Want a 2nd home, but don't think you can afford one?

By
Real Estate Agent with Beach & Luxury Realty, Inc.

Then you may want to consider Fractional Ownership

This type of ownership has been common for years in the private jet and yacht industries.  In real estate, it has been the practice in the ski country of Colorado, the beach/resort areas of Hawaii and the coastal regions of California and Oregon, just to name a few states. 

It is currently commonplace in about 9 states and growing.  Now, Florida welcomes this concept of home ownership (multiple owners - one property)...it is all about a lifestyle! 

Each state has different rules regarding the number of fractions that can be sold.  Here in Florida, typical ownership fractions are sold from thirds to sevenths, depending upon the property and local zoning ordinances, with each owner having a deeded interest in the property. 

This is a great concept that is just now coming into its realization in Florida and it gives us another way to market a seller's property. 

Of course, not all properties will qualify...remember, it is all about a lifestyle (golfing/oceanfront/boating, just as a few examples).  These properties are also typically high end luxury properties. 

I would love to hear from any agents who have sold properties this way before.

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Rainer
18,257
blreast therealty4u
Beach and Luxury Realty, Inc. - New Smyrna Beach, FL

 

THANKS CRIS!

HOMEWORK, HOMEWORK, AND MORE HOMEWORK...  lol  WHEN YOU GO INTO REAL ESTATE... THE HOMEWORK NEVER ENDS..

BUT YOU ARE RIGHT..... AGENTS SHOULD LOOK CLOSELY HOW THIS WOULD  WORK FOR THEM BEFORE THEY JUMP INTO IT...AND WHETHER THE MARKET, REDUCTION PER SALE COMMISSIONS WOULD FIT THEIR MARKETING PLAN...

DISCOUNTING FOR THE MANAGEMENT COMPANY, ETC.    I DO WONDER IF WITH THE TAX AND INSURANCE MESS ( O.K. THAT'S AN OPINION- BUT VALID!!!) THAT TRADITIONAL SNOWBIRDS ARE FACING..

HOW ONE MIGHT EXPAND THIS CONCEPT... BY KEEPING SOME OF THEM WITH A MONTH OR TWO IN THE STATE, BY 1031 EXCHANGE  (OR EVEN CONVERSION OF THEIR PROPERTIES????) AND STILL STIMULATE SOME GREATER INTEREST IN THE FLORIDA (IF ONLY FOR A MONTH OR 3?) OWNERSHIP......

GETTING AND KEEPING EVEN AT THE SOLID MIDDLE CLASS INCOME LEVEL INTO FLORIDA OWNERSHIP WITH FRACTIONALS  - WHEN WITH CURRENT MARKET CONDITIONS THEY MIGHT NOT HAVE AN INTEREST... COULD BE AN INTERESTING DEVELOPMENT  TO THE COASTAL AREAS?

i.e.   WHY BE THE ONE PAYING ALL THE EXPENSES FOR THE OCEANFRONT CONDO; WHEN A MONTH OF TWO IS ENOUGH PLEASURE FOR THE FAMILY.. AND STILL HAVE THE POSSIBLE  APPRECIATION AND PRIDE OF OWNERSHIP  (AND PERHAPS AT  A MUCH BETTER LOCALE?)......

? MAYBE WILL HAVE TO CHECK FURTHER into IF SOME OPPORTUNITIES  ARE IN THIS MARKET.... AND HOW THE ZONING OR ACCEPTANCE MIGHT BE....?     NOTHING WRONG WITH BEING FIRST IN THE  AREA SOMETIMES IS THERE?

Perhaps marketed right- fractionals have their place..? if shown to have appreciation... its value difference from time share... would be an easy explanation.......

 

 

THANKS CRIS- LOOKING FORWARD TO YOUR NEXT BLOG....

Sep 26, 2007 07:48 PM #10
Rainmaker
468,893
Alexander Harb
Knights Investing - Mesquite, TX
Dallas, Texas Real Estate Investing

Cris....

This sounds like a REALLY great thing to do for homes near Disney.....

Can you send me info in an e-mail about it?

