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Timeshare Basics: Scheduling
 
 
Timeshare Basics: Scheduling
There are two main components of timeshare ownership that are equally important: location and schedule. Understanding the mechanics behind how intervals are valued and allocated should help determine which package to choose. Additionally, when and how you choose an interval can have an effect on your exchange possibilities.




Fixed Week vs. Floating Week
A fixed week interval works primarily as it appears. A buyer purchases a specific week each year. The week can be for the same unit or another equal-sized unit with the same features and amenities. Most owners with strict work schedules choose this type of arrangement. Also, it is attractive to families because they tend to plan vacations around school breaks, which are stable.
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· A floating week interval provides more flexibility because buyers can choose from a range of weeks during a season. Instead of owning a specific unit, you select from categories including unit size, number of baths, and amenities. Owners must contact the resort and make reservations, which are typically first-come, first-served. In order to bank your week with an exchange company, you ordinarily must reserve a week at your home resort first.

In either case, the resort where your unit is purchased becomes your home resort for the purposes of exchanging or selling your timeshare.

Red Weeks, Shoulder Weeks, White Seasons, Etc.
Vacationers tend to travel at common times – peak seasons – therefore resorts tend to fill quickly. That is good news if you are trying to rent your unit; not so good if you want availability in prime locations. Most industry officials call the period of highest demand "red weeks." This term comes from the color-coded time classifications used by the two major exchange companies (RCI and II). Red weeks occur during different periods throughout the year based on the resort's seasonal appeal; for instance, a red week during the winter season at a resort in Aspen, Colorado will not occur at the same time as a red week on the coast of Maine. Although the red "season" is usually standard at specific resorts, one timeshare may not qualify for an equal exchange with another because of other factors, such as location or demand.
Following the high-demand red weeks, intervals fall into different classifications, depending on the exchange company. RCI considers the slower months on either side of a red week season as a white season. Interval International calls it the amber season. This period typically shows moderate demand, reducing the timeshare's value compared to an interval during the peak season.

The third classification covers the season of lowest demand. Called a blue season by RCI and green season by II, these periods offer the least "trading power" when exchanging (discussed in Module X). Owners should understand that, if they hold a blue season interval, they will need to take some action - like paying additional fees - to secure a swap for a red season interval.

Shoulder weeks border each peak season. For example, the week prior to and the week following the Christmas holiday are generally considered shoulder (sometimes called "white") weeks. So are the weeks during early June and late September.

According to the exchange companies, demand shifts continuously, and each exchange annually examines its classifications and updates interval values to match recent historical demand levels. This can affect the value of your timeshare for exchange purposes (discussed in Module X).

Arrival, Departure & Reservations
To reserve your interval – whether you'll be staying at your home resort or elsewhere – you must notify the resort. Owners can do this by phone, fax, mail or the Internet, and it can be done directly with the resort or through an online agent like Expedia. Timeshare experts advise owners of floating weeks or vacation plans to reserve as early as possible in order for your request to be fulfilled.

The check-in date starts the seven-day interval. It typically falls on a Friday, Saturday or Sunday. The owner is given a check-in time, which determines the exact hour the interval begins. The check-in time is usually between 3pm and 7pm local time. Owners or renters are not required to check in at that exact hour (or day); however, a late arrival doesn't extend the interval.

The interval ends usually seven days later with the check-out date. Again, there is a time specified (usually between 10am and 11am) – and occupants are expected to be out on time.

Bonus Time
When there is a surplus of "inventory," resorts will offer bonus time to owners (most often to their residents). This time can come in the form of additional days attached to your regular interval or separate intervals, typically available during slow periods. Many times this bonus time is offered as an incentive to purchase. The value of bonus time is relatively low, as the time is usually offered during mid-week or blue seasons. You must ordinarily pay for the additional time, and resorts generally do not allow owners to rent that period out. They are offered on a space available basis. Exchange companies will offer bonus weeks as well, usually to prod owners of coveted timeshares to deposit their intervals.
Most timeshares bought and sold today consist of the traditional vacation interval packages, whether they are Deeded or Right-To-Use plans. However, fractional ownership of vacation property has been growing in popularity since the mid-1990s. Owning a portion of an asset began as a business concept, with companies sharing the cost of expensive assets, typically airplanes and other transportation modes. A businessman who wished to purchase a private jet for company-related travel, but didn't want the usual burdens of aircraft ownership, designed a plan for executives to share the responsibilities of owning the plane. Thus, fractional ownership was born.



Since then, the concept has spread to owning a piece of boats (typically luxury yachts), automobiles (limousines, upscale cars) and real estate property (exclusive resorts). Fractional ownership's main benefits are the flexibility of use of the asset and the shared costs of maintenance, repairs and management.

Fractional owners who can easily afford to buy a vacation home or already own a place, many times choose to purchase fractional interests so they can "own" more than one, thus providing flexibility in vacation choices. Properties are typically single family homes, villas, cottages and other stand-alone structures within subdivisions, although condominiums or condotels can be sold as fractional interests as well.

