Hey Veterans: What Is Fractional Ownership And Is It Worth It?
Some veteran friends of mine who live in the DC area dream of owning a luxury home in a destination they never thought they could afford in the past. But they are rightly skeptical when sales letters come in the mail promising the world for a small piece of their savings from their blogging income. Oh, wait…maybe that’s just me.
But seriously, have you ever been victimized by those crazy timeshare presentations that promise killer freebies like cruises as payment for your time where they then proceed to berate, belittle and talk down to you if you choose not to buy their “awesome ‘n cheap condo”? These are just some the pitfalls of the timeshare sales machine.
Now timeshares are for the most part simply not worth it for investment purposes. They should really be thought of as pre-purchased vacations, and not investments.
All of my friends who have purchased timeshare condos under pressure would love to go back in time and warn their younger selves not to do it.
However, there is another similar type of investment known as fractional ownership. Are these worth it when compared to the typical timeshare scenario?
Fractional investments are similar in concept to a timeshare but in this situation you actually, literally, own a piece of the property as opposed to having the right to use it at some point during the year.
If you are still a beginning investor you may want to consult your financial advisor before taking the plunge on one of these. But if you are curious, read on!
Here’s a list of things you can fractionally own:
- Luxury Real Estate (but not as a Timeshare)
- Jet Planes
- Luxury Handbags (Wow!)
- Kids (ok – not so much)
The main theme of this type of ownership model is that a group of people come together to buy something they all want, but don’t want to pay full price for. A company is usually set up to handle the transaction, management, and maintenance of the asset.
Now, while a fractional ownership of an airplane may sound appealing, there are a few things to consider before buying a fractional property. Let’s look at the pros and cons.
- Pro: You own a piece of a property that might be extremely valuable that you wouldn’t otherwise get to own.
- Con: With joint ownership sometimes being anonymous, you may not know who else owns the property.
Maintenance and taxes
- Pro: The cost of upkeep and other bills are split between multiple parties.
- Con: There may be instances where the property management company cannot mitigate the costs or may have trouble getting all parties to pay their share of the bills.
Use of the property
- Pro: You have a beautiful asset to enjoy when you want kick up your heels and live large.
- Con: With multiple owners, you may run into conflicts over the dates that you want to use the property. To avoid issues like this, having a clear contract or even making the effort to get to know the other owners can help avoid conflicts over usage rights.
Buying a living space overseas?
- Pro: You can save on hotels if purchasing an apartment or home.
- Con: You actually may not be able to truly own a piece of the property due to foreign purchasing rights for the country in question. Be smart and consult a lawyer before making a purchase overseas.
Cash purchase required
- Pro: If you have the cash on hand, then you can easily take part in purchasing a fractional ownership of a property.
- Con: Most institutions are reluctant to loan money out to buy a fractional portion as they will have severely limited rights of repossession if you default. So if you want the property that badly, consider buying it with family and split the costs with people you know and trust.
Time to Sell?
- Pro: Fractional properties are attractive investments and there is great demand for them, especially in the warmer parts of the world.
- Con: Even with a great market it may be hard to sell your share quickly since the new owner will often need cash on hand to complete the purchase or there may be limitations in your agreement with regards to the resale of the shares. If you want to offload the property, consider offering your share to another one of the co-owners before you put it out on the open market.
So Are You In Or What?
With all of the above in mind, if you have the liquid cash available and have visions of far-off beaches, private jets, or $20,000 handbags, then it might make sense for you to take the plunge and look into fractional ownership.
Going in on buying a property with your family could provide enjoyment for years to come. If you know anyone who has purchased a luxury item fractionally, feel free to tell us all about it on our Facebook page.