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Fractional
ownership vs. private
residence clubs and destination resorts
The
success of fractional ownership as an investment proposition and
as an alternative to sole ownership has spawned many variations
on the model. Because these ownership structures developed organically
over the last few years, the definition varies widely. Therefore,
it is critical that each offering be judged on the merits of the
underlying property, the management & services offered and
the legal structure of ownership. There are certain fundamental
differences however, between fractional ownership and other shared
time structures:
-
Private
residence clubs sometimes function on a fractional
ownership model. Investors are ‘members' of a club that
holds a portfolio of luxury properties. Members' usage time
is commensurate with the amount of their investment. In many
cases, membership grants only the right to use the club's properties
and services, without title to the properties. There are some
exceptions where members are actually owners in the underlying
equity. This important distinction should factor into the buyer's
decision about the value of the investment.
-
Another variation is the destination resort.
These properties, most often hotel rooms, suites, or vacation
villas, are typically located on property owned and managed
by a hotel developer who provides the services expected of a
luxury hotel or resort. Once again, ownership is rarely part
of the model: buyers merely purchase units of usage time. Thus,
they do not benefit from any appreciation of the underlying
property. In any case, as these properties are essentially units
in an existing hotel or resort, it's impossible to make real
market comparisons on which to base a true valuation of the
property. These properties are essentially ‘worth' whatever
price tag the developer puts on them.
Fractional ownership or any of these alternative models is primarily
a lifestyle investment. While there may be an investment component
to the purchase, these options are most suitable for buyers looking
for a hassle-free alternative to sole ownership in a location
that they love.
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