New Rules Shed Light on Fractional vs Timeshare

The terms fractional ownership and timeshare ownership often overlay, as both ownership models include a form of shared ownership of vacation products. This can sometimes be confusing, as highlighted by the current debate surrounding a company called Pacaso and its business model which is based on fractional property ownership.

Townships such as Palm Springs along with Sonoma and St. Helena in the Napa Valley have recently passed laws barring the operation of “timeshares” in these jurisdictions. However, the headlines using the term timeshare don’t accurately define the issues, especially since timeshare resorts have operated for years, and continue to operate, in Palm Springs and the Napa Valley.

The new regulations are aimed at residential areas, where Pacaso has been known to buy up homes and sell fractional ownership interests, allowing owners in their program to vacation in residential neighborhoods. Residents in these areas want to protect the culture and atmosphere of their neighborhoods, so they objected to the idea of rotating part-time owners and club members.

This is very different from timeshare owners taking a vacation in hotels or boutique resorts zoned for commercial or visitor use in designated tourist areas.    

So, Why The Difference?

Some resort developers in high-end destinations such as Aspen, Bermuda and Riviera Maya, Mexico, have moved toward fractional terminology and away from timeshare. As timeshare exit companies continue to portray the industry in a very unfair light, labeling a property as fractional is seen as an advantage by some developers.

But there are differences between the two.

Many of the differences center on the actual ownership interest and the intent of the owner.

Fractionals are marketed as more of a second, vacation home concept with multiple weeks’ worth of vacation time. Timeshare is primarily sold one week at a time, or through points programs equaling a week’s worth of vacation time.

The Original Fractional Ownership Concept

The idea of fractional ownership, or joint vacation property ownership, actually goes back decades. Think of the family who may own a cabin or vacation home in the mountains, with ownership shared between different family members that rotate use of the family’s second home.

This concept was expanded by developers to allow multiple families to buy into ownership of vacation homes, thereby owning a fractional interest in the property.

Depending on the property, fractionals have also been known to increase in value due to their status as vacation home properties, compared to owning a 1/52 share of a unit in a resort building.

Primary Differences Between Fractional vs Timeshare

When we discuss the primary differences between the two, we’ll view timeshare weeks compared to fractional ownership:

• Multiple vacation weeks over different seasons. Fractional ownership can be rotated over different seasons so each owner has a chance at priority weeks. Timeshares tend to be fixed weeks or floating within a given season. 

• Shares. Fractionals tend to be referred to in shares, such as a quarter share or a 1/8 share. This is the cumulative number of weeks available annually to the owner. A quarter share owner can own 12 weeks’ worth of vacation time, depending on the ownership structure. Timeshare is referred to in terms of individual weeks. 

• Exclusivity. Fractional developers promote their products in high-end, luxury terms which feature properties that would otherwise be out of reach to many whole-ownership vacation home buyers. Timeshares can be more about cost-effective annual trips in traditional vacation locations. 

• Asset versus time. Fractional companies have been known to promote their products as real property assets which may increase in value. Timeshare is not about owning an appreciating financial asset but more about investing in future vacation costs. 

• Property versus Right to Use. While many timeshare products are classified as deeded real estate, in reality they are more of a right-to-use product compared to the traditional sense of real estate. Fractionals are deeded interests in real property that, as discussed earlier, are more in line with second vacation home ownership. Think of this in terms of equity. 

• Amenities and Accommodations. Timeshares offer more of a resort-type experience, with condo units in larger properties and programs tailored to a more traditional vacation experience. Fractionals can offer larger accommodations with sophisticated amenities such as private plane and yacht access, butler service, private chefs and access to exclusive golf courses. 

• Initial costs. Both ownership models have buy-in costs with annual fees. Initial fractional costs are usually higher, in the hundreds of thousands of dollars in some cases, with higher annual costs due to the location, amenities, associated property taxes and fewer owners in the structure of the ownership. A week of timeshare averages over $22,000, but much less as a resale, with lower annual costs spread over more owners.

Brands known for luxury vacation properties like Ritz Carlton and St. Regis have created residence clubs or destination clubs which include aspects of fractional ownership but in more of a club model.

Members buy into these clubs and vacation in “residences,” some within multi-use, hybrid vacation properties with various types of amenities, services and ownership options, sometimes even including whole ownership.

As timeshare programs continue to transition into points-based club programs, the distinction between fractionals and timeshares can become blurred. One example is the Marriott Vacation Club which offers vacation options for Club members in Ritz Carlton properties through its Destinations Exchange Program.

Is One Better Than The Other?

There is no right or wrong way to look at this comparison since it really is apples vs oranges. Both ownership models are an effective way to vacation, and it just depends on factors such as:

How Much Vacation Time Do You Have? Fractional owners tend to have more vacation time to use than timeshare owners. If your primary vacation getaway is once a year, timeshare is a better option.

Where Do You Like to Vacation? Especially with programs such as Club Wyndham, Marriott Vacation Club and Hilton Grand Vacations, timeshare owners can tap into their brands’ respective rewards programs to expand their options around the world. Exchange companies also open owners to as many as 4,000 resorts globally.

Type of Vacation Experience. Timeshares offer more of a resort experience, so do you need a robust children’s program, multiple pools, onsite restaurants or locations close to the action? Fractionals usually offer a more self-contained, exclusive vacation experience.

Costs. The starting price for fractional ownership can be upwards of $80,000 and range into the high six-figures. For example, the median fractional price in North Lake Tahoe is $325,000. Comparatively, the average price of a week of timeshare is just under $23,000, but timeshare resale prices can be less than half the new sale price because sales and marketing costs are stripped out of the resale price.

Consumers have more vacation choices than ever, with emerging programs and platforms providing variety to suit just about anyone.

If you have questions about timeshares and how they compare to fractional ownership, leave us a message here or call us on 877-624-6889 and one of our licensed real estate agents can discuss your options with you.