Michaelís Consumer Column

The Joys of Fractional Ownership

Americans have become very sophisticated consumers, and the idea of "fractional ownership"—paying for a share of a vacation home or boat-proves that.

People do not take a fractional interest in an expensive capital asset because they cannot otherwise afford to buy it. They do it because they don't want to buy it. As consumers, they recognize that the most serious limitation in their lives is time. If they purchase a $1 million vacation home and stay in it for only 14 days a year, that's a mighty expensive proposition. If they can have the use of a similar house—and perhaps one that is even more luxurious—for an $80,000 membership fee and a $5,000 per week use charge, they see it as a bargain.

Fractional owners don't pretend that they are owners. They are pleased that they don't have to deal with the hassles of maintenance, improvement, and fluctuating value. They like to use the house or the boat as if it were a costume that they have rented for a special event.

Who goes in for fractional ownership? It's not the superrich whose individual net worth may exceed $100 million: the superrich are hardly aware that fractional ownership exists. In the United States, "moderately wealthy" households—those with net worth of at least $1 million—are driving the phenomenon. These affluent consumers are smart in their spending habits. They carefully pick how, where, and when they want to invest. They own their primary homes and their cars, and they pay full freight for their vacations. But what's the point of tying up assets in a house they visit only once a year? They know that there are much better ways to spend their hard-earned money.