Article about Fractional Ownership from The Columbus Dispatch:
Fractionals: between time share, ownership
What is Fractional Ownership?
Fractional Ownership is an innovative and affordable solution to second home ownership whereby equity is shared by a number of owners who share the total costs. Fractional’s allow your costs to more closely align with your actual usage. Fractional ownership is similar to any other real estate purchase, except that you are only purchasing a partial ownership, or fraction, instead of the whole property. Buyers purchase a 1/6 share of the company that owns the property. Buyers purchase 1/8 share of the property. A 1/8 share offers 6 weeks of usage.
Is Fractional Ownership Right For You?
One of the main reasons people buy fractionals, even when they can afford the entire purchase, is that the expense and responsibility of ownership is reduced. You get the benefits and convenience of a second home with luxury amenities and service, but without the expense and hassle of full ownership. It hardly makes sense to have the expense of a mortgage, upkeep, insurance and taxes for a place you only use a few weeks or months each year. Fractional ownership allows your second home to become a true family vacation destination. At the same time, you own the property and you can pass it down to your heirs or sell it as you wish.
Are Fractional Shares A Good Investment?
Fractional ownership was first seen in 1995 in ski resorts in the Midwest. As of 2003, there were more than 3900 individual fractional units in the U.S. alone. Because fractionals are more like upscale real estate than timeshares, their value tends to move along with local real estate. A survey by Ragatz Associates, a resort industry-consulting firm, suggests that resale’s are getting 10-30% more than the original price. As record numbers of baby boomers retire and families seek alternative vacation solutions, the demand for fractionals increases rapidly. The current demand for fractional shares is outpacing the number of available properties on the market resulting in appreciation and good resale potential. Remember however, that when you buy fractionals, you are paying a premium over market rates depending on number of shares, property location and other factors, so in the short term your gains may be modest. Fractional costs are higher because developers and management companies have upfront legal, financing and marketing costs that must be built in to the price of the fractional shares. That said, if you are planning on buying a fractional share, the best advice is to buy for your own enjoyment and that of your family, not for profit or investment.
How is "Fractional Ownership" different than a time-share?
Time-share vacation developments only sell the right to occupy a time slot in a resort. Often, time-share buyers stay in a different unit each visit. Fractional owners have ownership in the ground, structure and all interior furnishings. Fractional owners enjoy many benefits over a time-share, including property appreciation, superior property maintenance, transferability and extended length of stays in their vacation home to name a few. Additionally, when it comes to financing, banks and mortgage firms consider fractionals to be appreciating assets, versus timeshares, which tend to depreciate over time, so financing is more readily available for fractionals. Interest rates are usually comparable to any other type of home mortgage, however the loan to value (LTV) may be capped at 80%.
Is there financing available?
There are numerous financing options for prospective buyers. Aside from a cash purchase, home equity loans and first home refinancing, there are also lenders who will create new mortgages on individual fractional share ownership. We are happy to provide financing assistance and are offering owner financing for limited shares.
Can I purchase multiple shares so I can have more usage time?
Yes, multiple shares may be purchased which makes allows the owner or their guests to spend more time in the property.
How are decisions made among the owners?
There is a recorded "Ownership Agreement" which sets out basic rules and regulations of how the home is owned and managed. Changes are made by majority owner vote annually. Changes to major element of the agreement, such as expensive non-emergency repairs, remodeling, changes in the usage and scheduling agreement, selling the entire property or smoking policy, require unanimous vote of all fractional owners. In the event that owners cannot reach an agreement on proposed changes, dispute resolution assistance is provided, typically through mediation or arbitration by a third party.
What if I want to sell my fractional interest?
Like any other form of real estate, you can sell your interest at any time, but you must first offer it for sale to the other fractional property owners in your group before selling it on the open market. However, transfer or sale of a share to an immediate family member or relative is allowed without requiring first right of refusal by the co-owners.
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