Is it a fractional? Is it a timeshare? Well it could be a leaseback?

Over the years the overseas property industry has come up with innovative ways of making foreign property more accessible and this is one of the latest...

Some yearn for a holiday home, intended solely for the private use of the buyer, others want an investment property where they get regular income from rent and can also take advantage of any capital appreciation in the value of the property, over the time they own it. 

Some people, however, want a half way solution and buy a holiday home and then want a bit of rental income to help offset costs. This can sometimes be a bumpy road. Many people at this stage will have chosen to their own personal tastes and how universally appealing are those tastes?

Have they chosen somewhere really remote for peace & quiet? Whereas a good rental property may be closer to amenities, so this may restrict the level of rental income achievable. And if it is in a seasonal town, the year round demand could be limited.

Timeshare

There are other approaches that have emerged. For example, time share has been big in the past where people have paid money to have a given number of weeks usage of a property –“Time share is a type of property right under which the purchaser of a time share has access to the 'share' they own in a property for a specific 'time'. Their most popular use is for shares in apartments at timeshare resorts.” Timeshares may be on a part-ownership or lease/"right to use" basis, in which the sharer holds no claim to ownership of the property. This concept became sullied over time as a result of some of the pushy sales practices that seemed to accompany it.

Fractional Ownership

Or there is fractional ownership, where a property is owned by a number of individuals or families and they share usage and upkeep/maintenance costs. This can be formal or informal. Informal may be friends clubbing together to buy a home or several family members who may have inherited a property and then they retain joint ownership. Or it can be more formal, like dealing with a fractional development. In essence, fractional ownership is the shared ownership of a property, usually where the title deed is divided into fractions ranging from a quarter to a twelfth, giving the right to stay in the property for the corresponding fraction of the year.

Whilst these give more leverage for money and by that I mean get more for your money, it can be tricky to finance because banks don’t have recourse to repossessing whole property in case of default. Sometimes they are for a limited period of time e.g 16 years and then they revert to whole ownership again, to sell the property and realise any potential gains.

And now there is a 3rd Way.

There are other ways of buying a property overseas in prime resorts, which combine holiday home ownership, with hassle-free maintenance, income generation and the ability to capitalise on any appreciation in the value of the property.

These can be called resort operated residences, or “Touristic residences” as they are in some countries. These provide an owned holiday home (although this may not be the case for all schemes), that is available for use for say 6 weeks a year for personal use, but a management contract is signed with a hotel group (usually of international renown) who manages all the marketing, letting, management and generates a net income which is the owners.An example of this is in Morocco.

So what are the upsides of this?

• Holiday home facility in prime location that others will want to go to
• Use of own home for holidays, in quality location
• Peace of mind - knowing the property is being looked after while you are not there, with relevant security
• Freehold Ownership without the hassle, so the opportunity for reaping the rewards of capital growth 
• Reassurance of knowing a big hotel group is not going to invest somewhere they are not convinced is going to be a success
• Passive Income stream - choose level of cashflow desired
• All the common resort and hotel facilities e.g clubhouse, golf, tennis, swimming pools, restaurants, shops, bars, spas
• Fully furnished, so no logistical hassle
  

And the downsides?

• A long term leaseback contract with a hotel group, but this is usually assignable if there is a change of ownership and has its upsides for the owner
• May need a degree of planning ahead for usage
• May have to comply with interior furnishing standards of hotel group

Now this may not be an option for everyone, but it certainly addresses a number of the issues encountered by people wanting the best of both worlds: holiday home and investment property.

Louise Reynolds
Property Venture^®

Property Venture^® is an independent, UK-based agent. We help time-strapped investors and holiday home purchasers, buy abroad by guiding through the buying process, so reducing the hassle. We visit the countries you buy in, so we can offer common-sense, grounded advice. Overseas members of NAEA. This means we have been subjected to the membership criteria and have signed up to follow the professional Code of Conduct established to help you, the potential buyer or investor, buy property with confidence.