Fractional Ownership: Getting A Piece of the Pie

Attorney John Gosselin is the Managing Partner of Gosselin & Associates, PC in the Boston area. John recently purchased a fractional vacation home and wrote a brief article about what to consider on purchase. I find John's article to be generally well-written and recommend it to you. My thoughts on the article are below:

"They're Not Timeshares"
What's a Timeshare? The term "timeshare" has become somewhat a term of art in the nation's vernacular, it conjures up images of hard-selling elderly people on a $20,000 purchase at a crowded resort with a long buffet line and buyer's remorse when arriving back home and thinking "why did I just spend all that money to go back to a resort once a year when I could just pay at time of service?" Timeshares in the legal sense are merely pre-paid vacations at the resort. They give the timeshare owner the right to stay at the resort for a week or two per year for a fixed term such as 10 years. Once the ten years is over, the timeshare ceases to exist. Timeshares are legal "licenses" where the resort owner has merely given permission to the timeshare owner to stay. There is no ownership of real estate and therefore no hope of appreciation or significant resale value. This is not a slam on the timeshare industry because, by pre-paying, the timeshare has provided a significant savings for the timeshare owner over paying at time of stay.

How is the Fractional Vacation Home (FVH) Different? Night and Day. While there are many fractional resorts that now offer a very small share of ownership in the resort as an ownership alternative to timeshares, the following are key differences of a FVH:
1. FVH is a stand alone property;
2. FVH is owned with a few other people (generally less than 11 in California);
3. FVH is usually within 3 hr drive from your primary residence;
4. Owners receive a grant deed to a undivided fractional interest of the property;
5. Owners may resell their fraction (yes, as with every other piece of real estate there is a resale market);
6. Owners fraction value will track with the surrounding real estate market;
7. Owners may treat their fraction as an investment for tax purposes and utilize their expenses as deductions and even take advantage of Internal Revenue Code Section 1031 in certain situations (see your tax advisor obviously because situations differ);
8. Owners may borrow against their fraction without being on the same loan as other owners;
9. Owners have a voice in the management of the property;
10. Owners have responsibility for ongoing maintenance costs in proportion to their ownership interest;
11. Owners generally get a lot more usage of the property (at least 5 weeks per year and up to 12 weeks).

More on this soon...