Do you want a more plush way of life –- but lack the million$ in ready cash to finance it? You’ve worked hard and you’ve done well, but the corporate jet, the yacht and the $4 million seashore home are out of reach for now.

Fractional Ownership may be the answer to your dilemma! With fractional ownership, a high-priced asset (jet, yacht, vacation home, classic car) is owned in cooperation with several other individuals; each owns a percentage share of the asset and has defined rights and privileges pertaining to its utilization. A management company provides the continuity and organization to permit share owners trouble-free and predictable access to the asset.

This concept works well with many types of assets that may be used periodically. As an example, second homes are occupied by their owners 2 – 4 weeks per year on average. If you’ve visited a marina lately, you’ve observed that the majority of the slips are occupied by boats – i.e., they are not in use. Corporate jets sit idle until travel is required by the executives.

Fractional ownership provides you ,the share owner, reliable access to that luxurious asset you desire or need but are not inclined to pay for 365 days a year. And, because you are part of a group of owners, all maintenance, management, upkeep and repair costs, taxes and insurance are shared among the group. The management company provides a schedule for owners’ usage, and takes care of routine maintenance, accounting and repairs.

In short: you have what you want, when you want it — without the headaches, expense and liability of full individual ownership.

Fractional ownership is being used more and more for ultra-luxury items. Numerous corporations sell fractional shares of corporate jets(flexjet.com, netjets.com); turboprop aircraft (avantair.com); and helicopters (heliflite.com, sikorskyshares.com).

Fractional ownership of luxury boats and yachts — both power and sail — is widespread. Companies like monocleyachts.com, eusamarine.com, and seanetco.com provide fractional ownership of yachts on the East and West coasts, in the Caribbean and in the Mediterranean.

Classic cars such as the Lamborghini Murcielago, Lamborghini Gallardo, Rolls Royce Phantom, Bentley Continental GTC, Aston Martin Vanquish S, high-end Porsches and the Ferrari 360 Spider are accessible through fractional ownership with such companies as extremecarshare.com, curvyroad.com, and clubsportiva.com. Fractional shareowners in these clubs might decide on a membership that lets them to alternate their possession of different cars in the fleet, rather than only being the owner of a fractional share of one classic car.

RVs are another category of luxury item that often sees only episodic use, so wisdom dictates fractional ownership here too. Both coachshare.com and sharerv.com offer fractional shares of Monaco luxury coaches.

Racehorses have long been owned by syndicates –- collectives of owners who join together to spread the expenditure and risk. Associates of syndicates were often friends or business associates who knew each other and privately set up the syndicate. Now fractional ownership models are coming into use. In Britain, the 2005 Vodafone Derby winner made history in the racing world: Motivator, the winning horse, did not belong to a super-rich breeder or famous person, but by a syndicate of 230 people from the business classes.

The fractional ownership idea is being creatively expanded into many areas. Wine Estate Capital Management offers fractional ownership of vineyards in France and South Africa. Numerous art doners are finding it valuable to donate a fractional share of their art to the museum of their preference, thus ensuring the museum’s continuing enjoyment of their collection for a portion of each year.

Luxury purses are now obtainable by fractional ownership, so if you would like to diversify your collection without buying them all, your dilemma is solved. Shouldercandy.com offers handbags by Chloe, Balenciaga, Louis Vuitton, Prada, Burberry, Marc Jacobs, Chanel and more.

The most widespread use of the fractional ownership idea, though, is in the vacation home sector. Because of the growing attractiveness of fractional vacation home ownership and the added challenge of dealing with real property, this theme will be the subject of a subsequent article.



Thanks to David Yarian for contributing this article to our Timeshares blog:

Luxury Fractional Ownership

Can you answer Luke’s question about Timeshares?:

The company is located in Florida, but the timeshare is in Missouri. Can not paying on a timeshare in a vacation club type deal be reported on my credit legally as a foreclosure?

Branson Timeshare Rentals

Can you answer LISA B’s question about Timeshares?:

Any info would help!
Do they flucuate with housing prices?
Wyndham is the company i have bought into

Vacation Timeshare Sales

Can you save money by using fractional ownership? The marketing of fractional ownership has to date focused on a certain type of development, i.e. super-luxury resorts laden with facilities and services at a very high cost. This isn’t all it should be about. In many ways it is potentially more beneficial to people that don’t have loads of money.

In most cases “fractional” ownership has involved taking the timeshare concept and making it 10 times more expensive! However the need for fractional ownership is created (at all levels of income) by folks not wanting to spend so much money on their leisure assets. Even for the wealthy, the cost of a luxury ski lodge in Aspen or the latest super-yacht is going to hurt. So if you are rich you can bring down the cost of owning your luxury yacht or prime Florida real estate. For the rest of us it can be used to bring down the cost of ownership of slightly more mundane items!

