The only thing better than vacationing is making money while you lounge on sandy shores and relax with a day by the sea. For this reason, home co-ownership plans like timeshares and fractional ownerships have been a popular vacation choice for decades.
However, the market for timeshares and fractional ownerships has shifted in recent years, and investors are starting to question the validity of the deal. Nowadays, families looking to invest in a second home are searching for something more; a vacation home that is both affordable and free from financial risks.
Read on to find out why today's homebuyers are shying away from the traditional timeshare market, and what routes they're pursuing instead.
Timeshares vs. Fractional Ownerships
You're likely familiar with the term "timeshare" already—the purchase of a timeshare allows the buyer to use a property for a short period each year. Multiple buyers utilize the space each year, while the home's title remains with the property owner.
Fractional ownership is slightly different. With this method of property purchase, several buyers split the cost of the home, with each one owning an equal part of the title. With a fractional ownership, you'll likely have more time to spend at the home than you would with a timeshare.
While each method has benefits that appeal to vacationing homebuyers, both timeshares and fractional ownerships come with an assortment of risks that will make you think twice about investing in one.
Timeshares and Their Disadvantages
Many families are drawn to timeshares due to the convenience of having a designated vacation spot to visit each year, as it takes away the hassle of checking hotel rates and making reservations. However, the financial risks associated with timeshares may make them a losing investment in the long run.
Timeshares Rarely Increase in Value
When you purchase a timeshare, you're essentially paying for a one or two-week reservation for your vacation each year. Since the property title is completely owned by the principal owner, you don't benefit from any appreciation of the actual property, making your timeshare more of a vacation expense than a financial investment
The truth is, timeshares rarely increase in value at all. Most tend to decrease in value over time, while maintenance fees skyrocket. For those who are looking to invest in a vacation spot that will increase in value over time, a timeshare is probably not the best purchasing option for you.
Reselling is Notoriously Difficult
By opting for a timeshare today, you could be setting yourself up for financial risks in the future.
Most timeshare buyers are looking for new units that have not yet begun to depreciate in value. And, you'll likely be forced to compete with sellers who are trying to offload timeshares that are similar to yours.
Plus, you'll still be responsible for your regular fees while you wait for your timeshare to sell. Overall, the timeshare resale process is likely to consume much more time and money than it's worth.
It's Unlikely You'll Get Your Money Back
Aside from the fact that your timeshare won't appreciate in value, you're extremely unlikely to regain your initial investment by selling it.
Since your timeshare begins to depreciate the moment you buy it, you'll likely have to settle for a lower selling price to find a buyer at all. And with so many new timeshares on the market, simply the fact that yours is previously owned makes it less appealing to prospective buyers.
Overall, a timeshare has little to offer in terms of financial investment. To get the most out of your vacation home, other purchasing options are sure to provide you with a better return.
The Disadvantages of Fractional Ownerships
Compared to timeshares, fractional ownerships may seem like the perfect investment; you can enjoy more time in your vacation home, and you'll benefit from any property appreciation. However, fractional ownerships are not always the great deal they claim to be.
Like timeshares, fractional ownerships come with several risks that might dissuade you from your purchase. Check out the risks below before buying to protect yourself from an investment you regret.
Difficult to Resell
Often, the prospect of benefitting from any property appreciation when selling your fractional ownership causes buyers to overlook just how difficult the resale process might be.
Fractional developers often impose markups on their properties at the time of purchase, so you could end up overpaying by as much as 50% upfront, which automatically puts you behind the property's appreciation.
Additionally, there is simply very little demand for fractional ownerships when they're being resold. You'll likely have to lower your listing price significantly to find a buyer, meaning there's a high chance you won't make up your entire investment.
Fractional real estate owners often regain only 30-35% of their initial investment through reselling, meaning fractional ownerships are essentially no better than timeshares in terms of financial investments.
No Guaranteed Exit Strategy
With fractional ownership, you are in complete control of a fraction of the property's title, which can be both good and bad. Many buyers see this as a plus, as they aren't subject to the whims of principal owners or even other investors. However, this could leave you struggling when it comes time to sell your share.
If you decide to sell your share, you'll be completely at the market's mercy. With no organized exit strategy, reselling your fractional ownership is an extremely difficult process that is likely to end in a loss for you.
A Different Home for Every Vacation
Unfortunately, even investing in a fractional ownership won't guarantee you have the vacation of your dreams.
Many commercial projects control multiple units that are virtually the same and sell them to upwards of 150 owners. With so many owners, you're unlikely to stay at the same home every time you vacation. So much variation in your stay means you can never be completely sure about the quality of your next residence until you've already arrived.
Additionally, this adds to the difficulty of reselling your share, as you may not be able to guarantee buyers what they will experience with each vacation.
The Alternative: Second Home Ownership
Timeshares and fractional ownerships are not the only way to secure a recurring vacation spot. In fact, there is one purchase method that will turn your vacation home into a lucrative investment.
With Lifestyle Asset Group's co-ownership model, you can make money each time you vacation. Like a fractional ownership, several buyers purchase a home and spend several weeks per year vacationing on location. However, at the end of a defined period, typically 5-8 years, the home is sold and the profits are distributed among the buyers.
This method gives buyers a stunning luxury home to enjoy while guaranteeing none of them are left reselling their share at a 70% loss. To add to this, read on for some benefits of this innovative new purchasing plan.
Guaranteed Debt-Free Ownership
With Lifestyle Asset Group's help, you can enjoy your vacation home without worrying about settling any debts in the event of a market issue. On your behalf, Lifestyle Asset Group will manage the LLC without any ownership interest. That way, your capital is completely protected, no matter what the market throws at it.
A Clear-Cut Exit Strategy
Traditional fractional ownerships leave buyers to fend for themselves when selling shares with very little market demand. To remedy this, Lifestyle Asset Group has developed a strategy that ensures buyers receive their original investment back, plus any additional value the property has accumulated.
Five to eight years after its purchase, the vacation home is sold at its highest possible value. This prevents any partner from selling their share at a loss, and turns the property into an investment rather than simply a vacation expense.
Stunning Homes and Minimal Partners
With the co-ownership purchasing model, you're guaranteed a stunning vacation home every time you visit.
Unlike commercial fractional ownership, with Lifestyle Asset Group you'll share a luxury second home with only five to ten partners. This way, you won't be shuffled between mass-construction homes that are occupied by 160 other families throughout the year.
Minimal partners also means a perfectly unique residence will be yours to enjoy for more than just two weeks out of the year. Plus, when the time comes to resell, you'll split any profits with less than a dozen partners to ensure you get the most out of your investment.
Invest in Your Vacations Today with Lifestyle Asset Group
Timeshares and fractional ownerships are simply not lucrative enough for the modern second home buyer. Opting for luxury co-ownership instead allows you to enjoy spectacular vacations while making sure your investment pays off.