What Is a Fractional Residence?

Fractional residences combine spacious and luxurious homes with five-star service and a “no-hassle” model of ownership. Each home is sold to multiple owners, who then hold a fraction of the home. Each owner is then assigned a time allotment that varies based on the size of the fraction. It is best for buyers to purchase their residences during the earliest phase, as there is typically a 30+ percent price increase between the first and final phases.

Ten Reasons to Go Fractional

1. Exclusive locations
2. Ease of ownership
3. Furnished residences
4. Maintenance including house-keeping
5. Investment potential
6. Second home opportunity
7. Close proximity to many golfing and beach destinations
8. Impeccable services
9. Extended stays possible
10. Usually no limit for “space-available” visits

The Price of Fractionals

Instead of paying on a per-day basis, fractional residence members pay for the residence for a fraction of the year, and there are usually no limits on additional space-available reservations. Prices range from $100,000 to more than $500,000, depending on the size of the fraction, the size of the residence and location. In addition, owners pay an annual homeowner fee, which ranges from $8,000 to $25,000. Fractional residence members can reclaim their initial purchase price through reselling.

Know the Numbers

Prospective members should be aware of the risks in reselling memberships, as the market for this kind of interest is not proven. In addition, the appreciation associated with a fractional unit is still under scrutiny, as it is closely tied to the reselling market. Nevertheless, in recent years appreciation rates of private residence club memberships actually tend to be higher than rates of comparable non-fractional residence real estate. Some properties appreciate at more than three times greater than typical vacation home appreciation rates.

What to Ask

1. What is the composition of the PRC (number of units of each size and ownership type)?
2. Is there an adjacent hotel or other entity that shares amenities with the club?
3. Is there a floor plan and detailed description of the residence?
4. Do you have an exchange program among owners and/or with other PRCs?
5. What are the specific terms for usage, guaranteed access, and guest privileges (e.g., greens fees and tee times)?
6. What financing terms do you offer? Does it qualify as a deductible-interest mortgage?
7. How is my deposit secured?
8. Under what terms is the deposit refundable?
9. What is the precise ownership structure? What evidence will I hold of title?
10. Is there a history of resale?