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Fractional real estate ownership in Canada: Understanding costs and benefits

Gail Johnson

Lanna Dalby can't wait to go back to her family's favourite vacation spot in Whistler, B.C. The stunning three-storey townhouse has everything you could ever want in a recreational property, and then some: nestled slopeside with ski-in/ski-out access, it has an expansive open kitchen with a granite-topped island, a grand river-rock fireplace, a private hot tub on one of its sundecks, plush leather furniture, and gorgeous local artwork.

Dalby and her husband are proud owners of 1/10th of it.

Instead of buying a property outright, you can share. It's called fractional ownership, and it's a model that's gaining ground in recreational real estate, especially as the price of real estate in many parts of the country continues to skyrocket.

"For the right buyer who can appreciate and take advantage of this usage model, it can be a really good way to go," says North Vancouver realtor Jim Lanctôt, who also consults with national and international developers on fractional real estate through his company Generator Communications.

Not to be confused with a traditional time-share model, fractional ownership can be broken down into any split, whether it's the more common quarter ownership or formulas such as 1/10th or 1/12th ownership.

With a most time-share arrangements, you have the right to use a property, but you don't own it in fee simple. Most fractional arrangements, by contrast, come complete with deeded and titled ownership. Like traditional real estate, fractional interest can be sold through typical channels or transferred.

"It's a business model that stemmed out of the idea of sharing the family cottage with your cousins, brother, and sister, all these people getting together to buy in. But that can create all kinds of problems and hard feelings when it's time for someone to get out," Lanctôt says. "It allows multiple people to own a piece of real estate. It broadens affordability."

The Dalbys paid about $249,000 for their share.

"It's a neat way to have a second place," Dalby says. "It's a pretty fantastic family getaway."

For their investment, the Dalbys get to use the townhouse for about five weeks every year, time that's prescheduled in advance. They also pay monthly maintenance fees along with taxes and insurance.

Lanctôt says that fractional ownership often makes sense, given that the average use of recreational property per year is 23 days or less.

"People will say, 'If I'm only going to use it 23 days a year, why do I need to own all of it?'"

Fractional ownership isn't for everyone, however.

Lanctôt says potential buyers should do a cost-benefit analysis.

"You have to really understand yourself as an owner and ask 'What are my needs and how much am I going to use this? What would it cost me to go and rent a suite of comparable finishings in that type of resort in today's economy for the amount of times I'm likely to go?'"

He notes that significant capital appreciation in this type of real estate is limited and is more likely with quarter ownership than with fractions such as 1/10and 1/12. In other words, the smaller the piece of the pie, the less likely there will be large gains.

As well, owners of fractions might not experience that same level of "pride of ownership" as having something outright.

Instead of being swayed by what seems to be a low price for an otherwise out-of-reach property, people have to read the fine print.

"An uber-inclusive high-end service model can drive monthly fees through the roof," Lanctôt says. "You really have to look at the carrying cost. What's your monthly bill and is it worth it based on how often you expect to use it?"

He also suggests looking for a recreational property in a location that allows for a quality experience even in shoulder and off seasons. Otherwise, you're paying for something you're not likely to use that much.

Fractional ownership may not be the best option for people who want flexibility and unlimited access to a vacation property or who depend on regular weekends away.

However, having five or so weeks a year blocked off for use of the property is like a forced vacation; for people who find it hard to get away from the office, fractional ownership can provide added incentive to take a break.

Some fractional models have a provision called "space available", Lanctôt notes, in which owners are allowed to stay in a unit in the development for a nominal fee if it's not being used. Doing so can help you get more bang for your buck—or at least your dime.

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