Vacation Ownership 101: Understanding the Shared Residence Industry

TIMESHARES

The word "timeshare" has evolved over the years to include a wide variety of vacation products and plans. It is also known as "vacation ownership" "holiday ownership" and "interval ownership."

Regardless of how the terms are defined, the premise of the timeshare is relatively simple: a group of people share the purchase cost of a vacation accommodation, in increments of one week (or more) per year of use, thus guaranteeing the ability to use that accommodation during the period of time chosen either for life or for a specified number of years. Accommodations range from hotel rooms to condos, from cabins to luxury houses and castles, from yachts and cruise ships to RVs and houseboats.

Owning timeshare usually means a condominium/villa/house/hotel unit, etc. is subdivided into 52 separate units of time (52 weeks in 1 year), and usually sold to a maximum of 51 owners (leaving one week each year closed down for annual renovations and/or maintenance). Each owner would own 1/51 of the unit. Each share represents one week of vacation. Each owner is entitled to ownership rights and privileges of the shares that they purchased.

FRACTIONALS

Vacation home fractional ownership (sometimes also known as vacation home partnership or fractional co-ownership) is an arrangement where a group (most often complete strangers but sometimes family or friends) share the costs and use of vacation property. Typically, each co-owner owns a percentage of the property and is shown on the title and deed as an owner. In some cases, the deed actually specifies particular days, weeks or months when the co-owner may use the property.

Fractional ownership provides a method by which a co-owner owns part of an asset, and allows the co-owner to pay only a fraction of the costs and ongoing expenses of vacation home ownership, and share the risks of unforeseen maintenance problems and value depreciation with others.

The difference between traditional timeshares and fractional ownership clubs is that fractional ownership involves direct, deeded ownership and timeshares typically don’t. Fractionals also usually have a greater vacation time increments than timeshares.

PRIVATE RESIDENCE CLUBS

In general, the Private Residence Club, or PRC is based on the fractional, as the properties within the club are bought using a fractional ownership plan. This means the owners each purchase a share of a property, the size of the share denotes the amount of time that they can use the property. For example, if a quarter share is purchased, it entitles the buyer to use the property thirteen weeks a year. Typical shares are 1/6, 1/7, 1/8, and 1/10. Many clubs also allow their members to exchange the time they have available in their own property, with other members who own properties in a different location.

There are also residual amenities with the PRC that offer the option of exchanging unused time for vacations in other destinations the club may own. The PRC, unlike many fractionals, are located in high end, prime vacation settings (beachfront, mountain, leisure resort, urban chic), and offer a range of private luxury villas, freestanding homes, and high end, often high rise apartments.. Each property is furnished to the same high quality as an ultra-luxury hotel.

Each of the properties are fully serviced and maintained by a management company. When staying in one of the club's residences, members will receive full concierge service where and the home will be prepared in advance according to their individual taste.

Many clubs are located in areas that cater for a specific type of vacation. Chief amongst these are properties within ski resorts, which offer quick and easy access to the slopes. Many clubs are also situated around or near golf courses, membership of the club may also include full use of the golfing facilities. Others are located at beaches or on lakes and some are located in major cities. And, many private residence clubs are run by well-known, branded hotel operators. Prices for joining a private residence club vary according to the location, size and type of the property, the ownership period and the services provided with the property.

DESTINATION CLUBS

This vacation ownership product is somewhat similar in luxury cachet to the Private Residence Club, but rather than buying the use-rights or title to a specific property, destination club owners buy membership to the club or in the Club. In turn, the club acquires a number of exclusive residences and villas in several destinations on behalf of its members for their exclusive use. Club membership grants owners access to the following benefits:

• Unlimited access to a portfolio of luxury private residences and amenities (controlled by residence-to-member ratios usually between 1:4 to 1:10 – meaning one residence shared between four to ten members)
• Locations in prime destinations and unique mountain, beach and urban settings
• Club services such as private concierges, in-house maid and butler services always available.

Prices range from US$150,000 to US$1,875,000 per membership, with annual maintenance fees of US$10,000 to US$75,000. Most Clubs offer a refund in the area of 80% of the initial membership deposit upon membership resignation.

CO-OWNERSHIP CLUBS

Co-ownership is a form of real estate ownership in which more than one person can own a given property at a given time. The legal name for co-ownership is Tenants-In-Common ownership. Under a co-ownership structure, up to 35 people can have an undivided, fractional interest in an asset. Also, co-ownership allows each co-owner to receive an individual deed at closing for his or her undivided percentage interest in the entire property. Co-ownership shares are not required to be equal and can be inherited. The co-owners exit the co-ownership arrangement when they elect to sell the property. Co-ownership interests can also be sold individually, either to another co-owner or to a buyer outside the co-ownership arrangement.