Understanding the Hotel Branded Fractional

Many of the leading hotel chains (Marriott, Hyatt, Starwood, etc.) sell either fractional real estate or timeshares. To date, millions of these “shares” have been sold. It seems that selling fractional or timeshares has become a larger and larger piece of their overall business.

Each of the hotel chains has a slightly different spin on the rules of operation on the “shares” they sell but at a high level they are virtually all the same with very little variance. You can buy your “share” at one of their “vacation properties” most of which are resort condos which include a living area and small kitchen. You can buy a “share” through the hotel for anywhere between $25,000 and $500,000 per week. The price depends on the resort, the location, the size, and sometimes the position of the unit (i.e. facing the ski area or beach).

Each unit has maintenance charges each and every year which vary considerably by resort and program but average about $1,500 per week per year.

How it Works

The hotel chains show you dozens of pictures of both their vacation ownership resorts and their hotel properties. In general, the major selling point for the hotel chains is your ability to trade in your time for time in their hotel chain.

In the majority of cases the “vacation ownership” and hotel entities are actually two different companies with two different point systems (you get fewer points to use in their hotels if you trade in your time).

Take as an example a unit currently for sale in Kauai, Hawaii through a leading the hotel chain (12/10/11). The cost of the 2 bedroom 2 bath was $55,900 for one week, and the maintenance on it was $2,500 per year. This would give a buyer 148,100 “vacation points” or 86,400 “hotel points” per year.  The salesman kept pushing the trading aspect of the unit saying “no one comes back to the resort every year. The real value is traveling the world!”  With that said, your expectation would be if you traded your time for hotel time you’d get something comparable in their hotel chain in return.  After all, you’ve bought a unit easily big enough for a family of 4 with a good amount of living space and the added savings of having a kitchen where you can make most of your meals saving you money.

Trading Can be Difficult

While it is true that if you traded your week in for another week in their vacation club properties (not hotels) you would get a comparable unit, most will find the process of doing so not nearly as easy as advertised. This is because in most programs you have to give up your week before you can look for a replacement week which can be a bit nerve-wracking and often results in you having to travel last minute to a location that was not your first choice.  

Be Prepared for the “Travel the World” Sales Pitch

In checking the details of an actual trade one could make in their system for the 2 bedroom 2 bath unit in Kauai that could be made, here is what we found:

• You'd get 86,400 hotel points per year to spend to "travel the world".
• To get anything close to a comparable unit for a trade at this hotel would be 40,000 points per night or 280,000 points for a 1 week stay.   That's for a single bed hotel room, no living room, no dining room, no kitchen, and no room for the kids!
• So what you would get for your "trade" was 2 nights in a single hotel room of comparable quality and amenities.
• Checking on their website it was discovered that the same two night stay would cost $1,000 USD plus taxes and resort fees per night.   So, for the $2,500 in maintenance fees you'd be paying every year you'd get about the same value in their hotel chain.  But what about the $55,900 you'd have paid for the unit?  What would that get you?
• What you generally find is the value you would get in the hotel stays is about equal to the maintenance you'd be paying each year.   So, why wouldn't you just pay for the hotel room and save yourself the $55,900?
• This is why we say that the value of trading your "fractionals" in most programs may sound good but it isn't worth it.

Stay vs. Buy

One true test of the value what you may be purchasing is to see what you could rent that same unit both through the hotel but most importantly through the owner owned rental market. In this case we found the vacation hotel was renting the rooms for about $5,000 per week plus tax. So, a quick calculation says if someone came back here every year they might save themselves about $2,500 per year.

While that may sound like a good deal the true test is to see what the rental price is directly from the fractional owners on websites like VRBO and EBAY. We found we could rent with relative ease the same unit at the same time of the year directly through fractional owners for about an average of $2,000 per week.

Investigating the background on this potential hotel fractional purchase took us about an hour or two. In that short time we I took what was being sold as a “compelling opportunity” and learned it was anything but a good deal. This is the reason why one should never buy anything without checking the program usage rules and the financials before-hand. This is one reason why the “timeshare salesman” uses the typical close “wouldn’t it be great if you bought now while you are here on vacation”. All this before you are ever handed any paperwork or on how their program works so you can read through and understand it.

The Resale Red Flag

Another major issue with the hotel chains is they don’t offer a resale service. This means anyone who buys a share and finds the need to sell it will have to try and do so on their own through a timeshare website. The lack of a resale program is always a red flag because the seller (potentially you) doesn’t have the same “hype” when trying to re-sell the program. In fact the hotel chains strip the right for the new owner to trade the “share” for hotel time because they want to be able to sell their shares before you can sell yours. Even though as we have seen the value of that trade is usually zero, it still devalues the share in a perspective buyers mind making it very hard to sell, forcing you to sell it at a reduced price.

The Blue Water Approach

At Blue Water Fractionals we’ve taken a new approach to designing the fractional business model. We recognize that people buy fractional real estate for different reasons and want fractional programs tailored to the resort and location. The programs we develop save buyers money and they won’t find the any of the negatives you see in the hotel programs in ours! Flexible programs tailored to meet buyers short and long-term needs.

We develop a peace of mind ownership formula which will have buyers smiling and enjoying their ownership for years to come!