Fractional Ownership Offers Affordable Option

June 26, 2009

Fractional ownership has been around a long time, especially in the United States where it is a multi-billion dollar industry.

But most people in Costa Rica are just becoming familiar with this approach to buying and owning property. It is a simple and cost-effective way of owning a second home without all of the hassle and cost of running and maintaining it.

Now you can realize your dreams of owning a pied-à-terre in Costa Rica, a condo on the beach or a fabulous-view property in the Central Valley. Buying a fully furnished beach house with a swimming pool and just steps to the beach is out of reach for most people, but buying just a few weeks in that property can suddenly make it much more accessible.

How Does Fractional Ownership Differ from Time-shares?

Fractional ownership splits the difference between whole or fee simple ownership, with its sole responsibility and full exclusive use, and the well-known timeshare where, most often, a person purchases vacation time at a resort but does not invest in the actual real estate.

Both fractional ownership and timeshare arrangements fall within the legal definition of a time-share in most of the U.S. and Canada. The term “time-share” refers to any arrangement in which a group of people shares use of a property based on time, regardless of whether they own the property and regardless of whether a management company or developer is involved in organizing or operating the property.

But, from both a practical and a legal standpoint, there are significant differences between the two arrangements.

Put simply, the meaningful difference is the extent of ownership and control given the users of the property. Modern fractional ownership almost always involves direct ownership, meaning that each user has a deeded interest, which usually means greater owner control over the property.

Some often-used phrases to describe fractional ownership include “multiple parties owning an asset” or “shared ownership of an asset in perpetuity.” This differs from a time-share in that the asset is owned by the person, rather than that person simply having the right to use time in a development for a limited period. A participant in a fractional ownership development has the right to sell or gift his share and determine a sales price based on market conditions.

As a result, a person could invest in properties just as he or she would in stocks in a company, owning a share or shares in a property that can be bought and sold on the open market.

A Lifestyle Asset You Can Buy and Sell A number of ways to structure a fractional ownership development exists.

One method is to have a Costa Ricabased company own the property, with the company offering 52 shares corresponding to the number of weeks available. Clients may buy as many shares as they wish and time will then be allocated in the property corresponding to the shares purchased. In other words, the company owns the property, and the shareholders own the company.

This method simplifies the usual legal and tax issues associated with property purchase in Costa Rica.

The rotating calendar, or RC, a method designed to promote fairness, ensures that all owners get equal access and use of the properties throughout the years of ownership.

This calendar can set fixed weeks, as well as “floating” weeks, each year so that owners can enjoy the seasons or acquire rental income, giving them cash returns on their investments. The starting point for usage is allocated on a first-come, first-served basis. Two weeks of the year are held in ownership by the developing company for maintenance purposes and, where possible, to assist owners in swapping weeks.

In the most common forms of fractional ownership, a shareholder has usage rights for 30 days or more each year, pays for only his share of the operating costs, owns the real estate and stands to gain from property appreciation.

Properties offered in fractional ownership usually are fully furnished, often to a very high standard. The aim of developers is to attract affluent customers – people with the means to purchase a vacation home but who are attracted to the simplicity and other advantages of fractional ownership – or, alternatively, customers who want to share in something they cannot buy outright.

These are the buyers sitting on the sidelines today, watching and waiting for the economy to improve.

For more information on fractional ownership, contact the author at www.FirstRealtyCRE.com

 

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