What is a Fractional Timeshare?

A fractional timeshare is property that is owned by a number of different individuals or groups. Essentially, a party will purchase a certain percent of the property and share the interest in the asset. Usually this involves splitting up the time each party is allowed to use the property. Those with interest have the ability to sell their portion or retain it as a long-term investment. Primary examples include houses in resort communities or condominiums in expensive areas.

The main benefit of buying a timeshare is that the interested party can spend less money to gain access to property which would otherwise be out of his or her price range. In addition, it works well for those who are interested in a vacation home, but don't have the means to purchase one outright. Since the cost is spread over a number of different people or groups, the type of asset able to be purchased generally outweighs anything in a typical price range.

One of the major debates about fractional timeshare purchases is whether it is more cost-effective than renting a property. While a timeshare owner can be said to be making an investment into a property, gaining a share of the potential resale value, renting allows for no commitment such as upkeep and the risk of capital loss.

The idea of a fractional timeshare stems from ski resorts throughout Europe in the 1960s. Savvy investors understood that people were willing to purchase rooms in hotels rather than rent for a single week or period of time. These people could then rent out the rooms themselves as they saw fit, generating a profit. Meanwhile, the original manager of the property generated a large profit from the sale of the rooms and was able to use the funds as capital for future investments. This practice was adopted by a number of businesses throughout the 1970s and 1980s, until it became the fractional timeshare market that was the basis of today's business model.

Fractional timeshare opportunities have also led to large programs that purchase blocks of timeshares both nationally and internationally. These groups promote their purchases by garnering members into programs that, for a fee, are able to use these properties for certain periods of time. While many of these organizations are reputable investments, some are pyramid schemes and should be looked at carefully before one buys into the fractional timeshare.