Perhaps you’ve been considering a second home purchase but hate to make a huge investment for what may amount to only a few weeks of usage per year. You might want to consider fractional ownership.

When Steve Dering, founding partner of DCP International, initiated the concept of fractional ownership communities more than a decade ago, he was inspired by seeing so many families in the resort community of Park City, UT, spending what often amounted to millions on vacation homes they only used for a few weeks out of the year. “My idea was to get people more services and amenities and make their ownership price more commensurate with their use,” Dering explains.

The result was the first resort equity residence club project at Deer Valley Resort in Utah. Today, DCP partners with developers at over two dozen residence clubs in the United States, Mexico, Bermuda and Italy, including two in North Carolina and four in Florida.

Why Consider Fractional Ownership?

Unlike the more common concept of timeshares, fractional ownership actually gives owners a deeded interest in a resort property to which they may have access one-twelfth to one-quarter of the year, sharing a luxurious home with several other owners for a fraction of the price of a fully owned resort residence. “Fractional ownership is based on the concept of value and rationality,” explains Richard Ragatz, president of Ragatz Associates, a long-time market research firm for the resort residential community. “Fractional ownership is based on the amount of discretionary income you have and how much time you will actually use the property.”

Fractional ownerships work in a variety of ways, but most allow all owners in the property to get a fair share of “peak” weeks at the resort. If the fractionally owned residence is in a ski area, for example, then six owners may get two weeks each during the winter season and other weeks spread throughout the year.

“Research shows that most people who own a second home only use it 30 to 45 days a year,” says William Schroeder, Sales Director with Oceânico Group, which began in Portugal, and will soon have fractional ownership resorts in the U.S. as well. Their newest planned property stateside is the Little River Golf and Resort just outside Pinehurst, NC. In addition to an 18-hole championship golf course and a variety of fitness and dining amenities, the resort will soon offer fractional interest in new villas on the property.

The advantages to fractional ownership are many, particularly for owners who don’t plan to spend a lot of time at their second home. A residence club provides home maintenance, access to resort amenities, assistance with unit rentals for weeks when one prefers to rent the unit out instead of using it, the ability to leave the property to one’s heirs, a fully furnished residence, concierge services, and usually, a resale arm that will help owners market their fractional if they want to sell or step up to a new or more expensive option later.

Fractional ownership can also be a great way to try out a resort area before investing a large amount of money in a second home. Ragatz says there is definitely a “step-up” process among a significant percentage of fractional owners. “Twenty-five percent of people who become fractional owners previously had a timeshare,” he says. And many fractional owners go on to purchase interest in a larger fractionally owned property or a fully owned single-family residence.

Tips for Fractional Buyers

Of course, fractional ownership isn’t for everyone. Those who plan to use their second home every weekend of the year, for example, are probably better served by purchasing full ownership in a residence. It’s important to keep in mind as well that the home’s furnishings and interior décor will not be of the owners’ choosing, nor can owners add decorations or personal items to their fractionally owned homes.

Contrary to popular belief, however, fractionals are no harder to sell than conventional real estate. Dering says that while fractional purchases have slowed down alongside purchases in the general real estate market, there is greater interest now in fractional second home ownership because people are looking for more value for less investment. Schroeder agrees, explaining that fractional ownership isn’t an investment in the same way that general real estate is. “It’s a lifestyle choice,” he says.

Ragatz points out that people who buy fractionally owned homes are buying them for recreation, more than for long-term profit. Nevertheless, he advises potential buyers to carefully consider the developer of a fractional property before buying and to make sure, particularly if a residence club isn’t fully built yet, that the developer has the wherewithal to complete construction in an uncertain economy.

Prospective buyers should also make sure that the development company has a program for helping owners with resales and “stepping up.” Ragatz advises buyers to have a clear understanding of how the fractional’s use and reservation plan work, because it varies from one residence club to another. He cautions, “Make sure the amount of time you buy fits your vacation patterns.”

For More Information

DCP International
www.dcp-international.com

Oceânico Group
www.oceanicogroup.com