Why Fractional Ownership makes Tremendous Financial Sense

This is the first of a series of blogs in which we will compare the long term financial costs of five common vacation alternatives:

1. Purchasing a wholly owned cottage
2. Renting a cottage
3. Travelling with hotel-type stays
4. Camping
5. Fractional Ownership at Blue Water Acres

Purchasing a wholly owned cottage
Assume you are considering purchasing a lakeside cottage for about $500,000. This wouldn’t buy you much on one of the large Muskoka lakes such as Lake of Bays where the price of just the land could cost this much or more.
Your annual operating expenses are likely to be at least $13,000 per year after paying for realty taxes, utilities, insurance, maintenance, and other sundry items. Depending on how many weeks per year you use the cottage, your weekly costs look something like this.

Weeks used per year		1	2	3	4	5	6	7
		13,000	6,500	4,333	3,250	2,600	2,167	1,857

Now, let’s assume you keep the cottage for 20 years and that your expenses increase for inflation by an average of 3% per year. After 20 years, you will have spent $349,315. Your average weekly cost over the 20 year span will look like this.

Weeks used per year		1	2	3	4	5	6	7
		17,466	8,733	5,822	4,366	3,493	2,911	2,495

Briefly, how does this compare to Fractional Ownership at Blue Water Acres.  We will compare the same weekly cost in the first year and the average over a 20 year period for three cottage styles and prices each offering a 5 week interval. Maintenance fees includes all of the costs described in the wholly owned example, but it also pays for expenses related to a wide range of recreation amenities such as indoor pool and club house, housekeeping services and more.

Total Capital Cost	40,000	79,000	97,000
Maintenance Fees	2,500	2,900	3,250
Average Cost for 5 weeks	500	580	650

Assuming the same 3% inflation increase on the maintenance fees, your total cost over a 20 year period will be $67,176 for the $40,000 unit, $77,924 for the $79,000 unit, or $87,329 for the $97,000 unit. Your average weekly cost over the 20 year span will look like this.

Total Capital Cost		40,000	79,000	97,000
Number of Weeks used per year		5	5	5
Average Cost per week used		671	779	873

Historical data clearly shows that long term, an investment portfolio of stocks and bonds outperforms capital appreciation of real estate. The financial advantage of a fractional ownership purchase becomes even greater when one considers that the difference in the purchase price of a wholly owned cottage and a fractional ownership cottage is taken into consideration. The difference between the two options would be available to you to invest.  If you opted to finance your purchase with a loan or mortgage, the difference in the cost of interest paid over 20 years would be huge.

Financially, the difference in the amount it costs you for each week you use in a wholly owned cottage is extremely high compared to the cost of a week in a fractional cottage. Although it is reasonable to assume that both the wholly owned cottage and the fractional cottage will appreciate in value over the long term, it is interesting to note that even if the fractional cottage wasn’t worth anything after 20 years, the combined cost per week used on the total loss of the original investment using the most expensive example, is still less than the average weekly cost of wholly owned cottage.  Although the notion that the fractional cottage would be worth nothing at the end of 20 years is totally ridiculous, it still underscores the fact that owning a fractional cottage at Blue Water Acres makes more financial sense than owning a  wholly owned cottage.

One other financial consideration that we have not taken into account is the reality that buying an older cottage often costs more than the nominal amount we assumed for maintenance and repair. We’ve often heard cottage owners describe it as a “bottomless money pit”. No matter how much they spend fixing it up, it never seems to be enough. In contrast, a portion of the maintenance fees collected in the fractional ownership cottage is set aside in a reserve fund, to cover future replacement of such things as furnishings, roofs, equipment, etc. Further, an older resale of a wholly owned cottage is seldom built to the high standards and quality furnishings of the fractional cottages at Blue Water Acres

It is argued that owning your own cottage provides more flexibility on when you can use it. Some also suggest that there may be a greater pride of ownership. There is some truth to the first argument. Regarding the second however, those who are owners of a fractional ownership cottage also have a great deal of pride in their ownership. Many, who want more flexibility, simply buy a second or third five week interval giving them 10 or 15 weeks in total. The cost is still less than a wholly owned cottage. Others, simply trade their weeks with other owners.

One of the biggest complaints that we hear from those who have a wholly owned cottage is that they spend most of their time at the cottage working. There’s grass to cut, cleaning to do, repairs to make, equipment to fix. Owners of fractional cottages don’t have any of this. It is all done for them as part of their maintenance fees. From the moment they arrive they can put of their feet and relax.

The purchase of a fractional interval at Blue Water Acres also includes ownership of an indoor pool, club house with games and fitness room, safe sandy beach, non-motorized boats, docking for owner owned boats, tennis courts, skating rink, tubing hill and more. All of the expenses associated to operate these amenities are included in the maintenance fees. Have you ever tried to entertain young children or teenagers in a private cottage on rainy days?  Although most prefer a sunny day, there are still lots to do on a rainy day at Blue Water Acres.

Fractional owners at Blue Water Acres have one more major advantage to those with wholly owned cottage. They all have membership in an international exchange company. Feel like going elsewhere for a change instead of the cottage? Fractional owners can simply exchange one or more of their weeks for weeks elsewhere at luxury resort world-wide. An owner for example, can trade a November week for a February week in Florida in a luxury suite in a Marriott resort in Florida for a nominal exchange fee of about $125. The rate for a member of the travelling public would be thousands of dollars per week for comparable accommodations. Once such exchange is virtually worth the amount the fractional owner paid in maintenance fees for the entire year.

In our next blog, we’ll make the case that ownership in a fractional cottage at Blue Water Acres makes tremendous financial sense compared to renting a cottage.