Despite the rocky real estate market, fractional residences continue to attract the attention of developers and the media. A recent article in the New York Times pointed to the virtual fractional bonanza in Italy, where at least three such projects are opening their doors. New shared ownership developments continue to roll out stateside. In San Francisco for example, the Ritz-Carlton recently opened its fractional residences near the city’s Union Square shopping district, while Fairmont is putting the finishing touches on its Fairmont Heritage Place fractionals in Ghirardelli Square.

If you are eyeing this market, here are five key due diligence questions to cover before you buy, as well as the answers you should get.

1. How much are annual dues and is there a cap on their yearly increase?

Dues at fractional residences can be high, easily topping $10,000 a year at most projects and exceeding $30,000 annually at the most lavish developments. You should not only know the size of the annual dues, but how much they can be raised each year and who has the power to institute such increases. If there is not a homeowners’ association, increases in the near term may be left to the developer or management company.

2. How easy is it to secure a holiday reservation?

Depending on the location of a fractional, you could have a difficult time booking during the prime holiday seasons, including Christmas, New Year’s and President’s Day. Projects in ski areas can see the biggest holiday reservation crunch because the prime vacation season is short. Projects that allow rentals may also see an availability crunch. Get the specifics on how holiday bookings work at a given development. A property may rotate weeks among owners, or simply promise that you’ll get, say, two weeks in the winter. If the project is already open, ask to speak to current owners about their experience booking reservations. If there is an acute lack of availability, you’ll hear about it.

3. How is my deposit secured?

Several condo-hotel projects from Las Vegas to Lake Tahoe have halted construction in recent months due to financing issues. While the tight credit markets have yet to hit fractional projects with the same headline-making impact, any prudent preconstruction buyer should ask careful questions about how their deposit is secured. You should also know the terms under which you may be able to get that deposit refunded. For instance, can you get it back if the project completion date is delayed by more than a year?

4. Are there any resales?

It can take years for a developer to completely sell out of its initial inventory. Even so, there may be resales on the market. Aspen, a relatively mature fractional market with several completed projects, has an active fractional resale market with local realtors holding listings for units at the Ritz-Carlton, St. Regis and Hyatt fractional properties, among others. Prices vary widely, even within projects. Ask a developer if there are resales and also look at the open market.

5. What’s the investment upside?

If a developer makes any promises regarding future price increases, look at other projects. We’ve always advocated that fractionals are a lifestyle investment, but at a time when home prices have dropped some 20 percent in a number of markets, this mantra is even more important to remember. Purchase a fractional because you love the location and the property, not to make money.

Are you considering purchasing a fractional unit? Download our Decision Guide to Fractional Residences for a complete list of due diligence questions.