One of the hottest new areas in real estate is fractionals — properties where several different people share ownership and use of a destination or vacation property. When your clients are thinking about adding to their real estate portfolio, this is one of the hottest options for 2008.

One of the hottest new areas in real estate is fractionals — properties where several different people share ownership and use of a destination or vacation property. When your clients are thinking about adding to their real estate portfolio, this is one of the hottest options for 2008.

You may have noticed that hotel companies such as Starwood, the Ritz Carlton and the Four Seasons are building new hotels or “residences” in prime areas across the country. Most of these properties now allow you to purchase a unit and be the full owner of the property. When you’re not there, you have the option of renting the unit out through the hotel or leaving it empty. You don’t have to worry about upkeep since the hotel manages that for you.

A much more intriguing way to own more than one property for the price of a single full ownership is “fractional” ownership. Fractional ownerships are different from timeshares. Here’s how one company describes the difference:

“Interval ownership or timesharing is typically the ownership of a week, which may or may not float within a season from year to year. The St. Regis Residence Club (in Aspen, Colo.) is comparable to purchasing a second home and is similar to joining a prestigious country club where members reserve use rights to their homes rather than tee times.”

One of the most attractive aspects of fractional ownership is that a buyer could spend $500,000 and have a 20 percent share of a $2 million unit. In the ultraluxury market, a buyer may spend $1.5 million to have a 20 percent share in a $5 million luxury home program. Many of these programs provide full-time staff for their guests. This may include a full-time cook, cleaning staff and just about any other service a visitor would need. In fact, one ultraluxury program even had a Ferrari available in the garage for their guests.

Another attractive aspect of fractional home ownership is the ability to trade one’s time in his or her unit for time at a different unit in the system. I recently spoke to Jamie Kline of Starwood Hotels who explained how the Starwood Fractional program worked. When buyers purchase a Starwood fractional, they have the right to use the property for one or more months per year, depending on how much they purchase. But what happens if the owners would prefer to spend Christmas in Aspen rather than at their property in Manhattan? Starwood has created two different options where the owners can trade the use of their property for vacation time elsewhere.

The first option is to make your fractional ownership available to the other people who also own fractional ownerships in the Starwood system. If your fractional is considered to be an “A-rated” property, then you can trade with others in the system for “A-rated” inventory as well.

According to Kline, Starwood has an additional program that is different from some of the other fractional ownerships that are currently in the marketplace. For instance, say that a couple wanted to go to Tahiti for their honeymoon. If Starwood doesn’t currently have a fractional ownership property there, members can convert up to two of their Club weeks for Starwood Preferred Guest Points. With their points, they have access to more than 850 hotels in 95 countries. As Starwood owners, they receive special treatment over and beyond what ordinary guests would experience.

Vacation or Destination Clubs

A slightly different variation of the fractional approach includes the new luxury vacation or destination home programs. The “Big 3” in the destination vacation market includes Exclusive Resorts, Private Escapes and Quintess. These three companies hold nearly 70 percent of the market. The Quintess program requires a $345,000 deposit to belong. In exchange, you have access to premier villas, castles or luxury residences from all over the world.

An entirely different option is being offered by the Four Seasons Ocean Residences. They are currently offering 112 “graciously appointed homes at sea, circumnavigating the globe on a private tour of unrivalled international destinations on all seven continents and surrounding you with the service, amenities, and elegance of Four Seasons Hotels and Resorts.” (The price is 2.8 to 30 million euros or about $4 million to $40 million U.S. dollars.)

Which of these programs is the best bet for your clients? While some programs do pay commissions, virtually none of them offered a commission structure on their Web site for agents. If one of these options exists in your area, it would be smart to visit the sales office to determine whether they offer a commission to brokers.

To determine which type of ownership is best for your clients or for your personal second home, visit www.heliumreport.com for an in-depth comparison of the various types of fractional and destination club ownerships.

Bernice Ross, national speaker and CEO of Realestatecoach.com, is the author of “Waging War on Real Estate’s Discounters” and “Who’s the Best Person to Sell My House?” Both are available online. She can be reached at bernice@realestatecoach.com or visit her blog at www.LuxuryClues.com.

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