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More Than a Fraction of the American Dream:  Vacation Home Ownership 
The American dream could be said to have existed as far back as the founding of 
the thirteen colonies.  People risked crossing the dangerous Atlantic waters in order to 
begin a new life in America.  No one alive today saw that crossing.  We did see “The 
Jeffersons” - the fictional 1975 family TV drama that depicted one family’s crossing.  
Like Ja'net Dubois crooned on “The Jeffersons” opening song they “finally got a piece of 
the [American] pie.”  The Jeffersons “pie” was a “deluxe apartment in the sky.”   And 
like the Jeffersons, almost all Americans dream of buying their own home.  For those 
whose dreams of home ownership become a reality, second homes are possibly the 
ultimate status goods.  Unfortunately, many think that the ski lodge or beachside retreat 
they’ve always wanted is unattainable.  Even when some are actually able to purchase 
second homes, they are quick to express frustration at not being able to spend more time 
there.  It seems to them like the high cost of purchasing a vacation home (mortgage, 
upkeep, insurance and taxes) far outweighs the benefits of using the property for just a 
few weeks a year.   

So, for a rapidly increasing number of Americans, including those who already 
own at least one vacation home, fractional-ownership has given them something that they 
once thought was impossible – a vacation haven that they can enjoy as much or as little 
as they want, for a fraction of the cost (pun intended).  Fractional owners get beautiful, 
high-quality vacation houses or condos, in fantastic locations, with great services and 
amenities for 10% or 15% of what they would have to pay to buy the property on their 
own.  The costs of buying and running the property is shared by a number of people and, 
instead of sitting idle most of the time, the homes are nearly always being used.   

A Piece of Fractional Ownership History 
Fractional owners form one of the fastest-growing segments of the vacation home 
market.  New sales totaled $1.5 billion in 2005, up 42 percent for the year.  The industry 
began in Utah about 10 years ago when Steve Dering, of DCP International, started the 
first fractional-ownership community in Park City.  Many of the very expensive lodge- 
type homes there were under-utilized and he figured owners were spending a lot of 
money for just three or four weeks of use.   

They’re Not Timeshares! 
From a strictly legal standpoint, the term “timeshare” refers to any arrangement 
under which a group of people co-own a property based on time; but from a practical 
standpoint, there are significant differences between fractional and timeshare ownership.  
For one thing, timeshares are merely contracts specifying a right to use a property for 
certain weeks.  Fractional owners usually get an actual, owned, deeded interest, which 
can be sold, left in a will or put in a trust. Practically anything that can be done with any 
deeded property can be done with a fractional ownership interest. The meaningful 
difference between most timeshare and fractional ownership arrangements is the extent of 
the ownership and the control given to the users of the property.   

Generalizations about the differences between timeshares and fractionals can be 
misleading.  It is important for buyers and those advising them, not to be misled by the 
way something is named or advertised, or even by whether it’s deeded or not. Contrary to 
popular misconception, having deeded ownership of a co-owned property does not 
automatically determine (by mere virtue of having a deed) a property owners’ control 
over how the property will be managed, what the ownership costs will be in the future, or 
whether the property will increase in value over time.   

Getting a Piece of the Fractional Pie: Who Should Buy? 
Given their relatively short history, data on whether fractionals make money is 
limited.  However, there has been at least one example of a property that has been a good 
investment.  At the Deer Valley Club in Park City, shares that cost $130,000 about 10 
years ago sell for approximately $655,000 today, according to Dering.  With the present 
state of the real estate market coupled with the fact that fractionals are currently located 
in sought after locales like Cabo San Lucas, St. Thomas, and expanding to cities such as 
New York and San Francisco, the probability that these kind of properties will increase in 
value seems more likely than not.  But the increase in the real property value must be 
weighed against some of the costs unique to fractionally owned properties, like 
management fees, the costs of repairs and, maintenance/cleaning costs.  In addition, many 
fractional interests are priced at a premium; each interest when added together usually 
equals more than the price of the whole property.  So to have a more accurate sense of the 
investment value of fractionally owned property, all costs must be weighed against any 
projected increase in the resale value. 

