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Fulfill your luxury property dream for a fraction of the cost.

Most people think owning a vacation home in an exotic locale sounds like a great idea—until they buy one and discover that the house they live in for only a few weeks each year demands just as much money and maintenance as the one they inhabit year-round. But now there may be a solution to the problem of the not-worth-the-hassle ski chalet or beach bungalow: the fractional vacation home, an old idea that has recently taken on new life.

“Fractionals started years ago in the West in ski resorts in response to the high price of ski homes,” says Dan Giannini, Director of Fractional Sales and Destination Clubs for Condohotelcenter.com. “But over the last half-dozen years or so it has spread, and you can find fractionals in beach communities, golf communities or fishing communities. They have expanded to every aspect of leisure and every area of the country.”

With fractionals, rather than buying your own place, you purchase a deeded share of your chosen slice of paradise: a condo, a townhouse or even a single-family home in a gated enclave. You then have the right to use the property for a certain number of weeks or months each year, as with a time-share. The main difference between fractionals and time-shares (some of which do offer equity in the property) is price: While timeshares can be had for a few thousand dollars and are usually shared among many owners, fractionals cost from about $40,000 to more than $1 million, and the number of owners is usually no more than 12 (and often as few as four). Financing is different too: with the higher price tag, the developer-financed deals of the time-share industry are not practical, so fractional buyers either pay cash, use a home equity loan or get a mortgage, which will carry slightly higher interest rates and require a larger down payment than a loan for a primary residence.

“Fractionals are usually marketed on the basis of exclusivity,” says Giannini. “The property is more luxurious, the furnishings are more luxurious and the service afforded the owners is top of the line.” According to Giannini, convenience and amenities are nearly as important as price and location in the fractional market, with the management company taking care of maintenance, cleaning and bill payment, and often stocking the house with groceries and hanging up owners’ personal art and family photos before they arrive.

Such services, of course, are not free: Fractional owners pay monthly or yearly maintenance fees that vary widely depending on the particular property, the level of service and the number of owners. A 1/12 share of a luxury two-bedroom ski condo at the Ritz-Carlton Club in Bachelor Gulch, Colorado, costs $250,000, and the yearly fee (which includes tax, electricity and maintenance) is $9,800, according to Ed Kinney, Vice President of Corporate Affairs and Brand Awareness for Marriott Vacation Club International, the club’s parent company. At 21 days of use (two weeks in the winter and one in the summer—plus the opportunity to use the property on a per diem basis at other times)—that’s more than $450 in fees for every occupied day.

“The product is really positioned as an alternative for people who have considered second home ownership but have realized that they wouldn’t use it for more than a few weeks a year,” Kinney says. Since residential real estate in Bachelor Gulch typically sells for $1,000 a square foot, he adds, Ritz-Carlton’s program offers good value.

Like many other 'club’-type fractional programs, the Ritz-Carlton Club has multiple properties, in locations like San Francisco, Jupiter and South Beach in Miami, and owners have the option of reciprocal stays at other clubs—an advantage for those who want variety in their vacations. But other variations on the fractional model abound.

Doug Freyschlag, President of Denver’s Alpine Quarters, which sells quarter shares of mountain homes, says he believes that larger fractions without hotel amenities (and the resulting higher fees) give better value for buyers’ money. Alpine Quarters’ shares range from about $100,000 to $500,000, he says, with monthly fees of $200-$300 to cover maintenance, taxes, insurance and utilities. “Our owners have 13 weeks of use on a year-round basis,” he says. “They get a lot of real estate for their dollar. We don’t base our product on a club-level type environment—there’s a lot of cost associated with that stuff, and most people don’t care that much about it.”

Freyschlag recommends buyers take a careful look at how much time they receive in return for their money. “I think a lot of fractional projects have a real high premium in the cost as far as what they get, how much time they can use, whether or not they can rent it, what their monthly costs are,” he says. Also, he says, the smaller the share, the less benefit the owner receives from appreciation: “Even though they call it deeded interest, it is much more associated with timeshare than it is with fractional ownership.”

Whether you want five-star amenities or a quiet mountain cabin, there is likely to be a fractional program out there to meet your needs, and the variety of lifestyles and locations is virtually limitless, from fly fishing to spas. “We have a club we just listed in California, it’s called Calistoga Ranch, and it’s actually a vineyard,” Dan Giannini says. “The owners are totally immersed in the wine industry. They can go out in the fields and learn how to cultivate grapes, take part in picking, crushing, bottling, tasting, mixing, marketing—the whole lifestyle is centered around wine.”

How to buy fractional

1. Do some homework

The second-home market has become elaborately segmented, so it’s important to research the details of the myriad programs. In particular, know the difference between non-equity destination clubs, which sell prepaid weeks in a resort, and the actual real estate investment that comes with true deeded ownership.

2. Look for investment potential

Choose property in an established leisure destination with a strong real estate market where demand is likely to exceed supply, thus leading to appreciation. It’s also wise to select a developer with a proven track record—particularly if you plan to buy during the preconstruction phase.

3. Choose your lifestyle

Do you want to fly fish, ski or golf? Hang around cities, coasts, mountains (or all three)? There is a fractional program for virtually any lifestyle or leisure pursuit, and they’re located everywhere from San Francisco to Florida. You can commit to a single vacation spot or choose an equity residence club with reciprocal privileges at multiple locations.

4. How big a fraction do you really need?

If you’re only planning to spend two or three weeks a year in the property, it may not make sense to buy a large share that comes with several months of time. But some people prefer to share their space with a smaller group of co-owners—and the larger your share of the property, the larger your share of the profits if it appreciates.

5. Don’t bank on resale

While fractional property is likelier to appreciate than old-style time-shares (which are notoriously bad investments), remember that the main reason to buy a vacation home is to vacation in it. If you’re looking for investment opportunities, there are probably better places to put your money.

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