By: David Kucic, Hawaii Home Buying and Selling Team
On May 18, 2007, I posted an article about "Fractional Ownership". I knew it was coming to Hawaii and today, I saw one of the first signs of it.
There is a beautiful condominium in downtown Waikiki that now has one of their units up for sale as a fractional. Previously, this individual unit was listed at $1,299,000. It is a 2 bedroom, 2 bathroom, 2 parking, Penthouse, within walking distance to the International Market Place and the beautiful beaches, shops and restaurants of Waikiki. It has 1,802 square feet of interior living space. There are also a few other fractionals available in Hawaii Kai and Kailua. Some are condo townhouses and some are single family homes. There are a few listed at $150,000 for a 1/6 share.
Okay, here is the way it works. The owner is "fractionalizing" his property at $250k for 6 fractions. This means that each of the 6 owners (WITH THEIR OWN TITLE TO THE PROPERTY) will get at least 60 days per year to enjoy this home. Anything less than 60 days would qualify it as a timeshare rather than a fractional. This is the modern day version of the second home BUT IT IS NOT A TIMESHARE.
Statistics show that most 2nd home owners only use their second home between 6 and 8 weeks per year, wouldn't it make great sense to own a fractional?
There is a lot more to just deciding that you will sell your property as a fractional. For more information, email me and I can put you in touch with the Hawaii Fractionall Ownership experts.
Here is my original post dated May 18, 2007:
Fractional Ownership: Get Ready to Jump On The Train If It Hits Your Station
By: David Kucic, Hawaii Real Estate Agent
Today I attended a brief but very interesting class about "Fractional Ownership". For those of you that are not in markets that have this program or maybe have never heard of it, I would like to share my notes with you in order to shed some light on the topic. Laws may differ from state to state but I am in Hawaii and this information pertains to Hawaii. Please check with your local state fractional ownership expert for details on your state.
- Fractional Ownership is NOT a timeshare. A timeshare is a property that has multiple "tenants" that occupy the property for weeks out of the year. Owners of fractional properties occupy for no less than 60 days each year. If it were occupied for any time less than 60 days, it would then be a timeshare.
- Fractional Ownership properties should not be marketed as an investment. If it were, it would fall under the rules and regulations of the Securities and Exchange Commission (SEC).
- Fractional ownership is taking the place of 2nd homes in resort destinations. These destinations would be the same places that you would find timeshares.
- In Hawaii, the minimum amount of owners is 2 and the max is 6.
- THIS ONE IS GREAT......On a 1031 exchange, if the purchase price on the replacement property is less than the amount of the sold property, the difference CAN be used to buy a fractional property!
Benefits to Buyers
- Each owner has a title policy and deed
- Price-You could be a fractional owner of a 2 million dollar property for less than 340k (6 owners).
- Credit issues do not affect other owners
- Financing is available
- 5 Star Service
- Luxury Amenities (granite counters everywhere, travertine flooring etc...)
Benefits to Sellers
- Sellers can fractionalize their homes as long as it is not expressly forbidden by the condo docs, CC&R's or other regulations.
- In the absence of comps, lenders will give 140% of FMV. A 2 mil listing could become a 2.8 mil listing if it is sold fractionalized.
Some statistics to consider....
In 2005, there was a 28% increase in Fractional Ownership
In 2006, there was a 32% increase in Fractional Ownership
The average use of a 2nd home is between 6 and 8 weeks each year.
Part 2 of this class will be on June 7th at which time I would be happy to share additional notes. If there is anyone out there that has dealt with these, please share your input. Are they good, bad? What are your thoughts?