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Deer Haven Reports: Fractional Ownerships Provide a Family Vacation Solution

Press Release: Deer Haven Fractional Properties
October 25, 2006
SALT LAKE CITY, UT -- You get in your car, finally on the way to your vacation home. Your mental list begins: Get groceries, shake out the furniture dust-covers, sweep, plan to have the neighbors over for dinner... and every few miles you pray there hasn't been a flood, electrical outage, or squirrel invasion in the months you've been away.

Or, you simply make a call, ask that the refrigerator be stocked, request an in-home chef for your get-together this weekend, and sit back and relax before you even reach your destination. Welcome to the world of fractional ownership, the latest trend in the vacation home market. Fractional ownership, or owning a second home for an allotted number of weeks a year, gives you property ownership with the advantages of (did someone say maid service?) a hotel.

In 2004, vacation and second homes purchases represented more than one third of all sales (National Association of Realtors). With more baby boomers hitting retirement than ever, people seem to want another place to call home. According to an AARP report, the top quarter of this generation has a median income of $100,000 and median net worth of $360,000, creating more disposable income than any previous generation. Hesitations about owning vacation homes are further diminished in an age where real estate is perceived as more liquid, and more accessible (National Association of Realtors).

As the market demand increases, more and more vacation home options are becoming available. These include time shares, where one buys rights to use lodging for a certain amount of weeks per year; destination clubs where one buys the right to lodge at various residences in the portfolio, and the latest trend, fractional ownership. Fractional Ownership, also known as Residence Clubs, occurs when participants buy a certain fraction of a second home and, unlike time shares or destination clubs, they actually own that property. The ownership acts like any deeded property; an owner can sell at any time, can leave it in their will or to a family trust, can gain from market appreciation and -- in some clubs -- even rent their allotted weeks to outside parties. In addition, owners benefit from the worry-free aspect of fractional ownership: no maintenance or caretaking, no accounting, plus all the conveniences of a hotel. Perhaps the biggest advantage is the cost; you are often paying 10% of what you would pay to own an entire home, which is especially convenient if you are only going to use the home a few weeks a year. And for those who like their vacations swanky, other services (such as an in-home chef, laundry, or maid services) are often available.

Fractional ownerships have long been a trend in Europe, but they did not begin sweeping the United States until the early 90s, with the first official club in Deer Valley, Utah ("Residence Clubs give Time Shares a Run for Boomer's Money" by Tom Kelly). While many residence clubs have sprung up around other ski resorts and golf courses, other, more regional-interest locations are predicted to be the next phase of the trend. For example, the Western United States has taken advantage of some of its more pristine settings, such as the new fractional ownerships options available near McCall, Idaho, or Deer Haven Fractional Properties, on the edge of Zion National Park, Utah. Deer Haven advertises their fractional vacation homes not only for their proximity to National and State parks, but also for the available resort recreation, like tennis and swimming.

In recent years, more and more vacationers are choosing this option; sales of fractional ownership tripled in 2004, grossing 1.5 billion dollars. This increase continued in 2005, with a 25% increase for a total of two billion dollars (Ragatz Associates, a real estate research firm). Studies by Ragatz Associates also found fractional ownerships have produced high customer satisfaction thus far; 92.7% of owners report satisfaction, with 71.2 % of these owners proclaiming to be "very satisfied." The trend shows no sign of slowing down: among households with an income bracket of $150,000 or more that are not already fractional owners, half are aware of fractional ownerships and more than three quarters like the idea.

This burgeoning interest could be the result of an active generation or perhaps, according to Ragatz Associates, because there is a growing perception that purchasing a home to use only a small fraction of the year is a "terrible use of land." It could also be that fractional ownerships appeal to families, as an easier and more affordable (in the long-term) way to plan a family vacation, without having to purchase a vacation package for every family member.

Fractional ownerships are certainly a good option for those looking to buy a second home, but potential buyers should do their research. While fractional ownerships, unlike Destination Clubs, are protected under consumer protection laws, potential fractional owners should be aware of mark ups on homes, creating a collective price much higher than home value that makes it hard to earn investment on a property. Though some mark-up is expected to cover costs like furnishings, you certainly wouldn't want a mark-up as high as 50%. In addition, make sure the residence club has delegated enough money to a maintenance fund (for any unforeseen damage to the home/furnishings).

While many fractional ownerships are condos found in ski towns or upscale communities for several hundred thousand dollars, there are also residence clubs in more secluded places, like Deer Haven Fractional Properties -- where homes are on an acre each with four acres of open space between each property. The latter are often more reasonably priced, opening the option to consumers with less disposable income and those interested in owning several fractional residences.

The growing market for fractional ownerships means there will be increasing destination options in the near future, making the next generation of retirees and vacationers even more mobile -- without the RV, that is.

Source: Deer Haven Fractional Properties