If you vacation in resort areas, the thought of forking out money for vacation rentals each year, for years on end, might drive you nuts. If you vacation for only a few weeks each year, however, the year-round costs and responsibilities of owning a second home in a resort might not appeal. (For more details on the expenses of owning a resort home see Nolo’s article “Budgeting to Buy a Resort Home? Expenses Not to Overlook.”)
As an alternative, you might consider sharing ownership in a resort home with others. You’ll have to decide what form that co-ownership should take, however. This article will explore various options that have already been created for you by property developers. (For the purposes of this article, we assume the resort property is within the United States, although similar arrangements are typically available overseas also).
Shared home ownership arrangements are typically offered as one of three main types, either:
These shared ownership arrangements are the most common ways for developers to sell one property (typically a condominium unit in a resort area) to multiple owners, usually for use as a vacation accommodation.
Shared deeded ownerships are often sold as “timeshares,” “interval ownerships,” or “fractional ownerships.” Each owner is granted a small percentage of the real property or unit itself, and receives a deed for that percentage. Each deed contains restrictions on when the owner can use the property. Most purchasers buy a one-or two-week period in the property.
For example, if a resort condominium unit is offered for sale in one-week intervals (and no one buys more than one week), 52 owners will own an interest in that particular unit. Each owner will receive a deed specifying which week he or she owns and entitling the owner to use the unit for that week.
Some properties offer a variation to the “fixed” week, where an owner can purchase a “floating” or “flexible” week. The exact way this works depends on the property, but typically a buyer purchases a week during a certain block or category of dates (such as week in “high season” or a week in “off season”). The owner can then choose to use the property during any week within that block (or category) of dates each year (subject to availability and reservation requirements).
With a shared deeded ownership, an owner’s interest in the real property does not ordinarily expire, and the owner can freely transfer (sell, give away, or bequeath) the interest in the property. (This depends, however, on the terms agreed to at the time of purchase.)
Although the owner of one of these shares purchases an interest in a particular property, many resort developments offer the opportunity to participate in exchange programs. These enable owners to trade time in their own property for time in another participating property. For example, if you own a week in a ski area condominium unit but are tired of snow, next year you might swap it for a week at the beach in a participating property in Hawaii.
Exchanges are not always simple, however. Exchange clubs typically have a number of rules and requirements that an owner must follow in order to make an exchange. For example, additional fees may be assessed, and certain reservation procedures followed. Popular properties tend to be difficult to get, and usually owners are limited to choosing another property classified in an equivalent manner to their own. If you own a week during a resort’s off season in a studio condominium, for example, you probably will not be able to exchange it for a two-bedroom condominium during high season at another resort.
Shared leased ownerships might be sold as timeshares or interval ownerships (and less commonly, fractional ownerships). With a shared leased ownership option, the developer retains deeded title to the property, but sells numerous leased interests in the property to individual owners.
Each lease agreement entitles the owner to use a particular property (as with a shared deeded interest, usually resort condominium units) during a particular time period (again, usually a one- or two-week period). Similar to a shared deeded interest, an owner is typically entitled to use the property each year for a set week, or a “floating” week during a set of dates.
With a shared leased ownership, however, the owner’s interest (the lease agreement) typically expires after a certain term of years, or upon the death of the owner. The owner’s interest therefore typically cannot be inherited. A shared lease ownership also typically has more restrictions on the property’s transferability than a deeded ownership interest. For example, the lease might restrict the owner’s ability to transfer or convey the property.
As with shared deeded interests, leased interest ownerships are commonly used as a way to share ownership in resort condominium units. Also as with shared deeded ownership, other properties might be available for the owner’s use if the development participates in an exchange program (as described above).
Another way to share resort property ownership is with an ownership interest with a right to use agreement. This is often used for “resort club” or “vacation club” memberships. Currently, some big names like Disney and Marriott offer resort club memberships.
Under this type of ownership, an owner does not, in most cases, own a part of any one particular property. Instead, the owner purchases a certain number of membership credits, or “points,” giving the owner the right to use any one of the vacation club’s properties for a certain period of time each year. These vacation clubs aim to work with properties worldwide to create a large network of desirable vacation accommodations for club members to choose from.
The actual membership details (under the right to use agreement) can be set up in a variety of ways, but the type of accommodations and the length of time an owner is entitled to usually depends on the amount of points purchased. For example, the highest priced membership option might entitle an owner to choose from a large selection of commodious high-end properties in a prime locations, while with a lesser, more inexpensive membership, an owner might be entitled to choose from only a small collection of more modest accommodations.
In some vacation clubs, points can even be used for alternative vacations, such as cruises, or discounts at attractions (such as ticket discounts at Disneyland if you are a Disney Vacation Club member).
For someone who likes maximum flexibility, ownership shared via a use agreement can be a great opportunity. However, as with shared lease agreements, the ability to transfer, convey, or bequeath the use rights might be restricted. Additionally, the quality and value of the available accommodations can vary greatly. Since you aren’t buying in a particular property, and each right to use agreement is different, the only way to know what you’re getting is to thoroughly examine the details of the agreement before you buy.
While there might be many reasons to buy a shared ownership interest in a resort home, the property’s investment potential typically is not among them. None of the options for shared ownership described above is likely to be a valuable, appreciating asset once purchased.
On the contrary, most shared ownership interests will depreciate in value and may be difficult to resell at all. Their main value lies in helping you avoid the hassle and expense of booking rental accommodations each year. You’ll have the enjoyment of annually returning to your “own” property or choosing from a number of exciting properties in which you own an interest.