of not being tied exclusively to vacationing at their own property. They are now willing to participate in fractional vacation exchanges offered by several companies—IF the exchanged properties can meet or exceed the quality level of what they own.
8. Differences in the Unique Selling Proposition of fractional ownership vs. timeshare.
Timeshare is offered as a smart, money-saving alternative to hotel stays and vacation rentals. It is also a way to insulate buyers against inflation in the future cost of vacations. Timeshare makes vacationing possible for people who would otherwise have been unable to afford yearly vacations.
Fractional ownership is offered as a smart, money-saving alternative to whole ownership. Purchasers buy only the amount of vacation use that they can realistically enjoy and pay only a fraction of the acquisition price and annual upkeep.
In some instances, fractional ownership enables purchasers to own a higher quality property than would have been possible with whole ownership. Or, fractional ownership makes possible the acquisition of multiple vacation homes at dissimilar destination resorts.
In many cases, fractional buyers present the same economic profile as whole ownership buyers.
9. Differences in resale potential between fractional ownership and timeshare.
Purchasing a timeshare is in a way like taking title to a new car. The car loses value the moment you drive it out of the showroom. Similarly, timeshares, if they can be resold at all, tend to depreciate.
Timeshares, in general, do not hold their original market value. The substantial marketing and sales expenses incurred in selling a single residential unit fifty-two times—which may amount to 50% of the original price—are passed on to purchasers. When these purchasers try to resell, these marketing and sales costs do not translate on the open market into real estate value.
In addition, the vast numbers of essentially similar timeshares offered for sale must compete for purchasers not only against each other, but also against new product that comes on to the market.
Fractional ownership, on the other hand, is similar to deeded ownership of one’s primary residence. Historically, fractional ownership properties have proven to perform at resale like whole ownership vacation real estate in their local market. In fact, in some cases, fractional ownership resale values have out-performed those of whole ownership properties.
Purchasers of fractional ownership obviously seek to enjoy the vacation use of their property. However, they also expect it to hold its value and appreciate over time. This is a key reason why buyers who want an investment in real estate prefer fractional ownership and turn away from timeshare properties.
10. Differences in the public image of timeshare vs. fractional ownership.
In the 1960s and 1970s timeshares in the United States had a bad reputation because some developers over-promised and under-delivered. In addition, high-pressure sales tactics put off many people.
To remedy the situation, all states passed stringent disclosure and other consumer-protection regulations. Also, the timeshare industry’s professional organization, ARDA, adopted a code of business ethics for its members.
In the 1980s, when major national hotel brands such as Hilton and Marriott entered the industry, they improved the quality of the timeshare experience, legitimized it and lent their credibility to it.
Nevertheless, in the minds of some people today, timeshare has not entirely lost its stigma.
Fractional ownership, on the other hand, is burdened by none of this baggage.
In the United States, it started in the 1980s, primarily in New England and Canadian ski areas, then it spread in the 1990s to western United States ski areas. Toward the end of the twentieth century, national luxury hotel companies, such as Ritz-Carleton and Four Seasons entered the industry, thus adding the power of their branding to fractional ownership.
Around the same time, the fractional jet and yacht industries ran successful advertising campaigns that persuaded consumers that it was smart to share ownership of super-luxury possessions. The word fractional became associated with glamor, luxury and living the lifestyles of the rich and famous. So, the fractional industry took off (no pun intended) both figuratively and literally.
And what is the one similarity between fractional ownership and timeshare?
The inconvenient truth is that legally both fractional ownership and timeshare just happen to be defined as “shared ownership” in just about every country in the world and fall under the same or similar rules and regulations.
Now, it seems to me that people who want luxury vacations and a real estate investment need to understand that fractional ownership is the name of what they want. After all, why should the tail (i.e. a shared legal definition) wag the dog (i.e. the luxury vacation experience and solid real estate value)?
So, how should a sales person respond to a customer asking, “Is this a timeshare?” How about this answer:
“Are you thinking about resale value?” [Answer, “Yes”]
“Then, you’ll be pleased to know that fractional ownership offers a deed similar to that of your primary home. You can resell your fractional property through real estate brokers, and resale values typically follow values of whole ownership properties. Is this something that interests you?”
The bottom line: Fractional ownership vs. timeshare.
The ten objective dissimilarities outlined above between fractional ownership and timeshare are valid points of difference.
And, the one similarity in legal treatment seems rather minor relative to the quality of vacation experience and real estate investment that fractional ownership offers.
So, let’s stop calling fractional ownership “timeshare” or even “shared ownership.” Technically, they both may be fruit, but the experience of each is different. And let’s end this needless confusion and silly discussion once and for all!
It’s high time to find out from prospects what quality of vacation experience they desire and what investment objectives they hope to achieve through ownership. Then, offer them the type of property they say they want!
What do you think? Are fractionals and timeshare the same to you? Should they both be classified, as “shared ownership”? How do marketing and sales programs differ, if at all? What other differences do you believe exist between fractionals and timeshare. We value your ideas and invite your response.