 

Sep 27, 2007 03:00 PM #11
Rainer
33,950
. .
no thanks - Harlem, MT
This is a very interesting topic to me. I'm glad I read your blog. Do you personally know about fractional ownership in Oregon?
Sep 27, 2007 03:34 PM #12
Rainmaker
74,030
Cris Burlew
Beach & Luxury Realty, Inc. - Saint Pete Beach, FL
Broker ~ St Pete Beach FL Real Estate

Hi Bridget,

Thanks for reading.  Here is a link to a company that is currently handling fractional sales in Oregon.  This would be a good resource for you as they have a good FAQ section and some more information on fractionals.  http://www.theshores.info/  It is certainly something to look into as another marketing tool for your sellers.

Sep 28, 2007 10:49 AM #13
Rainmaker
696,827
Chuck Willman UtahHomes.me
Utah Homes - Alpine, UT
Utah Homes
I'm seeing more of this for properties in Mexico... here in Arizona?... not so much.
Sep 30, 2007 02:12 PM #14
Rainmaker
74,030
Cris Burlew
Beach & Luxury Realty, Inc. - Saint Pete Beach, FL
Broker ~ St Pete Beach FL Real Estate
I'm not surprised about Mexico, especially if it's along the Mexican Riviera.  I'm not sure if it's a concept that would work in Arizona, as I don't think I've seen anything in my research. You never know though, it could someday come your way.
Sep 30, 2007 02:35 PM #15
Rainer
10,332
Marge Coffing
Beach & Luxury Realty, Inc. - Saint Pete Beach, FL
Florida Fractional Lady

Cris -

Thanks for your blog about the fractional concept, just beginning to take hold here in Florida.

You bring up the issue of affordability of a second home - let's think about some money issues for a moment, and some other relevant statistics.

By definition, a second home is a luxury product.  Yet second home ownership is one of the fastest growing sectors in the real estate industry and will continue to be so. Why? Not just low interest rates, but because of the demographic, socio-economic, and cultural trends in American society as well as worldwide.

Who are the likely buyers of second homes? If you were born between 1946 and 1964, you're a Baby Boomer. Nationally, there are 78 million of you, But also, there are 103 million Empty Nesters in Europe, and in Japan there will be 32 million by 2010.

Baby boomers have created fortunes, have years left to spend their money, and in addition, many in the U.S. are due to inherit $100,000-200,000 after taxes in the next few years.

What's the story on the second home market? NAR economists and statisticians have shared some amazing changes. In 2000, second homes purchases represented just 8.6% of all residential mortgages. By 2004, the number of second-home purchases nationally had more than doubled. In 2006, second home sales nationally were 36% of all home transactions, with vacation home sales increasing to 14%.

Of vacation home buyers, 86% purchased one vacation home, 12% purchased 2, and 2% purchased 3 or more.  So the statistics show that more people can afford and are buying second homes.

How much money do Boomers have? A lot. Faith Popcorn is an internationally recognized consultant specializing in "Futurist" issues. In her "Dictionary of the Future", she talks about a trend she envisions. "The 10,000 baby boomers turning 50 every day could decide to take their pensions, their IRA's, and all the money they've inherited and sprinkle it around the world...full time vacationing". That's a professional vision of the future.

What about The number 39? That's how many nights per year is spent in their vacation home, according to the NAR's most recent "Profile of 2nd Home Owners".  Just a little over 10% of the time, that's all!!

Even if you can afford to buy a second home in its entirety, should you? Is that the best use of your money? And that's the question people are asking. Yes, we know affluent baby boomers want second homes. However, the cost of buying and maintaining such a second home has changed greatly in the last three to five years. 

Here on the beautiful Florida west coast the escalating cost of taxes and insurance for all homeowners makes second home buyers take a second look. Whether the buyer is very wealthy or from the mobile middle class, the smart money is moving to paying only for what's being used.  And there's the power of fractional ownership.

Thanks, Cris, for opening up the discussion.

Marge Coffing, Florida Fractional Lady

 

 

Sep 30, 2007 09:07 PM #16
Rainer
18,257
blreast therealty4u
Beach and Luxury Realty, Inc. - New Smyrna Beach, FL

 

Thanks Marge for posting to Cris' blog... I'd think there's going to be growing interest in checking this market out, both by realtors and prospective vacation home owners.

