Fractional ownership vs. private residence clubs and destination resorts

The success of fractional ownership as an investment proposition and as an alternative to sole ownership has spawned many variations on the model. Because these ownership structures developed organically over the last few years, the definition varies widely. Therefore, it is critical that each offering be judged on the merits of the underlying property, the management & services offered and the legal structure of ownership. There are certain fundamental differences however, between fractional ownership and other shared time structures:

  • Private residence clubs sometimes function on a fractional ownership model. Investors are ‘members' of a club that holds a portfolio of luxury properties. Members' usage time is commensurate with the amount of their investment. In many cases, membership grants only the right to use the club's properties and services, without title to the properties. There are some exceptions where members are actually owners in the underlying equity. This important distinction should factor into the buyer's decision about the value of the investment.
  • Another variation is the destination resort. These properties, most often hotel rooms, suites, or vacation villas, are typically located on property owned and managed by a hotel developer who provides the services expected of a luxury hotel or resort. Once again, ownership is rarely part of the model: buyers merely purchase units of usage time. Thus, they do not benefit from any appreciation of the underlying property. In any case, as these properties are essentially units in an existing hotel or resort, it's impossible to make real market comparisons on which to base a true valuation of the property. These properties are essentially ‘worth' whatever price tag the developer puts on them.

Fractional ownership or any of these alternative models is primarily a lifestyle investment. While there may be an investment component to the purchase, these options are most suitable for buyers looking for a hassle-free alternative to sole ownership in a location that they love.

     
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