Professionals advising to prospective buyers of fractional interests in vacation 
property should be careful to state that typically they are primarily for people who can 
afford a vacation home but don’t have the time to fully use it.  They are not necessarily 
good for those seeking to re-sell and make a killing. As far as resale, prospective co- 
owners must read their fractional ownership documents carefully to make sure that the 
terms of purchase allow them to sell to others outside the group.  Their ability to sell may 
be subject to right of first refusal or rejection for existing co-owner restrictions. These 
restrictions protect the group from incompatible or unqualified buyers but are not an 
outright prohibition on resale. Other restrictions could prohibit individual resale outright 
or requiring unanimous consent which means that there is no way for a co-owner to exit 
the group without selling her interest to another co-owner. This set-up could be 
problematic because no other co-owner may be interested in purchasing an additional 

A Fraction of the Legal Documents Owners Should Something About 
Fractional ownership documents fall into two general categories: (i) those that are 
recorded in the chain of title to the co-owned property and thereby become binding on 
each subsequent owner even without that owner’s signature, and (ii) those that are 
unrecorded and bind only those that sign them.  Most fractional arrangements involve a 
combination of recorded documents like deeds, and unrecorded documents like 
management agreements, but one should not make generalizations about the kinds of 
documents or their names since each seller will undoubtedly use their own.  
Notwithstanding the fact that there are many flavors of documents, it may be useful to 
become familiar with some common names being used for fractional property documents 
like, “Declarations”, “User Agreement”, “Agreement to Purchase Real Property”, and 
“Bylaws.”  Since there is no uniform requirement that all documents with a particular 
name contain the same terms and conditions, it is key that buyers review all documents 
carefully to make certain that they are getting what they bargained for. 

What About Taxes? 
In general, the tax treatment of vacation homes depends on how often the property 
is used for personal use and how often it is used as a rental.  When vacation property is 
co-owned IRS regulations seem to suggest that the usage by all of the co-owners, their 
relatives, non-paying friends, and swappers should be added together to determine the 
total number of personal-use days. Any other days that the property was used by someone 
else are considered “rental days.”  Tax deductions for mortgage interest and property tax 
will depend on whether the co-owners seeking to take those deductions, qualify as “pure 
second home” owners by the IRS. As far as state law, in Massachusetts seniors and 
veterans who qualify for certain exemptions from property tax may still qualify as 
fractional owners.   

Tax law and other areas of law that affect fractional property purchasing such as 
real property law, securities law and corporate law, can be very complex, which is why 
fractional buyers (even those who have previously bought properties and therefore feel 
like they are comfortable with what it means to buy property) should seek the assistance 
of professionals, like lawyers, real estate agents and/or accountants when purchasing their 

Other Legal Stuff Of Which Fractional Owners Should Be Aware 
Several types of legal restrictions can apply to fractional vacation home sharing 
arrangements, including: (i) state real estate laws and regulations, (ii) local real estate 
laws and regulations, (iii) private deed restrictions, and (iv) federal and state securities 
laws.  Laws in these categories vary from state to state and from municipality to 
municipality and, often times apply to real estate transactions regardless of what the 
individual transaction documents state.  For these reasons, it is important for buyers to 
check with professionals in their home state for advice on how these laws may affect any 
fractional ownership purchase, especially since these laws can often have registration and 
compliance requirements.  Additionally, because fractional properties are often located 
abroad, prospective co-owners and even their local attorney are less likely to be familiar 
with foreign laws.  In foreign matters it is essential to involve both a U.S. attorney and a 
reputable foreign lawyer or law firm. 

A Short Question Checklist for Prospective Purchasers: Just a Fraction of All the Considerations 
Keeping in mind that purchasing any real estate is, in general, a serious and 
complex matter for which buyers should engage the help of trained professionals, the 
following is a 5-question checklist that buyers could use, at least as a preliminary matter, 
when deciding whether fractional vacation home ownership is for them: 
  • Am I considering buying a fractional interest for its re-sale potential or do I just want somewhere to regularly vacation with my family or friends?
  • What will the real costs be once I break down: (a) how often I’ll use the property, (b) any fees, property taxes, membership dues, and cleaning and repair costs?
  • As a co-owner what kind of control will I have over how the property is managed?
  • What kind of tax treatment can I expect from buying, owning, re-selling or transferring the property interest in any way?
  • What kinds of restrictions are there on renting or re-selling the property?

Getting a Second Piece of Pie 
For anybody who is considering buying their first or their second vacation home, 
purchasing it as a fractional interest could offer them all the benefits of ownership with 
the added incentive of sharing burdens like maintenance and property tax.  The American 
dream today is more than mere ownership of one’s residence.  Buying the home where 
one lives is like getting one piece of the American pie, while buying a piece of vacation 
property is like getting a second piece of the American pie.  Fractional ownership is a 
way to get that second piece of pie!