How will this concept perhaps find its way into onto more of Florida's snowbird market?  Are management companies open to  individual single family homes  or individual condos? (if allowed)  Or is this more geared to the entire property being of fractional ownership?

Here in Florida I would think, with taxes,insurance, etc. there might likely be even existing snowbirds, others who might like to pull some equity from their investment for other opportunities or other expenditures in their later years.... and only keep a fractional for the months they are actually in the state!

But without knowing too much about fractional sales? do wonder how much interest you are seeing in Florida for the summer/ hurricane months for their fractional sales? Is there a large 'discount' or do younger buyers possibly with kids take an interest in summer vacation ownership?

Sep 30, 2007 09:21 PM #17
Rainmaker
74,030
Cris Burlew
Beach & Luxury Realty, Inc. - Saint Pete Beach, FL
Broker ~ St Pete Beach FL Real Estate
Thanks Marge for adding to my starting point. Now, let's keep this discussion and series moving forward and in the front of everyone's eyes (and minds).
Oct 01, 2007 10:15 AM #18
Rainmaker
74,030
Cris Burlew
Beach & Luxury Realty, Inc. - Saint Pete Beach, FL
Broker ~ St Pete Beach FL Real Estate
Hey blreast, You bring up some good points. I'll make sure Marge gets back with you on those.
Oct 01, 2007 10:19 AM #19
Rainer
9,053
Lisa Rohner
Luxury Fractional Guide - Wallingford, CT
Luxury Fractional Guide

To the question about slow vs peak seasonal times...  If someone purchases an eight-week fraction in a home, they generally would get four two-week periods -- one two-week period in each season or quarter.  This levels out the fractions so that no one owner is getting better times than the others.

The usage plan then comes into play.  There are fixed, flexible and rotating usage plans, with the rotating plan being the most common.  So if an owner has weeks 1-2, 12-13, etc., one year, the following year they would have weeks 2-3, 13-14, etc.  This also levels the playing field because all fractions in a property always have the same number of weeks and are always priced the same.  

If an owner doesn't like or doesn't want to use any of the weeks they are assigned, they then generally either rent out the weeks or exchange with another fractional owner anywhere in the world.

If there are any weeks that are completely undesirable, then the property management would generally use those weeks as the time that they do annual maintenance on the home. 

 

Oct 29, 2007 10:07 AM #20
Rainmaker
468,893
Alexander Harb
Knights Investing - Mesquite, TX
Dallas, Texas Real Estate Investing

It almost sounds like a timeshare without all the buying of weeks and everything......

PLUS the home is not bought for MORE than 20 times what it is worth either!!

hehehehehe

 

=-)

 

Oct 29, 2007 01:13 PM #21
Rainmaker
74,030
Cris Burlew
Beach & Luxury Realty, Inc. - Saint Pete Beach, FL
Broker ~ St Pete Beach FL Real Estate

Lisa - that is great information. The one project we have currently listed, is actually more of a use property not allowing the owners to rent out their unused portion. This is mainly due to the rental restrictions in the area, as well as the nature of the property.

We've discussed the pros and cons of the rotating plan versus the fixed plan. Florida Fractional Lady, Marge Coffing, from our office has researched our area and it looks more to be a better fit to go the fixed plan route.

Of course, as things evolve, plans change. We may see a need to maybe go toward the rotating plan or some middle ground in between which would be the flexible plan. Only time will tell.

Glad to have you on board in the group.

Oct 30, 2007 02:44 PM #22
Rainmaker
74,030
Cris Burlew
Beach & Luxury Realty, Inc. - Saint Pete Beach, FL
Broker ~ St Pete Beach FL Real Estate

Hi Alex - Here in Florida, unfortunately, it falls under the timeshare laws even though it is not a timeshare. Prices are based on a time period, but that is usually where the similarities start to end. It is a great concept and with the way not only the prices have been in the past, but with taxes and insurance, you now get to defray part of the homeownership costs.

