10 Questions To Ask About Fractional Ownership

Interest in fractional ownership is on the rise. So if you’re tempted by a slice of Turkish delight, a Paris pied-a-terre, or a share of a Vilamoura villa, the good news is that the choice and calibre of developments on the market has never been better.

With developers launching smart new homes in desirable global locations, the fractional lifestyle is catching – and catching on – but doing your homework is vital. With many more properties on offer than just five or ten years ago, in more destinations, finding the fractional holiday home that best fits your lifestyle is key.

Lawyers Alex Radford at Irwin Mitchell and Andrew Sirkin of Sirkin & Associates specialise in advising consumers and developers about fractional property; both have seen a surge of interest surrounding fractionals in recent years. And as more fractional developments come on to the market, consumers are looking for more information about how, where and what to buy.

Alex Radford says consumers can gain from doing their own research before buying: “My advice when buying anything is to do your homework, use the internet to find out more about the development and what other owners say, read the small print and ask about any other charges you may have to pay over and above the purchase price. Buying a fractional is buying a holiday home for a fraction of the cost with other people. It makes great financial sense.”

According to Andrew Sirkin, increasing number of property buyers are starting to tap into the benefits of fractional ownership, particularly in the light of the current economy: “Many people who are buying fractionals today may have bought an entire vacation estate three years ago. Now they fully appreciate the cost-effectiveness and risk-diversification benefits of fractional ownership, and understand that it’s not so much about what you can afford but more about what makes sense to buy. In a few years’ time we may look back on the financial crisis as the best thing that ever happened for fractional ownership because it brought its best qualities into sharp focus.”

Here are ten important questions to ask before you buy:

1. Are you buying a deeded property (i.e. an equity share)? Fractional property tends to be sold as “deeded”, so if you own a share of the equity, and the property value increases during the years you’ve owned it, if and when the time comes to sell your share, you may stand to make a profit. But not all fractional programmes are equity-based so check first.

2. What fraction are you buying, and how many weeks’ usage will you be entitled to? These vary, but 1/12th fractions (usually offering about four weeks’ usage) and 1/8th fractions are particularly popular. Most owners won’t have the time to visit their holiday home for more than about four weeks a year and 1/12th fractions are a comparatively inexpensive way to dip your toe into the fractional property pool.

3. When can you use your weeks, are they fixed or flexible? An important point, so if you are buying with the intention of holidaying during peak periods, such as Christmas, Easter or school summer holidays, make sure you know the rules. There are a number of ways of apportioning weeks to ensure fair usage, such as rotational calendars and other programmes, but fixed weeks exist, too, so check first.

4. What does the price include, are there extra fees? You’ve found a fabulous golf home overlooking the 18th green – so do golf membership (or reduced green fees), club facilities and amenities come with the package? And what are the annual maintenance fees?

5. What about financing? Banks have been slow to adopt lending to fractional buyers and developers, but this is changing. A number of developers now offer in-house financing to make things easier and financing should open up even more as the fractional property model evolves. As with any financial contract, read the small print.

6. Can you sell your fraction in the future – and when? Is there an exit strategy? Many new developments or fractional programmes come with built-in exits – usually after ten to fifteen years or so, but each property varies so this is a good point to clarify early on in the sales process.

7. If you’re not able to use our property for the full entitlement each year, is there an on-site rental management system or rental pool? Rentals are often managed by the resort or its agency, so check if they can help.

8. What’s the best type of fractional property to buy? The short answer is, it’s the one that best suits you. If your idea of heaven is peace, quiet and beautiful rural surroundings near an Italian hilltop town, those properties exist. Or would a five-star beach-and-golf resort with tennis, pools, watersports, restaurants, live entertainment and every amenity you can imagine more your holiday style? Fractional developments that have a hotel at the heart of the resort tend to be particularly popular.

9. Who is the developer? One of the things that really stood out at this year’s European Fractional Summit in London (February) was the quality and location of new fractional developments; the calibre was exceptional. Still, before you buy, check the track record of the company or developer. There are some excellent “boutique” developers and fractional resort operators who have new properties on the market at the moment, alongside fractional offerings from global brand names including Marriott (e.g. 47 Park Street in Mayfair, London), Pestana (shared golf homes in the Algarve) and Thai luxury resort specialists the Absolute Group.

10. Who oversees the property when it’s not being used? Value for money and flexibility aside, another plus when you own a fraction and not a whole holiday home is the headache-free ownership aspect. The resort or developer’s management company will usually take care of cleaning, upkeep, general maintenance and repairs as well as landscaping (again, check the contract).

For more information, visit: www.RDO.org

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