FREQUENTLY ASKED QUESTIONS ABOUT
FRACTIONAL OWNERSHIP
How does fractional ownership differ from timeshare?
Are owners tied to the same weeks each year? If not, how are the assignments made?
How are decisions made concerning the maintenance of the property? How are the expenses determined?
What is the legal structure of these fractional ownership properties in Paris?
Can the individual owners take out mortgages on the property?
Are the documents governing the property available for review?
If I am interested in learning more about a fractional interest in one of the current or future offerings, what is my next step??
How does fractional ownership differ from timeshare?
While the hassle-free ownership, full management and shared usage benefits of fractional ownership may sound similar to timeshares, there is a fundamental difference. Fractional ownership investors owns a proportional share of the title of the property. Timeshare owners simply own days or weeks of usage time. If the property appreciates in value, the fractional shareholders enjoy that appreciation. With timeshare, this investment aspect does not exist.
This important difference is also what distinguishes fractional ownership property from the recent wave of destination clubs. Destination club members purchase a fixed amount of time to enjoy use of the club's properties. Like timeshare, they do not retain any ownership right in the real property, and thus do not enjoy the capital appreciation of those properties.
Can I share my use time in the property with family or friends? What happens to my allotted weeks if I do not use all of them?
With these private co-ownership properties, each of the five owners is allotted 10 weeks of personal use time. With the traditional fractional ownership, each of the twelve owners has four weeks per year to enjoy the property. In either case, the owner can use the time himself, or offer those weeks to friends or family. In addition, these fractional ownership Paris properties are part of a network of hundreds of privately-owned high-end destination properties around the world. Owners can trade unused weeks in their fractional ownership property for time in these other properties.
In the private co-ownership structure, any time not used personally or for trade is pooled together and, with management’s oversight, are rented out through short-term luxury rental partners in Paris. The income generated from these rentals is divided proportionately between the owners, depending on the number of weeks they contributed to the pool. This income is then used to offset annual mortgage and upkeep expenses. A conservative estimate for a private co-ownership owner who uses 7 weeks in the year will be that, with the income from projected rentals, the owner will break even on their annual expenses, and owners can expect to realize an income if they do not use the property at all.
In the traditional fractional ownership group, owners may use their personal time or rent it out on their own. Rental income is not pooled between the owners, and each owner is free to decide whether to rent out their personal use time or not. Most owners opt to use, give away, or trade their unused weeks, since four weeks is a much smaller time commitment than the ten weeks available with private co-ownership.
Are owners tied to the same weeks each year? If not, how are the assignments made?
With private co-ownership, at the end of the year each of the five owners submit a calendar of their desired dates for the coming year. If there is overlap between the requested dates of two owners, the property management works with the owners to determine who might have flexibility to change dates. If both owners insist on wanting that time slot, lots are drawn to determine who will use the property during that desired period. The owner who's choice was not fulfilled is guaranteed first choice for the following year. Because of the small number of owners, overlap and conflict is rare and is easily resolved.
Unclaimed weeks from this initial calendar process will go into the rental pool. Owners may request additional time at any point in the year for their personal use or for friends, family or for trade, and will have access to the property if it is available.
For traditional fractional property owners, the larger owner group would make this full-choice process unwieldy. Instead, in purchasing their shares owners can choose to buy four fixed weeks, four variable weeks, or a mixture of the two. In this way, buyers who want to visit Paris at the same times each year, or buyers looking to visit in various seasons on a rotating schedule, can each have what they want. Owners can switch among themselves in a particular year, or trade with family, friends or on the vacation home swap network, similar to the owners in the private co-ownership group.
How are decisions made concerning the maintenance of the property? How are the expenses determined?
The property is “delivered” to the owners with all the furnishings, luxuries and amenities in place. Going forward, management will rigorously maintain the quality of the property, both for the owners’ enjoyment and to maintain the highest level of quality of the property. Ongoing maintenance decisions are designed to keep standards high and costs low.
What is the legal structure of these fractional ownership properties in Paris?
Each co-owner is a shareholder in an US-based company, which in turn holds all the shares in a French real estate entity, called a société civile immobilière, or SCI. This double company structure is set up in order to ensure the simplest and most transparent ownership structure for the property, as well as to make shares easily transferable without disrupting the underlying ownership structure of the property.
Can the individual owners take out mortgages on the property?
With the private co-ownership properties, a mortgage from a French bank has already been secured on behalf of the owners in the process of purchasing the property. Individual owners will pay the down payment in full upon delivery of the property, and will benefit from the mortgage already in place for the balance of the purchase price. Some owners choose to finance their down payment through a home equity line of credit on their residence, or through other means on their own.
For traditional fractional ownership buyers, there is no mortgage in place for the buyers in France. However, there are several US-based lenders who offer a personal loan of up to $100,000, although rates are slightly higher than for traditional mortgages. In general, a prospective purchaser would be well off investigating a home equity line of credit on their primary residence or a loan on other sole-owned vacation property, which may offer more attractive terms and a larger loan amount.
Are taxes, management, furnishing and other costs represented in the “total share price”? Are there any hidden fees?
The total share price includes all closing costs and taxes on the purchase, legal and financial costs, supervisions of the purchase, furnishing and renovation, and preparing the property for the use and enjoyment of the owners. There are no additional fees or taxes.
Will I have to deal with paying French taxes on the property or rental income? What is the likely tax treatment for my share ownership in my home country?
The ownership structure – a US company holding shares in a French company (the SCI), which owns the property – means that each individual owner avoids the tax filing and other formalities that usually come along with owning property in France. All French taxes and legal requirements are paid by the SCI, a process entirely managed on behalf of the owners so that they have no confusing foreign documents or responsibilities to manage. Each owner will receive a concise tax statement for their portion of income and expenses, which you can include in your personal income tax statements. We strongly suggest that each of our clients obtain individual tax advice on their own, to understand the possible tax benefits or liabilities in light of their personal tax situation and planned usage of the property.
Can I sell my share of property at any time? If I want to sell my share, can it be done privately, or must I sell it through an agent?
Each owner is fully vested for his or her share ownership and is free to sell it privately at any time. The solvency of the buyer will be evaluated so that the shareowner can be released from all future liability for mortgage and upkeep/maintenance expenses.
Existing owners will be offered the opportunity to purchase the shares that a co-owner is looking to sell.With our database of interested shareholders-to-be, we are glad to assist you in locating a willing buyer.
Are the documents governing the property available for review?
All the structural and financial documents are available for your review before making any commitment to fractional ownership.
If I am interested in learning more about a fractional interest in one of your current or future offerings, what is my next step?
Please contact us so that we discuss with you the current offerings, or to answer any additional questions you may have.
If you have not found an answer to your question here, please let us know, and we will be glad to contact you about your interest in fractional ownership.
