If you're looking at buying into a private residence club or a luxury fractional home, then at some stage you'll probably ask "Is this a timeshare ?".

Lets cut straight to the chase - the strict answer is "yes". At least the law considers them the same, which is good news for you as a potential buyer of a private residence club, since the laws for timeshares have been constructed to provide you with certain protections.

We've heard one person use a car analogy to compare private residence clubs to timeshares. He described the private residence club as a Mercedes SL500 and a timeshare as a Dodge Neon. Both are cars and both will get you from A to B, but when you buy a Mercedes you get a large luxury vehicle with all the latest features and will receive impeccable service at the dealership. With the Dodge, the ride might not be as comfortable and it certainly won't have the bells and whistles that the Mercedes provides.

Overview

A classic timeshare is usually part of a two, three or four star resort or condominium and provides one week of ownership in a studio or one or two bedroom property. Since you're just purchasing one week, there can be as many as 51 other owners of that same property who own all the other weeks. The timeshare may give you deeded property ownership or you might just have a right-to-use or a points-based program, in which you use the points to stay at different properties.

The term fractional ownership includes both luxury fractionals and private residence clubs (prc) and the line between these two can be somewhat blurry. Both of them give you three to thirteen weeks of ownership in a two, three or four (or more) bedroom property. A private residence club provides the full services and amenities that you'd expect in an exclusive high-end luxury hotel. Luxury fractionals offer high services and amenities but not quite at the same level as private residence clubs. Fractional ownership buyers actually own real estate and so typically have a recorded deed and title. The most common ownership fractions are ¼, 1/7, 1/8, 1/10 and 1/12. Some PRCs allow members to rent out their vacation weeks when not needed.

Property Comparison

A typical PRC residence is usually located on prime real estate such as a ski-in ski-out location or right on an exclusive beach or golf course. These residences with typical floor plans of 1,500 to 2,500 square feet and above are multi million dollar properties featuring the best in terms of amenities and luxury. Some of the homes can be up to 7,000 square feet. They incorporate great design, the best construction materials and impeccable attention to detail. Most PRC residences even have private pools, jacuzzis, gourmet kitchens, and office space with internet access. A PRC membership is a way to buy a luxury second home while paying only for the vacation time you will spend in it.

Timeshares are smaller in size, have lower quality furniture, fixtures and amenities and are consequently cheaper. Even a high end timeshare property does not provide a member with the amenities, facilities and services that a PRC offers. High end timeshares are usually part of a hotel and offer the same facilities available to hotel guests. A mid level timeshare property comprises of a one or two bedroom unit with a full or partial kitchen, fireplace and hot tub. Overall, buying a timeshare is a way to pay for future vacations at a resort that you like.

Costs

The purchase of a one week timeshare starts at around US $10,000 and goes up to around US $35,000, with the average being $16,000 according to ARDA the timeshare industry trade association. The annual maintenance fee is usually between US $500 and $1,000. There are a variety of independent websites through which you can sell your timeshare. If you try and sell within the first few years of ownership you'll usually find that you can only recoup 50% - 80% of the price you paid. With the resale value being so low, the only way to borrow money to pay for a timeshare is through the property developer.

The cost of a luxury fractional can vary from under $100,000 up to about $3m, with the average being around $260,000 according to Ragatz Associates. The annual dues average about $1,200 per week of ownership, so about $7,000 per year for a typical 6 week (or 1/8) share. Since you are buying deeded ownership you can also take out a loan to finance your fractional purchase. Not all banks will lend for this sort of real estate, but the number is growing. Read this article on fractional mortgages for more information.
When you want to sell your fractional ownership you are selling real estate, so you can list it with a real estate broker who can put it on MLS. The anecdotal information suggests that the prices of fractionals track the local real estate market.

