Ah, the vacation home. Glorious days filled with outdoor activities, pre-dinner cocktails while lounging by the pool or fireside, romantic dinners with your sweetheart. Kind of makes your heart skip a beat just thinking about it.
There’s just one complication — the dreaded “M” word. Maintenance. Lawns to mow, gutters to clean, painting, deck repairs… yuck. This was supposed to be relaxing.
What is Fractional Ownership?
Fractional Ownership, a relative newcomer to the vacation market made significant inroads during the late 1990s and early 2000s as time-challenged urbanites embraced the convenience of a hands-off, totally maintenance-free approach to recreational real estate.
Developers responded enthusiastically to Fractional Ownership, offering a diverse range of products from ski-oriented condos at The Residences at Sun Peaks to oceanfront cottages at Currents on Pender Island to the lavishly appointed Sprit Ridge Vineyard Resort & Spa in Osoyoos. So whether hurtling down a slope on skis or a mountain bike is your idea of heaven, or you think exercise is lifting your hand up for the topcoat on your nail polish, there is a property for you. And the best news? Maintenance, cleaning and replacement of anything that gets broken is included in the strata fees. Your greatest and only responsibility is kicking back and unwinding.
But in recent years the buzz about fractional ownership seems to have died down, and a lot of people don’t seem to understand what fractional ownership really means. So what exactly is fractional ownership, and is it still a good way to buy a vacation home?
What Am I Actually Buying?
The concept of fractional ownership, although simple, is still frequently misunderstood. Try asking the next few people you meet what the term fractional ownership means, and chances are good three-quarters of them will say, “Oh, you mean a timeshare.” Wrong.
A Fractional Ownership Home is a Fully Deeded Property
That you can resell, mortgage, even leave to the beneficiaries of your choice, just like any other strata unit. Units typically come fully furnished — right down to the corkscrew and wall decorations — and are most frequently offered on a quarter-, third- or half-share basis.
Owners have access to their property on a rotational basis — typically for a one-week period each month but often with two consecutive weeks during the popular summer months. Many, but not all, fractional ownership properties also provide an option to put your property in a rental pool if you’re not using it — meaning there’s potential to generate a revenue stream that can be used to offset your costs.
Why Fractional Ownership is Still a Great Option
Fractional ownership is an affordable option for purchasing recreational property — especially these days.
“Recreational property in general took a hit during 2008/09 and is still recovering, so there are deals out there,” says Craig Andersen, a veteran of selling fractional property who’s now director of sales and marketing at Bucci Developments. He notes one project in the Gulf Islands where originally quarter share ownership carried a price tag of $100,000 or more but can now be picked up resale for as little as $25,000.
There’s also the usage factor. “The national average for use of a vacation property is 19 days – roughly three weeks per year,” Andersen points out. “So why would you pay a full-time price for a property you only use part time? Quarter share ownership gives you use of your property for 12 weeks throughout the year — still more vacation time than most people take — and you know everything will be clean and in perfect working order every time you show up.”
Fractional can also be the ideal compromise when you and your significant other have differing ideas about vacation destinations — remember the mountain bike and the nail polish? One early buyer at The Residences at Sun Peaks put it this way. “I like to ski, my wife prefers the desert to the mountains, and my kids want to vacation in Hawaii. Instead of buying one property that’s a compromise, for the same price I can buy a quarter-interest in four properties — everyone gets what they want, everyone’s happy.”
The Inevitable Downsides of Fractional Ownership
With so much apparently in their favour, there are still a number of cons to fractional ownership. Even though Andersen notes that the demographic most likely to buy a fractional ownership property have sufficient cash to pay in full — if you do need financing, it’s going to be tough to get. Short version: financial institutions aren’t interested in fractional ownership.
“I’m only aware of one bank that will finance this type of purchase and it’s strictly on a one-to-one basis,” says Alisa Aragon, mortgage broker with Dominion Lending Centres Mount View. “Credit unions won’t touch them, and even private lenders are few and far between and often require as much as 65 per cent down.”
Factor in above-average strata fees, and a fractional second home isn’t for everyone. But then, part of homeownership’s charm — whether as a prime residence, second home or investment — is that it will never be a one-size fits all.
