Vacation Property Walkthrough: Timeshares and Fractional Ownership

Timeshares and fractional ownership provide alternatives for people who are interested in vacation homes, but can't afford the type of property they want – or wouldn’t use the vacation home often enough to justify the expense.

Timeshares

Timesharing allows multiple buyers to purchase the rights to use a property for a specific time period, typically a one- or two-week period each year. An important distinction to make is that a timeshare owner buys the right to occupy the property – the title typically remains with the principal owner. Essentially, a timeshare offers the opportunity to use a property for the same week or two each year, without the uncertainty and hassle of making reservations.

Timeshares can be structured in a couple of different ways. The traditional method involves buying a fixed week (or two) at a fixed location. There are also timeshare programs where you buy points or credits that can be used at a variety of resort destinations – in the U.S. and abroad, depending on the program. Certain programs allow the points or credits to roll over to the next year, and you can buy additional points or credits to take longer vacations or to stay in a larger or more luxurious property. (See also: The 5 Most Relaxing Timeshare Locations for Retirees.)

A timeshare has a one-time purchase price (much like a home), and many timeshare companies offer financing. In addition to the purchase price, each owner pays a monthly, quarterly or annual maintenance fee – these are shared by all the owners and are used to pay for things like property upkeep, taxes and insurance.

Timeshare ownership is priced according to factors such as the location, resort amenities, season of interval and size of the unit. Some timeshares are offered in perpetuity, meaning they can be transferred to your heirs or sold, while others last for a specified number of years. (For related reading, see: Timeshares: Dream Vacation or Money Pit?)

Fractional Ownership

If you’ve ever searched for homes on Trulia.com or Realtor.com and found one that seems oddly inexpensive (for example, $250,000 for a beach house where prices should be in the millions), the listing probably represents a fractional ownership opportunity.

Fractional ownership is a common investment structure for expensive assets, including vacation homes. Unlike timeshares, each owner in a fractional ownership arrangement holds part of the title. The deed to the property is split into several different pieces, with one for each individual owner. As a result, if the property's value increases in value, so does the value of the fractional ownership.

Like timeshares, each buyer in a fractional ownership has the right to use the property at a specific time of year; however, it’s typically for more weeks than you see with timeshares. A property that’s divided into 13 individual fractional interests, for example, gives each owner four weeks a year. Similarly, each owner receives 13 weeks per year if a property is split into four individual fractional interests. The larger the fractional interest, the more expensive the property will be (assuming all other factors are the same).

Like timeshares, owners pay monthly, quarterly or annual fees to help cover maintenance and upkeep costs, as well as insurance and property taxes. The fees vary greatly depending on the property's amenities. A property manager usually handles the maintenance and scheduling responsibilities for the property.

As with any real estate purchase, it’s important to consult with a qualified real estate professional and attorney before buying into a timeshare or fractional ownership program. Be sure to read and understand the fine print to avoid disappointment (buyer’s remorse) and frustration down the road. (For more, see: How to Find the Best Real Estate Agent.)