Services

Services in private residence clubs start with a dedicated concierge who will help plan your trip and book any activities for you. These activities may consist of spa visits, golfing, hiking, white water rafting, theater tickets and skiing as just a few examples. Luxury transportation from the airport to the club, bell service, valet parking, daily housekeeping, complimentary dry cleaning and laundry services are just some of the other available services at many of the residence clubs. Personal touches are provided to each residence before an owner arrives and include pressing clothes (that have been left) in storage, stocking the refrigerator with favorite foods, putting out any personal items or pictures, cleaning and fine-tuning skis and golf clubs (that again have been left in storage).

Some of the private residence clubs are run by luxury hotel brands and may even be part of a hotel building, but with their own staff, concierges and amenities. Brands such as Ritz Carlton, Four Seasons and St Regis have private residence clubs.

In a timeshare, service is dependent on the type of timeshare property. If the property is part of a two of three star hotel chain service levels are similar to that which is available in the hotel. Hotel brands such as Hilton, Sheraton and Fairfield all have timeshare arms.

Usage & Exchanges

Fractional homes offer various ways of sharing out the year between their owners. These may be either (i) fixed weeks in which specific owners have the same weeks each year, (ii) floating weeks in which members reserve weeks using some sort of priority reservation procedure (see the example below), or (iii) hybrid which includes elements of both fixed and floating weeks. Here is an example of a reservation plan for a club with a 1:8 home to owner ratio, where each owner is guaranteed 4 weeks of planned vacation time each year. At the start of the year, each owner submits a list of top ten dates during which they would like to use their residence, then each owner based on the order they purchased is allowed to make his selection. If the first owner makes the first choice in the current year, the following year the second owner gets to make the first choice. After all members have finished reserving their planned vacation quota, the balance 20 weeks in the case of 1:8 homes can be reserved using the open or spontaneous reservation system.

In timeshares, members either buy fixed or floating weeks. While fixed weeks give the member the right to vacation during a specific week in the year. Floating weeks mean that the owner can reserve the vacation week during a specific season. Points based timeshares assign a point value to each property at each time of year and members can then trade in their points for the property and time they want.

With both fractionals and timeshares, owner/members can trade in their time at their home resort for time at other resorts and locations. Two large companies, RCI and Interval International, dominate timeshare trading. There are several companies that operate exchanges for trading luxury fractional and private residence club ownership. In some cases the club rules only allow trading between other clubs within the group, or for instance most of the luxury hotel chains also allow members to trade in their club time for hotel stays around the world.

Sales Process

Large hospitality companies like Marriott and Disney have done a lot to give timeshares a much more professional image. However, even today you can still hear stories about high pressure sales techniques being used by some timeshare operators.

For luxury fractionals we haven't heard of any aggressive sales approaches. This may partly be due to the more affluent and discerning buyer who would just be turned off and walk away from such techniques. If you've had experience of buying into a private residence club do let us know so that we can share it.

Summary

Private residence club and luxury fractionals allow members to indulge in owning a luxurious second home without having to worry about property taxes, maintenance, service levels and the other chores associated with second home ownership. Owners can buy the amount of time that they would typically spend in their vacation home without the financial commitment of buying a whole home. This article has information on why people buy a private residence club or luxury fractional.

Timeshares provide a way to pay for future vacation time.

 

The table below summarizes the differences:

  FEATURE   TIMESHARE  PRIVATE RESIDENCE CLUBS
   Investment Type   "Membership" or Deeded   Deeded Ownership
   Mortgage Financing   Developer   Banks
   Services   Limited   Five Star Full Service
   Return on Sale   Initial Drop   Real Estate Market, gain/loss
   Typical Property Location   OK Location   Prime Location
   Typical Days Use   7   28 - 90
   Property Sizes   500 sq.ft to 1,300+ sq.ft.   To 2,500++ sq.ft.
   Typical Bedrooms   Studio/1/2/   1/2/3/ ++
   Property Exchange   Thousands Properties   (Usually) exchange system

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