How Suite It Is
With a time-share, you're buying a week or two per year at a vacation home—sometimes you actually buy real estate, sometimes just time.
When you buy a fractional, you're purchasing part ownership of a property affiliated with a resort. It's usually more expensive than a time-share, but you get more time and access to amenities such as spas and golf courses.
At the end of a vacation in Cabo San Lucas, Mexico, four years ago, Tammy Perconti didn't want to leave. So the 36-year-old stay-at-home mom from Rumson, N.J., spent $285,000 to buy a fractional interest in a villa at the Residences at Esperanza. Now she lives at the property for about 30 days a year, taking advantage of all the amenities for less money than full ownership would have cost.
Fractional properties are growing in popularity, in part because they give people more than just the traditional stint at a time-share-the value is in the experience of having a vacation home at a high-end resort like the Ritz-Carlton, the Four Seasons, or the St. Regis. But whether these deals are right for you depends on how much you want to spend for a second property and what sort of flexibility you want in planning your vacations. As with so many decisions about whether to make a big purchase, you have to ask the right questions.
1. Am I actually buying real estate?
One of the biggest differences between fractionals and time-shares is what you get for the money. With fractionals, you're buying a portion of deeded real estate—ranging from a twelfth to a quarter of a property—and you can use the residence for a month or longer each year. Because you own the property, you may sell it at any time or pass it on to your heirs. While some time-shares are also partial real estate purchases (though you usually get just a week or two each year), others are "right-to-use" arrangements, which means you buy the right to use the property for a certain amount of time each year, but you don't actually own it. If you want out, you can choose to sell your share to another buyer or back to the developer, but the stake decreases in value as time goes on and there are fewer years remaining on the agreement.
2. How do I finance a fractional?
Most fractionals start at around $100,000, but the price depends on the resort, the location, the number of weeks per year that you buy, the size of the unit, and the amenities. And getting a loan to pay for a fractional can be difficult: Because of the subprime-mortgage meltdown, banks have become skittish about lending to people buying primary homes, let alone vacation properties. Some fractional buyers choose to finance their shares by taking out a home-equity loan on their primary residence. Another option is borrowing from a bank that specializes in fractional property lending, such as First Fractional Funding (firstfractionalfunding.com), NextStar Funding (nextstarfunding.com), or Vacation Finance (vacation-finance.com). If you choose to go this route, you should have a very strong credit score (typically 700 or more) and you should expect to pay a slightly higher interest rate—about 1 percent more—than the rate on a primary-home loan.