Forget about anything you think you know about fractional ownership and consider the following:

A. Think of something that you would like to own or use but can’t afford (it has to be something that you don’t need to use all of the time). Typical types of things would be leisure assets (second homes, yachts, boats, caravans/RVs, tents), business equipment (expensive and occasionally used machines), or functional items such as a garden tractor.

B. Assess how much this would cost you if you were going to buy it. If you would have bought something used then use this price, not the new price.

C. Consider how many people could realistically share the use of this asset. When working this out you need to think about if the asset has a popular season (e.g. summer for beachside property, New Year for second homes in ski resorts).

Now divide B by C. Doesn’t this make your proposed purchase seem more affordable? There is no reason why fractional ownership has to be about luxury (although that is very nice). It can save you lots of money as well. Think about the following examples:

1: A family on a limited budget would like to save money on their vacation (or even afford to be able to go on one) by camping. The problem is that a full camping setup for a family of 5 isn’t cheap if you haven’t got much money. The fractional solution would be to share the cost with 2 other families in their local area. They would still each be able to go on vacation in the school summer break and take turns at using the equipment through the rest of the summer.

Example 2: If you enjoy yachting why not look at a fractional scheme for a used yacht. This can really bring yachting/boating within the reach of a lot of people. This was exactly the sort of scheme that I got involved with at the age of 18!

Conclusion

I’m not suggesting that fractional luxury ownership schemes are a bad idea, in fact I think that they put some really luxurious destinations within the reach of many more people. I just want to put forward the view that fractional ownership can also be used lower down the value scale to actually save folks on modest incomes money and make their life a lot more enjoyable.



Thanks to Neil Robertson for contributing this article to our Timeshares blog:

Cancun Timeshare Resort

Many people ask “what is fractional ownership?” and the closely related question “Is it timeshare? In this article I will attempt to answer these questions. This article is concerned exclusively with the fractional ownership of leisure/luxury assets. However most of the principles would apply equally to the fractional ownership of a practical item (e.g. for business).

Definition of Fractional Ownership

In its broadest definition, fractional ownership is any arrangement where a group of people (numbering from 2 to 10 or more) share the ownership of an asset and also share certain rights to use the asset. The use of the word “ownership” in the definition therefore excludes timeshare arrangements, where there is no ownership of the underlying asset. Unfortunately however, some so-called fractional ownership schemes are closer to timeshare than they are to true fractional ownership. When investigating whether to purchase a fraction it is essential to know what your relationship to the asset purchased is. The best arrangement is to be identified as the legal joint owner of the asset (or in the case of multiple assets, the owning organization).

Types of Fractional Ownership

The most cost-effective form is where a group of individuals decide to purchase an asset jointly. They then decide on the exact asset to be purchased, draw up ownership documents (perhaps with the help of a legal firm) and purchase and manage the asset themselves. This avoids the sometimes substantial profit-margin that developers charge when selling fractional properties. This approach does have disadvantages, e.g. the amount of paperwork involved and the possibility of falling out with your fellow fraction owners (over cleaning, maintenance etc.)

Second in terms of cost-effectiveness would be a developer or owner-led scheme, where the individual fractions were being sold direct from the developer/owner (but where there were no expensive additional services bundled with the purchase). There will have to be a profit-margin associated with this type of arrangement, since the developer/owner is incurring additional legal and administrative costs. If fractions can be sold individually (without all the fractions of an asset being sold) then they are also taking the risk of having unsold fractions tying up their capital.

The above schemes blur into the next category, which I will call clubs. These are sometimes called Ownership Clubs, Private Residence Clubs, Destination Clubs etc. etc. Where they differ from simple developer/owner-led schemes is in the level of luxury/services provided and (sometimes) in the level of ownership. None of these terms have a particular legal meaning so it is up to the purchaser to investigate issues of ownership, booking arrangements, exit arrangements etc. A the extreme end of this group there are some similarities with Timeshare -so be warned!

How Much is it Costing Me?

Here I don’t mean in absolute terms, I mean how much is it costing in excess of the amount that I would have paid for the asset as a whole. Always try and do a comparison with a similar asset purchased outright to gain an idea of what the developer/owner’s additional costs and profits are. At the very least it might help you to negotiate a better price if you do decide to buy! You can and should do a similar comparison on the management fees (and pay special attention to any rights to vary them in the future).

Conclusion

True fractional ownership isn’t timeshare, but some of the schemes marketed as fractional ownership are. Be warned and do your homework if thinking about purchasing.



Thanks to Neil Robertson for contributing this article to our Timeshares blog:

Luxury Fractional Ownership