A second home has been called the ultimate discretionary purchase -- something that many people would like to have but no one needs. People who do own a place at the beach, the lake or in the mountains often are quick to express frustration at not being able to spend more time there. It hardly makes sense to have the expense of a mortgage, upkeep, insurance and taxes for a place you don't use more than a couple of weeks a year.

To deal with that situation, family members and friends often have joined forces to buy a place. It cuts down on the cost and everyone gets to enjoy a place that's more than just a hotel room. In 1994, a new concept debuted in the United States -- fractional ownership of vacation homes. Patterned after fractional ownership of private jets, the concept formalizes the idea of a group of relatives or buddies pooling their resources to buy a getaway place.

Fractional ownership offers individuals the opportunity to buy partial ownership of a really nice place in a resort area. We're talking chalets with walk-out skiing in the Rockies, oceanfront houses or condos, or island properties in the Caribbean and Europe, often with resort-style amenities including on-site restaurants, fitness clubs, golf courses and a concierge service.

The arrangements usually divide the ownership into fourths, eighths, or 13ths, with each owner having an equal number of days a year to use the unit. The owners buy their shares from a management company, which handles maintenance and scheduling everyone's time.

Similar to time shares

If it sounds a lot like a time share, that's because there are similarities. The more fractions that are sold, the more it resembles a time share. Both can be bought as deeded properties (some time shares are now sold as club memberships instead of time in a specific unit), and can be rented out, shared with family and friends, sold or left to someone in a will.

Like time shares or any kind of resort property, there are small players and big guns in the business. If you're in love with one locale and could see yourself going back to the same place over and over, a small company could be just the ticket. If you'd like more flexibility, some major corporations such as Ritz-Carlton, the Four Seasons, Disney and Marriott also are in the business. All of them have resorts in various parts of the country, and even in the Caribbean and Europe, with the opportunity to swap time at other destinations.

The big difference: money

The big differences between time shares and fractional ownership properties are prices, financing and fees. While time shares can be had for a few thousand dollars, fractional ownerships can run $100,000 or more -- much more.

"We have a property in Aspen now that the quarter shares are $1.5 million," says Doug Freyschlag, president of Denver-based Alpine Quarters. "Even at that price level, it still makes just as much sense as any other level."

With that kind of price tag, buyers aren't subjected to the "you have to make a decision today" aggressive sales pitch that is still the prevailing strategy in the time share industry. While most developers offer their own financing for time shares (the terms are akin to those of a personal loan, in the 14 percent interest range), it's generally not an option for fractional ownership properties because the purchase is too large.

Two-thirds of Alpine Quarters' buyers pay cash or finance the purchase through a home equity line, Freyschlag says. About a third will finance the deal. Buyers should expect terms that are similar to those paid by real estate investors -- a percent or two higher than they would get if they were buying a primary residence with a down payment of about 20 percent.

Financing rare

That's if they can find a bank willing to do the deal. Lenders are gun-shy about taking on the loans because they see them as high risk, says Anthony Hsieh, president of the California-based Home Loan Center. If the borrower defaults, it could be difficult for the lender to sell the property.

"It's a very non-conventional product," he says. "If there is financing available, it's generally through the builder or developer."

Some boutique banks will do the loans on an in-house basis; borrowers should expect to pay higher rates because the bank can't resell these loans to the secondary market.

They also can expect a hefty annual maintenance fee -- rates of $5,000 a year or more are not uncommon. But then, they can call the management company a few days before they get to town, have the fridge stocked with their favorite goodies, arrange a tee time or a day of deep-sea fishing, and make sure the AC is set at their favorite temperature.

To defray those costs, most people who buy a fraction in a vacation home wind up renting it out for at least part of the time, Freyschlag says. "It's logical and practical to do it," he says. "You could buy 52 weeks, which is whole ownership, but you would be dependent on many, many weeks of rental to cover expenses. This way, you need fewer weeks of rental. The risks are really minimized."

Who's learning their fractions?

Who buys into fractional ownership? Typically, they are people who could afford a vacation home, but don't have the time to use it, says Ron Davis, a real estate agent in South Carolina who sells fractions in oceanfront homes on the Isle of Palms.

"I had an attorney who sold a house for $1.5 million and bought a share for $160,000," Davis says. "This is making an appointment with yourself for your vacation. It has some inherent motivating factors to use it."

The more expensive the property, the more it makes sense. "When an oceanfront lot went from $400,000 to $2 million, that's when people started looking at fractional ownership," Davis says.

It's not an investment you make because you think you're going to make a killing in real estate, Davis says. The shares usually are sold at about a 20 to 25 percent premium, so unless the property values in a market just go through the roof, your gains will be modest. But the vast majority of fractional ownership buyers aren't real estate investors; they just want a getaway.

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