Maybe you’ve seen the ads. A six bedroom house with hardwood floors, commercial appliances, plasma tv’s, a lakeview, 35′ boatslip, gold plated toilets, all within a couple hundred feet of the lake for $150k. No, the lake isn’t Lake Delton, and no, you’re not buying a house with all those amenities for $150k. You’re buying a fraction of that house. It’s fractional ownership, and it’s arrived in Southeastern Wisconsin, this time, outside of Orange Lake at the Grand Geneva. They tried time shares, I mean fractional ownership, at Geneva National as well.
Go ahead and ask how well that did (badly). Fractional ownership is a kinder, gentler phrase used to describe timeshares on a larger level, but guess what. It’s still a time share, and it’s still not that great of an idea. Follow me for a bit.
I don’t like these structured ownerships for myriad reasons, but the lack of liquidity is the main concern, and the lack of use is the other. If you buy a 25% share of a home, you get to use the property a quarter of the year. Whatever company or ownership group arranges the timeshare will provide you with the usage information and fees before you buy. If you’re buying a 25% share, you’ll get 3 months a year, and you generally get those months in full month blocks. You’ll get a prime month, a not so prime month, and a decidedly un-prime month. Your vacation freedom is shot. A sunny Thursday in June and you cut out of work early. Wouldn’t it be great to take a quick drive up to your Lake Geneva vacation home for some mid week R&R? Oops, sorry, the Johnsons are living in your home this month. Sleeping in your bed. Bathing in your bath tub. Washing their dogs with the tea towels that you dry the dishes with. Maybe not, but the the part about bathing in your bath tub is a certainty.
I just don’t think the form of ownership meets the need for most vacation home seekers. If the fractional shares were wildly cheap, say $70,000 for three months, the value would be too great to not consider. But what you typically end up doing is paying a premium for the real estate purchased. It’s not uncommon for a home that’s valued at $500k to be divided into 33% ownership blocks at a cost of $200k per share. That’s a total value of $600k for the $500k real estate, and this gets back to why these aren’t the most liquid form of ownership. If you’re thinking of this ownership, perhaps it’s best to look for a seasonal vacation rental instead. The costs would be lower, the liquidity not a concern, and you get to try another place next summer if it didn’t work out.
I’m not a fan, but that doesn’t mean it’s not a viable way to purchase a vacation home in this market. Just be sure to think about the costs associated, the usage capabilities, and the resale ramifications of this form of ownership. As always, it’s your call, but if it was me, I’d keep looking.
Hypothetical properties are described above, so don’t call me looking for the $150k timeshare with the gold toilets!