Fractional real estate ownership the ins and outs

By
Real Estate Agent with Davis Yoder Group, Coldwell Banker Realty BRE# 01117410, 00705038
https://activerain.com/droplet/4tdH

Fractional ownership has gained momentum over the last couple of years. There are a variety of ownership entities including; timeshares, destination clubs and deeded fractional shares.

We have been involved in the sale of deeded fractional shares. What does that mean? Typically the shares are 1/4 to 1/8 ownership. Why did this evolve? There are two reasons. Firstly, the average second home user is for period of 18 days. The rest of the time the property sits vacant or is rented. Secondly as second home prices have soared affordability has wained.

Shared ownership is not new and has been successful in Colorado, Park City, Telluride, Whistler/Blackcomb and here in Tahoe. The buyers we have represented love the product. They end up with a fabulous home for the same price as an older condominium.

Ownership is deeded. It is like you and some other friends buy a property and take shared tenant in common ownership.

What do you need to know? Well, how much and how are they valued. Rather than a price per square foot you look at the price per week. In our market that ranges from $50k to $100k per week. Also what are the dues? The only additional cost that you have from a single family residence is management and any concierge services the property may provide.

Management is critical. Properties identified as ONE OFFS are when a owner only does one property. This structure is hard to provide professional management as there is not enough product.  A developer with management arm is the way to go so you have an on-line reservation system and strength.

Fractional shares can be financed and qualify for 1031 exchanges.

This type of product is complicated with over a hundred pages of documents so if you are thinking of becoming a selling agent, make sure there is a market for more than one. You have to educate the other agents and buyers.

We have completed one property, have two almost sold out, a third for sale and developers looking for more. Like all real estate once you have the system then the process is much easier. Commissions typically are higher than for conventional real estate.

If you are a realtor in a resort market you probably have heard of it and I would encourage you to get involved. Major cities such as New York, San Francisco, Miami and LA are also ripe for the buyer that would like to have a part time home in the city.

Check http://www.truckeeinfo.com/files/fractionals.htm for more info.

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Rainmaker
123,517
Rebecca Savitski
BSR Real Estate Group - Cary, NC
NC Real Estate Listings

My boyfriend has owned a fractional share for the past 20 years it makes weekend vacations amazing we spend every weekend at Kerr Lake for just groceries. I Love this idea.

Aug 11, 2007 12:51 PM #9
Rainmaker
123,304
Eliese Pivarnik
Colorado Group Realty, LLC - Steamboat Springs, CO
CRS, GRI, ABR, RSPS, Colorado Group Realt

We have lots of fractionals.  The weeks the owner can use it typically rotate, so with a 1/4 ownership, you can have Christmas week every 4 years.  Some highlights are: 

  • they appreciate just like whole ownership, and the resort markets where fractionals are located tend to appreciate more than other areas,
  • you have access to a much nicer property than you could afford otherwise,
  • and you can rent the weeks to pay for HOAs,
Aug 11, 2007 02:51 PM #10
Rainmaker
279,551
Todd and Danielle Millar
Glenn Simon Inc. - Edmonton, AB
Sixteen years of excellence!
We spilt properties 50/50 with people and that is a lot of work getting everyone on the same page I can't imaging doing it with 6 or 8 people. But that being said in the future it might be the perfect thing for retirees who want stability and have a lot of cash.
Aug 11, 2007 05:59 PM #11
Rainer
15,237
Suburban Chicago Illinois Real Estate
Suburban Village Realty - Barrington, IL
Professional management is key on these.. the more respectable developers that specialize in this concept have it down to a science and manage it like a fine hotel.
Aug 11, 2007 06:44 PM #12
Rainmaker
656,032
Bob & Carolin Benjamin
Benjamin Realty LLC - Gold Canyon, AZ
East Phoenix Arizona Homes
If people get away and use these they can be good... if not they are a waste.
Aug 12, 2007 04:29 AM #13
Rainer
68,718
Paul Kaplan
The Paul Kaplan Group, Inc - Palm Springs, CA
Mid Century/Modern homes in Palm Springs - www.Pau

Well, isn't that true with any 2nd home purchase?

 Still would love to get some information on how to set up a property as a fractional ownership, if anyone can hel.  Thanks!!

Aug 12, 2007 04:32 AM #14
Anonymous
Bob Yoder

Thanks for the follow up posts.

 One of the most important issues as mentioned in one of the posts, is having professional management. This also includes having an on-site manager that can deal with immediate issues. Things such as items getting broken etc, are dealt with by the manager, checking the property each time someone checks out.

 

The obstacles are having professional management. The one off where someone just does one house or condo will probably have management issues.

 How does one do this to their house? As I mentioned it is a fairly large legal process of completing the docs so just doing one home may not we worthwhile. You need an attorney familiar with this type of product,  http://www.coxcastle.com/

The question on the math is that you buy into a home worth over $1 million dollars, completely professionally decorated and furnished. This would be instead of an older entry level $300k condo. You get something beautiful instead of something you always get to fix.

The point on usage is that typically second homes do not get used very much so having a 1/4, 1/6 or 1/8 ownership will probably give you the time you need. The rest of the time you do not worry about, leasing etc.

These are not timeshares. Fractionals mean you go to the same property all the time.

Aug 14, 2007 08:43 AM #15
Anonymous
Mike Satterlee
The "OLD GREENWOOD" delevopment in Truckee,ca is the state of the art fictional development. Professional Management, 5 star living and beautifull setting(Nicolas Golf Couse)....Check it out....They have a killer system for time distribution of the vacant units .....Mike
Aug 14, 2007 12:34 PM #16
Rainer
43,316
Davis Yoder Group
Davis Yoder Group, Coldwell Banker Realty - Truckee, CA
Experience isn't expensive, it is priceless

Hi

 

I would like to respond to several issues. A fractional is not a timeshare. With a timeshare you do not specifically own real restate, you own time. A fractional gives you a deeded interest, 1/8, 1/6 or 1/4 of a specific property that is yours.

