Fractional ownership, where buyers purchase a share of an expensive asset and pay the seller fees to handle scheduling and maintenance, is a fixture of the private jet industry and a growing force in the market for vacation properties.
Now, according to a Jan. 19 article in The Wall Street Journal, this model of ownership is creeping into other asset classes, including yachts, sports cars and luxury RVs.
American QuarterCoach, based in Burr Ridge, Ill., sells shares in upscale recreational vehicles. For example, a one-eighth share of a top-end conversion bus – like those used by musicians on tour – will carry a one-time cost of $184,500 plus $7,020 per year to cover maintenance. For that price, each owner would get five weeks of use per year.
Tom Roegner, a 57-year-old retired banker from Palos Heights, Ill., saw the benefits of fractional ownership after examining the initial and associated costs in purchasing a new high-end motorhome. Instead, he bought a quarter share last year in a Monaco Camelot, which would have cost him $283,000 had he purchased a new RV.
He and his wife have taken trips to Florida and hope to hit New England in the fall. “You can set the thing at 70 and just go,” he said.
Currently, only a handful of companies offer fractional ownership of assets other than planes and real estate, but buyers and sellers say the concept applies well to all types of luxury discretionary goods.
The concept has become popular enough to spawn a relatively new website, dyerfractionalregistry.com, devoted to bringing together people who would like to share ownership of goods that they might not otherwise be able to afford.
There are several advantages to fractional ownership, but the Journal article emphasized that buyers should proceed with caution. First, it’s a high-risk business for companies to go into, given the lofty price tags of the assets that must be purchased. As a result, there’s always a chance that a new entrant could run out of capital before it lines up a full roster of buyers for the item that it’s selling.
Be particularly cautious about new operators, according to industry observers. “Lots of people are trying, and not too many are succeeding,” said Michael Riegel, a consultant who publishes an industry newsletter, the Fractional Insider. “I’ve seen watches, I’ve seen cars – people are trying (fractional ownership) anyplace they can.”
Potential buyers should treat the fractional transaction like any other big purchase. Get a lawyer involved to make sure that investments made by individuals remain segregated from those assigned to other assets.
Also, make sure that the structure of the sale is such that creditors for the company selling the shares can’t put a lien on your piece of the asset if the seller gets into financial trouble, The Wall Street Journal advised.