Fractional ownership

In business, fractional ownership is a percentage share of an expensive asset. Shares are sold to individual owners. A fractional owner enjoys priorities and privileges, such as reduced rates, priority access on holidays and income sharing. Typically, a company manages the asset on behalf of the owners, who pay monthly/annual fees for the management plus variable (e.g. per-hour, per-day) use fees. For rapidly-depreciating assets, the management company may sell the asset and distribute the proceeds back to the owners, who can then claim a capital loss and optionally purchase a fraction of a new asset.

Whether fractional ownership provides a financial advantage over renting is an on-going debate, and some countries and regions have tax laws that provide additional benefits for owners, such as capital-loss allowances, while others might penalize ownership over renting.

Aviation

Fractional ownership is a popular investment in the private air travel arena. Essentially, you purchase a partial interest in an aircraft that is operated by an aviation company as part of its fleet. As an owner, you have the right to use any comparable aircraft in the fleet, on demand, for a predetermined number of hours each year. Generally speaking, fractional ownership is said to be for those who fly between 50 and 200 hours per year. (A typical agreement might include 100 hours of flying time per year for each 1/8 share.) The fractional provider manages the aircraft and the rest of its fleet, providing pilots, maintenance, insurance, catering and other services. You merely call a few hours ahead of time and the provider guarantees delivery of a plane where you want it, when you want it, to take you where you want to go.Fact|date=March 2008

History

The term fractional ownership originally became popular for business jets. Richard Santulli of NetJets pioneered the concept of allowing businesses to purchase shares in a jet to reduce costs.Fact|date=March 2008 With a fractional jet plan, members will typically fly in any jet available, not necessarily the one in which they own shares. The management company will reposition jets as necessary and provide flight crews. Companies with greater needs purchase larger shares to get access to more time.

The fractional-ownership concept has since been extended to smaller aircraft and has now become common for single-engine piston aircraft like the Cirrus SR22, which are beyond the financial means of many private pilots. The same concepts apply, except that the management company may not provide flight crews nor reposition the aircraft.

Many pilots get together to buy light aircraft in a privately bought and managed fractional ownership, this is often known as group flying.

Fractional ownership has played a significant role in revitalizing the general aviation manufacturing industry since the late 1990s, and most manufacturers actively support fractional ownership programs.

Fractional Property Ownership

Fractional ownership simply means the division of any asset into portions or shares. If the “asset” is a property, the title or deed can be legally divided into shares. In certain instances this is done by creating a "mezzanine structure", i.e creating a company which owns the property then allowing multiple owners or investors to own shares in the company. Those shares can then be purchased and owned by more than one individual. The reasons for a "mezzanine structure" can vary. Two common reasons are to allow transfer of shares without the need to reflect changes on the title or deed to the property, and for tax benefits.

Shared ownership of the property and its deed will also entitle shareholders to certain usage rights, usually in the form of weeks. Conceptually, Fractional Ownership is "not" the same as Timeshare. Fractional Ownership affords much of the freedom and usage benefits offered in timeshare, however, the fundamental difference with fractional ownership is that the purchaser owns part of the title (as opposed to units of "time"). Therefore, if the property appreciates in value, then so do the shares. As with whole ownership, fractional owners can sell whenever they deem necessary or prudent, releasing the capital growth from their "bricks & mortar" investment.

Real Property

The practice of joining together with family and friends to share ownership of vacation property has been around for many years. But the fractional property industry started in the US in the Rocky Mountain ski resorts in the early 1990s. These first fractional developments recognized that people did not want to buy whole homes, which they would only use for a few weeks a year in the mountains. According to research firm Ragatz Associates there were over 250 fractional developments in North America in 2006 and fractional properties can now be found throughout the world.

Outside the USA a non-commercial form of fractional ownership has been in existence for several decades. In this form, otherwise unconnected individuals (rather than family or friends) form private syndicates to purchase, for example, vacation property or boats. These syndicates operate as private member groups with small numbers on a non-profit basis, generally just sharing expenses and usage. These groups can involve assets ranging from modest apartments or condominium type properties to multi-million euro / dollar properties, and leverage their ability to make collective purchases of additional assets such as boats or vehicles as additional facilities, while retaining control entirely within the membership of the group.Fact|date=February 2008

The popularity of the term "fractional ownership" has caused extensive rebranding in other industries where similar concepts, such as real estate timeshares, were already well established.

Fractional ownership divides a property into more affordable segments for individuals and also matches an individuals ownership time to their actual usage time. A fractional share gives the owners certain privileges, such as a number of days or weeks when they can use the property. Occasionally, the property is sold after a pre-determined time, distributing the relative proceeds back to the owners. A few private owner-groups have developed highly sophisticated usage allocation schemes and other features based on the principle of attempting to get as close as possible to the flexibility of individual ownership, and only compromising this to the minimum extent necessary to accommodate multiple owners. In such schemes the basic agreement is between the members themselves, whereas in most commercial fractional ownership schemes, the owner's principal relationship is with the property developer and/or promoter of the scheme.Fact|date=February 2008

Private residence clubs are the luxury, high end of the fractional property market. They provide the services and amenities of five star hotels, and some of the luxury hotel groups, such as Ritz-Carlton, Four Seasons and Hyatt run their own private residence clubs. Occasionally membership in a private residence club grants to its member only the right to usage of the club properties and services, without ownership rights in the properties themselves. Note a private residence club is different from a Destination Club, although the terms are sometimes used interchangeably.

In addition to luxury private residence clubs, single "stand-alone" vacation homes and condos can be converted to fractional ownership. This fractional home conversion process can be accomplished by any knowledgeable seller or through a fractional consulting company. The benefit of fractional home conversion includes the ability of the home owner to keep a portion of the ownership for themselves, pay off debt and reduce expenses.

A key aspect for any fractional owner is to understand their usage rights and the reservation plans. These vary from property to property. Some offer fixed occupancy periods in which an owner uses the same time each year. Some offer "floating" periods, in which the occupancy times rotate throughout the year, and some offer a mixture of these, with some time fixed and some floating.

Another variation in the business model is what are called "destination resorts". These are typically properties, whether hotel rooms, suites, or freestanding villas, located on property owned and managed by a hotel developer, and which provide amenities typically expected of a high class hotel or resort. Some hotels are also developed as a condo-hotel, in which individual rooms are sold off to individual owners.cite web
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title = How to live like a millionaire – even if it's only part-time
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ports Cars

Individuals may now purchase fractional shares of high-end sports cars, including some of the world's most exclusive exotic car brands such as Ferrari, Lamborghini, Aston Martin and Koenigsegg. Such expensive automobiles, when owned by individuals, typically spend the majority of their time in storage, with high annual ownership costs. Fractional shares distributes these annual costs across several owners, who pay for and benefit from the asset.

Other areas

Fractional ownership is also beginning to appear for luxury items such as yachts and high-end motorhomes.

Fractional Yacht / Boat Ownership provides marine-enthusiasts with ownership of shares in yachts of all sizes and uses. Some programs sell actual equity in the watercraft and others sell "membership," where the members' dues provide access to the boats, but no ownership. Fractional yacht companies sell shares/membership in small motor boats, sailboats, mid-range yachts all the way to the megayachts for day-use, multi year contracts, or charter-like arrangements.

ee also

*Destination Club
*Timeshare

Citations

External links

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