It is really one of the best ways to own a 2nd home. Most 2nd home owners don't use the home all year long, they only spend on average 6-8 weeks a year in/at their 2nd home. Yet, they have to continue paying all of the costs associated with home ownership. Not any more.

Oct 30, 2007 02:48 PM #23
Rainer
9,053
Lisa Rohner
Luxury Fractional Guide - Wallingford, CT
Luxury Fractional Guide

Thanks Cris!  I deal with hundreds of fractional properties every day, and I can tell you that rotating plans are the most popular.  Although I do see the occasional fixed usage plan, a fixed plan can be a detriment to sales.  Many sellers have discovered that once the "best" weeks are gone (eg Holidays, weeks that coincide with local events, etc.), they have trouble selling the remaining shares.  There's a great eBook out there called "Fractionalize to Maximize" by Sherman Potvin that walks you through all of these issues. 

As for the rental restrictions, we run into that all the time.  That's why membership in an Exchange Program should be an integral part of your marketing strategy.  Since there's no money exchanging hands, exchanges don't fall under those rental restrictions.  I've dealt with a lot of folks out in Arizona that ran into rental restrictions, and the Exchange Program took care of the issue.

Drop me an email or a message if you want to know more about fractional exchange programs.

Oct 30, 2007 11:54 PM #24
Rainer
10,332
Marge Coffing
Beach & Luxury Realty, Inc. - Saint Pete Beach, FL
Florida Fractional Lady

Hi Lisa!

Thanks for your input about the rotating plans. I can see that might be the case for the states where there really are seasons, which is most of the US. Having lived in New England, I can appreciate spring after a cold and icy winter, or fall foliage after the first frost, and I know there's a big spread on the thermometer annually, with seasonal averages which vary greatly from each other.

Florida has three temperature zones. We're located in the subtropical climate zone, and basically there are only two types of weather - warm and breezy, or warmer and breezy. Miami and Key West, for instance, are tropical with almost no temperature variation.

Our visitors come here from around the world and they expect warm weather year-round, and that played a big part in our analysis to go with fixed blocks of time, with price points varying depnding on time of year. The fractional resort near Kissimmee started out with rotating weeks but changed to fixed, and the Key West resort sales are struggling with a rotating calendar.

However, it's all yet to play out and be adapted as necessary. So we'll see!! Maybe a choice of plans, depending on the building.

Yes. Sherman Potvin's book is quite good - I enjoyed also his monthly online Fractional Marketing updates last year. 

Thanks for the reminder about the fractional exchange program - that is a great possiblity for many.

 

Marge Coffing, Florida Fractional Lady

 

Oct 31, 2007 02:16 AM #25
Rainer
66,957
Dionne Morgan
Realty World Solano Realty - Vallejo, CA
Broker REALTOR ,GRI, e-PRO
CRIS an intriguing concept. I certainly am not familiar with this manner of purchase. Thanks for the link. I am not sure if this type of contractual arrangement has made it to California. I will keep my ear to the ground on this one.
Jan 09, 2008 05:01 PM #26
Rainer
9,053
Lisa Rohner
Luxury Fractional Guide - Wallingford, CT
Luxury Fractional Guide

Dionne -- The concept certainly has found its way out to California. Most of the fractional properties I've come across there are in Northern Cal (San Francisco, Tahoe/Truckee/ Mammoth Lakes and the wine country), but I've also run into some in Santa Barbara and other areas down in Southern Cal such as Santa Barbara.

Many of the fractional properties up in your area are "Private Residence Clubs" and many of them are being formed around vineyards!

Jan 09, 2008 11:17 PM #27
Rainer
234,150
BLR Guy
BLRGUY(Beach & Luxury Realty Inc) - Saint Pete Beach, FL

What happened to the people in our fractional group?Did they give up on Fractionals?

Jun 04, 2008 10:46 AM #28
Rainer
234,150
BLR Guy
BLRGUY(Beach & Luxury Realty Inc) - Saint Pete Beach, FL

What happened to the people in our fractional group?Did they give up on Fractionals?

Jun 04, 2008 10:46 AM #29
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Rainmaker
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Cris Burlew

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