Consumers looking for a cost-effective alternative to hotels and vacation homes are discovering the benefits of owning a fraction only of a second home. While Canadians have long-embraced the idea of owing a vacation getaway, rising costs of a cottage by the lake or waterfront property makes it cost-prohibitive to all but the well-heeled.
Fractional ownership of a home, usually a vacation or second home, means the cost of a property can be shared by up to 20 different buyers. Fractional ownership differs from timeshares, where people purchase blocks of time in a resort. Instead, fractional owners purchase their property with a fee-simple title. This means they can mortgage, buy, sell or pass deeded property to others.
"It was an opportunity to own a piece of paradise," says Adrienne Ash of Vancouver, who purchased a unit in the Mayne Island Resort and Beach Homes. "Waterfront properties are horrendously expensive and out of reach for the majority of people." She and her husband, Ian, bought a one-eighth interest in a one-bedroom waterfront cottage.
For $73,000 she can spend one week every other month at her 650-square-foot, self-contained and fully furnished cottage. The six weeks she is allocated are spread out over the year and she has the option of renting out her unused time. The pet-friendly cottage comes complete with a living room with fireplace, full-size kitchen, outdoor gas barbecue, patio deck and laundry facilities. Other units sell from $59,000.
The Ashes are not alone. According to Ragatz Associates, a U.S.-based international consulting and marketing research firm to the resort industry, the total sales volume of the fractional property industry in North America was $571 million in 2007. Fractional ownership prices vary by country and are usually higher in destinations such as ski communities. Per square-foot prices range from $695 in Canada to $1,725 in the Caribbean.
"Fractional properties help consumers spread their investments," says Sylvia Therrien, a real estate agent with Newport Realty. "It is especially attractive when someone is looking to buy in an expensive real estate market such as Victoria." She says buyers are attracted to fractional properties because they are secured by property deeds. This leaves them money to pursue investments in other areas.
As with other forms of real estate, the success of a fractional offering depends on the location of the property. Therrien says it helps if the property is close to amenities. She sells units in the Parkside Victoria Resort and Spa, the first fractional offering in Victoria. It is a 126-unit building that offers one-quarter fractional ownerships in a 540 square-foot one bedroom suite from $140,900. It is 78-per-cent sold.
Offering fractional ownership properties instead of condos or rental units has advantages for developers as well as purchasers. For one, they don't have to tie up capital in multimillion dollar properties. When a property has eight owners there is a greater chance the units will be occupied over the course of a year. With increased occupancy, the hotel's facilities, such as the restaurant and spa, will also see more business.
The hotel often serves as a property manager for the fractional suites, cleaning and maintaining them for the next owner's visit. It will also manage property rentals on behalf of the owners.
In the Ashes' case, their cottage is situated adjacent to the Mayne Inn, which was built in 1912. The inn has undergone an extensive renovation and now offers a pool, exercise room, restaurant, 33-seat bar, conference room and spa facilities. While the amenities of the inn are available for the owners of the 18 fractional cottage units, the inn is a separate business and open to the public.
"We realized early on that the inn's old business model [with rented rooms above and dining facilities below] belonged in another time and just couldn't work," says Andrew Pottinger, one of the businessmen who developed the Mayne Island Resort and Beach Homes. "We came to the conclusion the long-term viability of the business was possible with a business plan based on multiple owners of the properties."