Why would someone pay $50,000 per week for a fractional? Because you are buying a slice of a very expensive property, the property is probably $1,500,000. So instead of using a $1,500,000 property for 2 months or the average of 3 weeks, you buy 2 months worth. The cost of operating is comensurate with owning a fraction of the whole house. The costs of ownership are much higher than what people estimate. So instead of paying the costs of a $1,500,000 house and use for 2 months, you pay the cost of 2 months.

Profeesional management solves the issue of maintenance, breakage etc.

The fractional market is driven by what is the cost of alternative property, typically good condos. Instead of buying a $400,000 condo, you buy part of a multi million dollar property. If condo prices go down dramatically, like Florida, then as per one post, yes that market for fractionals will be quite difficult. 

 For legal advice go to http://www.coxcastle.com/ as they do the docs for this type of property.

We have been very successful in selling fractionals in the Truckee/Tahoe area.

 

 

Oct 18, 2007 03:31 AM #17
Anonymous
Daniel Giannini

Fractionals are the wave of the future in gaining access to luxury assets. The Fractional Concierge website (http://www.thefractionalconcierge.com/) is the world's first website that brings together ALL assets sold as fractionals: Real estate, aircraft, sea vessels, automobiles, recreational vehicles, and everything else from handbags and artwork to dogs and organically grown meats. The website gives you detailed information, pricing and photos on hundreds of fractional assets so you can peruse the many different options.

Jan 02, 2008 08:04 AM #18
Anonymous
Michael

Check out http://www.sharecastle.com/.  The website has general information about fractional ownership as well as growing number of fractional listings. 

May 08, 2008 06:29 AM #19
Anonymous
heleveeta

You can list your property for free at www.sharecastle.com or view already existings fractionals. Sharecastle also specalizes in mangement o fractional properties.

contact chris@sharecastle.com for more information.

Jul 02, 2008 08:05 AM #20
Anonymous
Garreth Mathewes

This is one of the clearest explanations I have found on what exactly Fractional Ownership is. Could you look over http://www.theranchonsodarock.com/ and let us know your thoughts. Their explanation seems to jive with yours, but I'd love for some third-party opinion here. Thanks!

Jul 16, 2008 10:20 AM #21
Anonymous
Bob Yoder

Looks like a very nice product. What is the price?

Jul 18, 2008 12:57 AM #22
Rainmaker
123,304
Eliese Pivarnik
Colorado Group Realty, LLC - Steamboat Springs, CO
CRS, GRI, ABR, RSPS, Colorado Group Realt

Steamboat Springs has some nice fractional opportunities, too.  Prices range from $50,000-$650,000 depending on the property.

Read more about Steamboat's fractional properties here.

Jul 18, 2008 04:26 AM #23
Rainer
43,316
Davis Yoder Group
Davis Yoder Group, Coldwell Banker Realty - Truckee, CA
Experience isn't expensive, it is priceless

Fractional properties and management. One of the most important aspects of Fractional properties, as we have posted above, is the manager. There are lots of individuals (identified as on-offs) looking to fractionalize their home, attracted by higher resale prices. Unfortunately this is a tough road to follow. As in all businesses there are economies of scale both for the original set up of the fractional product and the ongoing management.

 

You need a professional manager to effectively look after these properties. What you will find in this marketplace is that many fractional companies will not make it. As wiht all startup businesses, lots jump in and a few survive. Others that are simply in this business segment to sell units and reap profits and market themselves as professional managers, never were and never will be professiional managers. What then? The owners get frustrated and take the property away from the manager and look for someone else. There really are not many sole management companies for fractionals but there will be as the stock of this product grows it provides opportunity for a true management company to become involved in the business.

 

So make sure when buying, that the management side of the equation is covered.

Aug 12, 2008 07:02 AM #24
Anonymous
Gareth Mathewes

Re: The Ranch on Soda Rock... It looks like they posted the price recently at: http://www.theranchonsodarock.com/ownership/financial-benefits.html. What do you think?

Aug 21, 2008 10:07 AM #25
Anonymous
Lawton P. Bourn, Jr.

Is there a type of program somewhere between Fractional properties and Time Shares? We have a small log home in northern NH which is nearly finished but needs complete plumbing hookups between the well holding tank and septic outlet pipe in the cellar to plumb the bathroom and kitchen appliances: shower, toilet, vanity sink and kitchen sink, plus stack vent. We need between $2000 and $2500 to complete this project. To raise the requisite funds for this purpose, we are wondering about selling time usage for perhaps up to 10 families (at $200 to $300 per family) in exchange for two or three weeks per year up to 4 or 5 years.  We don't want to sell the home as we feel we can rent it in the future for necessary tax and maintenance monies after the home is completely operational and occupancy certified.  Comments on this idea or the inherent falacies we can't see at this time?  Thanks, L & G Bourn, Laconia, NH

Mar 26, 2009 08:57 AM #26
Anonymous
Bob Yoder

Hi Lawton

 

Thanks for your question. The best way to achieve what you are asking would be with people you know.

To draw up legal agreements would be cost prohibitive.

Mar 26, 2009 01:27 PM #27
Anonymous
Jeremie

Great article !

To know more about fractional life, just go on http://www.fractionllife.com/fractional_property.asp

Jun 17, 2011 12:00 AM #28
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Rainer
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Davis Yoder Group

Experience isn't expensive, it is priceless
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