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.
· 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.
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).
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.
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.
Benefits of 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.