Is Fractional Ownership Really Suitable for the Wealthy?

One tends to see it stated everywhere that the rise of the wealthy is going to be good news for the fractional industry. Now obviously to indulge in this sort of leisure spending you have to have a good chunck of disposable income (and probably capital), but I wonder if fractional ownership is really the answer for the seriously rich. My concerns about this are twofold:

1. The rich have worked hard for their money, and (I imagine) don’t want to compromise on their leisure experiences and when they can take them. If they are able to pay $300,000 to buy into a “luxury” private residence club they are probably in the position where they could put this money down as a deposit and get a mortgage to buy a property outright. They would then be able to use the property whenever they wanted and possibly arrange to rent it out at other times.

2. Anyone I have ever met who has accumulated a fortune tends to be quite careful with money. This is not the same as saying that they don’t spend it, they just want to see that they are getting good value when they do. Most so-called fractional schemes on the market today ask for a large capital investment (in addition to an ongoing fee) with no possibility of captial appreciation. Surely most seriously wealthy consumers are going to see through this?

Point 1 above is common to all forms of collective ownership. Point 2 however is related to the types of schemes that are currently on the market. If there were more schemes in which the fractional owner could benefit from capital appreciation (and possibly investment gearing through mortgages) then this situation would be improved.

Advice for Turning a Development into a Fractional Scheme

This was originally posted in response to a request on the members forum at www.reachtogether.co.uk.  It gives some initial points to consider when considering a fractional scheme:

If you are considering selling via fractional ownership I would suggest some background research as follows:

www.andysirkin.com – read through some of the articles on this site related to fractional ownership.  It is American but has some general points of interest.
www.luxuryfractionalguide.com – Again an American website with some general points about fractionals – tends to focus rather too much on the American-style private residence club to be of a lot of use.
www.yours2share.com – A website based in the UK with adverts for people setting up/selling fractionals.  A lot of useful information.

Returning to the specifics, you have a lot of things to consider!

1) What type of fractional scheme are you thinking of setting up, i.e. what sort of services are you going to provide?  At minimum you will need to have a cleaning service contract for changeover days and a means of allocating use between the fraction owners (this could be given over to the fraction owners but I think you will find it easier to market if it is all setup)
2) The legal structure.  In this instance I would suggest a separate UK (presuming that you will be marketing mainly to UK buyers) limited company to own each property.  This does incur running costs but is simple to setup and is a structure that is well understood by everyone.  I would also include a winding-up clause in this company (after say 5 years) to give investors an exit route.  The UK-base of the owning entity means that any disputes (over the shared ownership part) can be handled in UK law.
3) What size of fractions are you considering selling?  There’s no right answer here, more fractions expands your total market but makes for more hassle.  Somewhere between 4 and 13 would be normal.
4) You will need to consider a premium to be put onto the price that you would have sold the properties for (to cover extra legal/administrative effort).  Not sure what you had in mind but I would say at least 15%  Some sources will suggest 50-100% but this is going to cut down your potential market.

There are lots of other detail things but I hope this gives you some things to think about.  Let me know if you have any further queries.  Your more than welcome to keep posting questions here, but if you feel you need more help than I can offer a no-sale no-fee consultancy service.

What is Fractional Ownership – 2

Just remembered that when researching my previous post I came across these very silly definitions of fractional ownership:

 ”Buying the right to use a property in units of more than a week”  – They’re trying to sell you 2 weeks of timeshare!

 ”A shared arrangement for a home that is more luxurious/has more luxury services than a timeshare” – They’re trying to sell you an expensive timeshare!

 The second definition is as stupid as trying to define the difference between renting and buying based on the size of home involved.

What is Fractional Ownership

Since most of this blog doesn’t really make sense without understanding what fractional ownership is I have created an article on my website to explain the basics.  This is imaginatively titled what is fractional ownership!

Anyone in the fractional industry wouldn’t need to read it since it is a commonsense guide to the basic principles of fractional ownership.

My Views on Fractional Ownership

I think that true fractional ownership is an incredibly exciting trend.  It can truly transform lives, make things possible that previously were not, and enrich your life experience.  Some people will say that it cannot work, that it is too complicated etc.  I say look at most of the major achievements that man has made, and they are all based on many people working together to achieve the same aim.  Modern companies are examples of this form of cooperation (although I do admit that this is slightly different, since the owners of Shell don’t all want to visit the same oil rig on a public holiday!)

One of my main worries is that this excellent concept has been hijacked by some of the dubious companies that used to market timeshare.  People must know that there are realistic and fair ways of sharing the ownership of leisure (or other assets).  This is my mission (not that I’m self-important in any way!).

 There are some excellent companies working in this field, and when I’ve got my confidence (and my google rank!) up a bit I will be sharing my views on the best.