Just about everyone has heard of a timeshare, which essentially involves using points to stay at different resort properties for a week or two out of each year. It’s a great alternative for people who are interested in buying a vacation home but either can’t afford the type of property they want or wouldn’t be using the vacation property often enough to warrant spending the money on it.
It’s not uncommon for the term “shared ownership” to be used to describe a timeshare. It’s also not uncommon for the term to refer to fractional ownership as well. The problem is, fractional ownership and timeshare are two different things.
What is a Timeshare?
A timeshare gives multiple purchasers the opportunity to buy the rights to use a vacation home for a certain time period – usually one or two weeks period each year. However the title remains with the owner, and the purchaser only reserves the right to use the property. The main advantage of owning a timeshare is the ability to use a vacation home for the same week or two every year without having to deal with the nuisance of making reservations.
The traditional way to buy into a timeshare is to have a fixed week at the same location. Another type of structure involves using points that can be used at a number of different resorts across the globe. Some programs even let the points to be rolled over to the next year.
In addition to a one-time purchase price, purchasers must also pay maintenance fees, either monthly, quarterly or annually. These fees are shared by all owners to be put towards property maintenance, management, taxes, and insurance.
What is Fractional Ownership?
Fractional ownership allows each owner to hold part of the title on a vacation home which is divided into a number of different pieces that gives each individual owner part of the deed. This is the main difference between timeshares and fractional ownership.
It lets purchasers have their stake in a real valuable asset without having to pay in full for the whole property themselves.
Here are some distinctive differences between the two.
Number of Owners Per Unit
Aside from the share of the title as with fractional ownership which timeshares do not involve, there are other major differences between these two structures, including the number of owners per unit. With a timeshare, there can be as many as 50 owners per unit. In stark contrast, fractional ownership typically has as little as four owners to no more than 15 or 20.
Amount of Owner Use
Since there are fewer owners involved with fractional ownership, this structure gives owners many more weeks per year to use their property. While timeshares and fractional ownership both involve the right of the purchaser to use the property for a certain time period, fractional ownership typically comes with more weeks in the year to use the property than with timeshares.
Usually, one week per year (and sometimes two) is typical with a timeshare. On the other hand, fractional ownership allows anywhere between three to as many as 13 weeks per year to use the property. With fewer owners, fractional ownership properties are subject to less physical wear and tear.
Ability to Re-Sell
Timeshares have traditionally been hard to resell. Investors are typically not interested in purchasing a timeshare because of the loss in value from its original value at resale.
Fractional ownership in a property is easier to resell because it is seen as actual “real estate” and can be marketed as such, and can therefore be resold through traditional real estate brokers just like any other type of housing.
How Equity is Distributed
With fractional ownership, the purchaser actually owns partial equity in the vacation home. That means each purchaser will be able to take advantage of any increase in value over time. Since ownership is not distributed with a timeshare, this distinct advantage is not available to purchasers. The owner is only buying a week or two per year to dwell in a property, with no change in value of the actual property to benefit from.
The Bottom Line
Before you decide to take part ownership in a vacation home, be sure to distinguish between a timeshare and fractional ownership so you know precisely what you’re getting out of it, and what you’re not. Ask yourself what your ultimate goals are. The experiences that each can bring you are certainly different.