How Does Fractional Ownership Work?
Unrelated individuals or families can purchase a partial interest in a property through a developer (much like traditional timeshares), who typically divides the property into "shares," or construct a legal agreement binding separate owners towards the purchase of a vacation home. Both scenarios provide holders similar rights and obligations as owning a complete home. Shares are divided into equal portions usually allocated in weekly intervals. Fractional ownership, like traditional timeshare ownership, allows a buyer to control an interval of time at the property. Unlike timeshares, however, the number of intervals is greater - ranging from a few weeks to a few months per year. The weeks purchased can be fixed usage (the Taylors get February each year) or variable usage (the Taylors get four different weeks each year). Usage may be deemed on a rotating basis as well, where co-owners alternate fixed weeks each year. At resorts, a management company typically oversees reservations, maintenance, security (if any), and collection efforts on rentals.
You receive title to a portion of the deed. Sometimes – in fixed usage agreements – the interval(s) you own will be listed on the title. Like traditional real estate transactions, there is a closing conducted by a closing agent. Once you own a fractional, you must pay applicable taxes, insurance, financing and assessments, such as a maintenance fee. How the ownership of the property is divided usually depends on the financial contributions of each party. If financing is available, each buyer's down payment amount may dictate ownership shares. Usage is usually tied to ownership interest. For instance, if five families are buying a property for $500,000 and two families contribute $50,000 each, those buyers will be purchasing a 10% interest per family. If the remaining $400,000 is split evenly among the remaining three families, they would each receive roughly a 26% ownership position.

Benefits of Fractional Ownership

There are several key benefits to fractional ownership:

· Lower Acquisition and Maintenance Costs – Buying a portion of a property, splitting renovation and repair expenses, and sharing ongoing costs can save a buyer thousands of dollars over the ownership lifetime when compared to buying a vacation home. An owner may pay a premium to obtain his share of the property, because values for the entire property can be inflated 150% and more, but much of this increase is attributed to employing a management company, and extra amenities and personalized services owners enjoy.

· Lower Operating Costs – Taxes, insurance, utilities are less when owners share a home. Because vacation home owners are rarely at their property, they typically need assistance with security and weather-related issues. By splitting the cost of a management company, more savings are realized.

· Reduce Rental Concerns – Many times traditional vacation home owners rent their vacation spot (to help with taxes or a mortgage, or to keep the home occupied). Fractional ownership reduces the need to rent the home (although owners usually have the right to rent their unused intervals). Additionally, because owners typically share the responsibility for the furnishings and personal effects in their home, damage caused by renters can be less of a concern.

· Investment Diversification and Flexibility – Because ownership costs are a fraction of traditional vacation homeownership, those who can afford to purchase a home away from home can now buy in a few locations. By owning real estate in different locations, savvy investors can "hedge their bets" if a weather-related catastrophe or a war damages value in one area. Fractional interest can be a great way to diversify your investment portfolio. Plus, by owning in different locations, owners have a wider choice of vacation destinations.

· Real Estate Ownership – In contrast to vacation plan packages and many timeshare agreements, fractional ownership means you have an investment interest in real property. Therefore, you can realize gains (and unfortunately losses) on sale of the property. Also, most contracts provide a clause allowing owners to bequeath their shares because the unit is considered tangible property.

Drawbacks of Fractional Ownership

The drawbacks to owning a fractional interest include:

· Spontaneity and Individual Tastes – If you like (or have) to travel at the last moment, you won't have the open availability of a traditional vacation home. Usage is structured and, if the agreement calls for variable usage intervals, you may have a problem staying there. Also, because most resort units are usually furnished and decorated by the property developer or management company, an owner may have to live with the décor if it doesn't match her tastes.

· Obey the Rules – Because you live in a common-interest community, resort owners or homeowners' associations make the rules for the property. Shareholders are expected to abide by these covenants. If you are not pleased with a certain restriction or requirement, you may face a battle to change or amend it.

· Lack of Financing – Even though a buyer is purchasing a "brick-and-mortar" title, most well-known financing institutions will rarely provide mortgages, because the property is being split. Banks cannot be assured of a secure foreclosure position if the borrower defaults; therefore, fractional interests are usually paid for in cash. (There are a few newer lenders who will finance, but do your research). Because some of the properties can cost in excess of $1,000,000, fractional ownership is not for everyone.

· Beware Financial Loss – As with investing in most assets, the risk of loss is always possible. Either the property can suffer significant damages, the management company can underperform (as in not adequately providing maintenance) or the property developer can go bankrupt (leaving you with a troubled asset). Buyers should discuss fractional ownership financial concerns with qualified professionals before committing to a purchase.

Private Residence Clubs
For those who prefer a more pampered lifestyle while vacationing at their fractional, a private residence club (PRC) may be the right investment. These ultra-luxury properties go beyond simply providing a place to stay and relax. They offer the right to belong to an exclusive group. PRCs extend country club like services to owners throughout the year. Errand staff, personal drivers, exclusive chefs and attendants - all can be provided at certain resorts. Because the extraordinary costs of joining this luxurious lifestyle are among the highest in the timeshare industry, there are few who can afford to participate.
 
 
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