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| The Basics | Vacation timeshares for the 'middling rich'
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Part-ownership in high-end resorts is all the rage among the aspiring jet set. It's a timeshare, only tons more posh -- and tons more expensive.
By Liz Pulliam Weston
Sure, you could buy a second home in Aspen, shelling out $3 million for a condo with ski-in, ski-out access. But then youd have to engage a staff to maintain the place, and is it really worth the hassle for a few weeks use every year?
Such are the dilemmas of what The Economist magazine calls the middling rich. And here come luxury timeshares to the rescue.
Actually, the preferred term for this high-end market is fractional interests, and it describes the same sort of shared ownership that allows the affluent to buy part-time use of a private jet.
Four Seasons and Ritz Carlton are big players here, and business is booming. Sales of fractional interests and their cousins, private membership clubs, more than tripled between 1999 and 2003, to $513.3 million, according to resort market trackers Ragatz Associates of Eugene, Ore. The number of projects has risen nearly 40% in the past two years alone, to 151.
A piece of a St. Thomas condo for $118,000
Instead of buying that condo outright, the moneyed can buy a slice of an expensive property: one-quarter, one-eighth, 1/12th or even smaller share.
For a mere $118,000, for example, you could be among the 17 or so owners of a two-bedroom condo in the U.S. Virgin Islands at the Ritz Carlton Clubs St. Thomas development. For $510,000, you could be one of 12 owners of the three-bedroom penthouse at the companys Aspen Highlands resort.
Then theres the annual fee, which at the penthouse would set you back about $9,700, or more than $300 for each day youd have access to the property.
Of course, that fee ensures you wont have to haul out the snow blower, mow the lawn or fix the roof, since maintenance, repairs and landscaping are covered.
Ah, those little touches
More importantly, though, youre buying access to concierge services that will stand in for that staff you wont have to hire. With a simple phone call, you can have the house readied for your arrival, including:
- Stocking the fridge.
- Getting your skis or other gear out of storage.
- Putting family photos on the mantels.
- Even setting up a little dinner party with your very own personal chef.
Its those concierge services that help distinguish fractional interests from their down-market timeshare brethren, according to Ragatz research manager Sarah Rezak. That -- and the sheer cost.
Timeshares are typically sold by the week, with the average cost somewhere in the neighborhood of $14,500, said fractionals expert Dick Ragatz, president of Ragatz Associates. Buying a fractional interest typically entitles you to three to 12 weeks at a property for a total cost that averages $250,000 at the most luxurious developments and $150,000 for the midrange fractionals. You receive a real estate deed, which you can sell or bequeath to your heirs.
Or, alternatively, you can buy into a private membership club, which offers similar luxuries without actual real estate ownership. You pay an initiation fee and annual dues, and your membership can be resold.
Attracting a very affluent audience
Buyers in fractional interests or private membership clubs typically have annual incomes north of $250,000, Rezak said. At the most expensive projects, the 1040s are in the $500,000-and-up range.
That compares with an average income of $85,000 for the traditional timeshare buyer, or $116,000 for those purchasing at Marriotts Vacation Club International, which specializes in weekly timeshares at upscale -- but not top-of-the-market -- resorts.
While many timeshares are located at the beach, particularly in Florida, the majority of fractional interest projects are located in mountain ski resorts, where land prices are soaring (and where millionaires complain theyre being crowded out by billionaires).
Obviously, the quality of the typical fractional interest sets it apart as well. No worn carpets, sticky countertops or overrun pools here; think marble bathrooms, gourmet kitchens and access to whisper-quiet spas.
You might even make a little money
Another difference between run-of-the-mill timeshares and the luxury version: some fractional interests have actually gained in value.
Timeshares are notorious for being lousy investments, with owners lucky if they can sell their shares for half of what they paid. The nascent fractional interest market, though, is showing some signs of resale strength. About $25 million in fractionals were resold last year, Ragatz said, with the majority fetching a higher price than the original owner paid the resort developer.
This product resembles real estate ownership more than the vacation ownership of the traditional timeshare, Ragatz said. Less of the total purchase prices goes to marketing and administration, so you have less money going out the window.
Fractional owners are far less likely to exchange their weeks for time at other units, about 5% annually compared with 40% to 45% with traditional timeshares -- in part because the concept is so new that relatively few exchange companies exist. But that should change as the market matures, Regatz said. Some companies offer such exchanges now, and you may also be able to trade in your weeks for time on a yacht or private jet. Owners of Four Seasons properties can exchange their time for stays in one of the luxury chains hotels.
The rules of the game to follow
Despite the differences, the rules for buying a fractional are pretty much the same as for buying any timeshare:
If you have to finance it, you cant afford it. You cant get a traditional mortgage for these properties -- at least not yet. So if you cant swing a cash purchase, youll wind up paying unsecured personal-loan rates of 14% or so. Another alternative: using a home equity loan or line of credit secured by your primary residence. Even then, youll want to make sure youre not stretching even slightly to afford it; vacation property is a luxury, remember.
Buy where you want to be. Many people buy the Florida timeshare expecting to exchange their week for time in high-demand areas like Hawaii -- only to find the desirable spots are all but impossible to snag. Your options may be even more limited with fractionals.
Dont count on resale. Yes, the early signs for fractionals are good, particularly compared to traditional timeshares. But theyll never compare to the potential appreciation on a property you own outright. Buy a fractional because youll use it, not because you think its a great investment.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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