With so many developments challenged by a large volume of unsold unit many developers are considering converting a portion of their project to Fractional Sales.

What is a Fractional Sale versus a Timeshare?

Because there are so many different types of timeshare purchases where the setup could include a set week each year, points program, etc.

Wikipedia defines a timeshare “as a form of ownership or right to the use of a property, or the term used to describe such properties. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each sharer is allotted a period of time (typically one week, and almost always the same time every year) in which they may use the property. Units may be on a part-ownership or lease/”right to use” basis, in which the sharer holds no claim to ownership of the property.”

Many purchasers of timeshare properties have not always found their purchase beneficial, as they do not obtain true management rights over the property, which could lead to high yearly fees/assessments, or the ability for an increase in property value or appreciation. Timeshare purchasers basically pay for the useage of a condo and cannot foresee future costs or any return on the high investment over the years in these costs or fees.

A fractional residence is an actual purchase of real estate in which the buyer receives title and a deed to the property. The only difference in the fractional purchase versus an individual purchase is the buyer is only responsible for a percentage of the cost to buy the property. Many second home and vacation home buyers have found that they only use their property a number of weeks per year, but they are still responsible for 100% of the repairs, maintenance, taxes, insurance, etc. In a fractional purchase you are buying a vacation home at a fraction of its value. The only expenses are a share of the total costs and at the same time the ability to enjoy the benefits of a luxury home or condo. A fractional residence offers the same tax write-offs of single ownership. It may be deeded or willed to heirs. And the best part is a fractional owner sees their investment grow as many of these properties have been shown to appreciate at a higher rate on the percentage of the property as compared to a single owner’s increase in value.

For example, in a 4,3,2,1 fractional: This means that there may be 1 owner that buys all 4 shares of the property or 2 owners each buying 50% ownership or 4 owners each buying 25% of the property.

On a $2,000,000 luxury waterfront vacation home in Fort Lauderdale:

4 owners: each would pay $500,000;

2 owners: each would pay $1,000,000; or

1 owner: would pay $2,000,000.

1 owner purchases at $2,000,000 and pays 100% of maintenance, insurance, and taxes of $46,800 per year. They may use the home as much as they choose but practically speaking may do so only an average of 28 days per year.

4 owners purchase the home and each pay $500,000. They contribute to only 1/4 of the maintenance, insurance and taxes, each of $11,700 per year. They will enjoy the home a minimum of 13 weeks per year with no maximum useage.

If they choose to sell the home: The single buyer at $2,000,000 may find it much more challenging to sell during different phases of the real estate market. And if there was a large volume of luxury homes for sale at the time it is listed they may have to reduce the price in order to sell. Thereby, reducing their opportunity to see a return on their investment. The fractional buyers each with 25% ownership choose to sell they will find a much less challenging process to find a buyer looking to purchase their share at $500,000 during a time in the real estate cycle that properties are not selling as easily. And and even much more beneficial time when the market is strong and properties are selling they will see a better increase in their $500,000 investment as they are able to sell their fractional at a much higher price.

Purchasing a fractional luxury residence means access to your dream home for at least 13 weeks per year or more, an appreciation of your investment, the ability to rent (if approved in your individual fractional purchase) and receive income, an ability to sell at all phases in the real estate market, and control of the property management of your property.

Developers considering offering fractional sales of unsold units need to realize that they only have to commit a percentage of units to fractionalization. The sales staff is responsible for educating potential buyers on the benefits of both fractional and “whole” condo sales. And in many instances the buyer continues to choose the “whole” sale unit.

KT Consulting offers setup of fractional projects, sales centers, owner clubs and staffing to developments in the U.S. & Internationally.

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