Fractionals: Have your vacation home and afford it, too
|By Jay MacDonald
If the cost were the same, which would you rather own: a vacation home in the hills of Tuscany or holiday digs in London, Aspen, South Beach and Rio de Janeiro?
If you prefer the latter, you're not alone. A growing
number of Americans are following the lead of well-heeled Europeans and investing
in fractional ownership of vacation property. For the price of that Tuscan villa,
you might own quarter shares in the four other destinations.
exploding," says Andy Sirkin, attorney and partner in Sirkin
Paul Associates of San Francisco and Paris, which specializes in fractional
ownership. "Every week, we see a 10 to 20 percent increase in the number
As a fractional owner, you actually become
a co-owner of a vacation property; you split the purchase price, maintenance and
taxes with your co-owners, as well as the property's appreciation down the road.
|The advantages of fractional ownership are numerous:
You don't have to bear the full financial burden of a
holiday house you will likely only use a few weeks a year.
||Buying power. You
may be able to buy a far more desirable property or in
a better location than you could have afforded alone.
||Location. With a
do-it-yourself fractional, you're not tied to properties
on the tourist strip, and may opt instead to buy in a
more desirable -- and affordable -- neighborhood.
Split the obstacles of setting up house in a foreign country
among the group -- or better yet, buy into an already
established fractional in your country of choice.
||No rental headaches.
Although some groups do allow its owners to rent out their
allotted time, others prohibit it, as do certain locales.
participation in the property's likely appreciation.|
over the ownership, maintenance, even the décor.|
Flexibility to co-own homes in several locations rather
than being tied to one.
Want to reward your employees, woo your clients and write
off part of your fractional? You may be able to if you
use it for business.
The disadvantages are few but can be significant.
Though their number is growing with demand, there are still relatively
few lenders willing to finance the purchase of a fractional. All
kinds of financial foibles can arise if you fail to carve the terms
of your fractional in stone with the help of an attorney familiar
with the nuances of this emerging field. The pro rata shares may
add up to more than what the property would have cost a single buyer.
Be as careful in selecting a vacation fractional as you would your
own home, since there is no guarantee it will hold its value, even
in a resort location.
boomers lead the way
Sirkin says fractionals reflect the changing
lifestyles of baby boomers who want to either recoup some of the outlay on their
little-used vacation home or diversify their vacation destinations without having
to sell the place or, worse, rent it.