Excellent Piece by Andy Sirkin

The link below is to a write-up by Andy Sirkin. The issues discussed in this article are near and dear to my heart, as they relate to single family home co-ownership and the challenges that face the owners. I plan to take much of Andy's advice into account when developing my properties. The section about financing appears to already be outdated as the financial services industry has been very quick to develop lending products in the F/O arena.

http://www.andysirkin.com/HTMLArticle.cfm?Article=14

Understanding the Basics of Fractional Ownership (Part 1)


http://www.helpyourmoney.com/187/understanding-basics-of-fractional-ownership-1

Part 3 of a series of articles on purchasing a F/O property

While this article focuses on the large corporate, amenity-laden properties (not single family homes), I think it still offers some tidbits to consider:


http://www.helpyourmoney.com/201/purchasing-fractional-property

Our New Forum!

Today I created a Forum dedicated to Fractional Vacation Home Ownership at the New Jersey Shore. As far as I can tell, it is the only forum on the web dedicated to F/O at the shore. Let's use it to create a community of potential buyers, service providers and self-proclaimed experts that are as excited as me about F/O's arrival at the shore.

Click the Enter My Forum/Click Here button on the main page of the blog and chime in!

Also, take a minute to cast you vote on the current web poll, also on the blog's main page.

This is fun!

New Jersey State Approval

Question: If fractional ownership in resort communities is such an innovative and exciting way to own vacation property, why hasn't it been done at the Jersey Shore already?

Answer: It has been tried for years. The roadbloack has come from the the State of New Jersey. Properties that are offered for sale via fractional ownership need to be cleared with the state. In the past, the state has never signed off on these offerings due to the lack of available financing to buyers. In addition, no one locally has been able to adequately explain the concept to the state. Well, this Fall, that all changed. The state has now gained comfort in the viability of this option and is approving these transactions. Specifically, they are waiving the requirement of registering the single family home as a condo. They achieved this comfort level due to the emergence of competetive financing to the buyer and the diligence of those in the industry who have explained the concepts fully.

What this means is that the trail has now been blazed and we should expect to see the first-ever fractional ownerships offerings in communities like Avalon and Ocean City this Fall and Winter.

Financing article

Interesting link to an article on financing your fractional vacation home purchase:

http://www.helpyourmoney.com/198/financing-your-fractional-ownership

I have spoken with some of the boutique finance companies mentioned (and others that were not mentioned). They say the buyer should expect rates about 1.50% higher than "traditional" mortgages. They offer many ARM options including interest-only, but no fixed products as the market has not matured (yet). All use 30 year amortizations, however.

ARDA Write-up on Second Home Alternatives

This article does a decent job of describing the different alternative ownership options for second homes.

http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20061010005878&newsLang=en

Luxury Amenities Abound...

This article I read on MSN Moneycentral is certainly optimistic toward fractional ownership of vacation real estate. It seems the types of F/O properties in the news the most are those that 1) are offered by established hospitality industry players like Four Seasons, and 2) cater to the luxurious side by offering very high-end luxury amenities by stocking the fridge and providing massages. I suppose we see these offerings the most because of the marketing fire power of the participants. While I believe there is great value in these luxury F/O's, this is not where I plan to focus my efforts at all.

The focus of my properties will not be on luxury per se. We will work under the belief that people just want to go to the shore and be near the beach. They do not need a consierge to make them reservations or someone to stock their refrigerator as most of their dining will occur either in a local restaurant or on the deck using the grill. They just want to arrive at the house and enjoy the shore.

Not having all of these luxury amenities should go a long way in controlling ongoing costs. I suppose providing beach tags makes sense though....

Note: I am guessing that this is not a recent article, since the author says that traditional financing is not available for this type of property. This is not true at all. I have personally spoken to representatives at two different finance companies that are in the business of lending mortgages to buyers of F/O vacation homes.

Feedback Please!

The reason for the existence of this blog is to solicit feedback and build a network. I am very interested in meeting both interested potential buyers and service providers.

From potential buyers, I would like feedback on what they think of this concept. Would it work at the Shore? What are the most important considerations for making this work? What types of properties would you like to see available? At what price points? Does anything about "sharing" a house with other partners scare you? What about scheduling usage? Any financing concerns that should be addressed? How about your thoughts on maintenance and upkeep?

From service providers, I would like to build my dream team. Realtors, lawyers, investors, property managers, lenders, I want to hear from you all.

Please comment on these posts to start some dialog that can be informative and beneficial to us all!

Book Early and Often: Usage Scheduling

Part of the tenants in common agreement that is signed by all owners and that governs the use of the house is the usage terms. These are the rules that describe how blocks of time will be allocated throughout the year. There is no industry standard here, and the owners of the property are free to establish any set of usage rules that works for them. Obviously the key objectives of the chosen usage allocation methodology are:

• Fairness. This one is obvious.
• Flexibility. The ability to change plans after the schedule is set.
• Advance scheduling predictability. There is a balance between flexibility and the ability to schedule your year (or many years in some cases) well in advance.
• Enforceability. Whatever rules are established need to be enforceable or they are useless.

Diverse methods are used today in different properties, each with advantages and disadvantages. Some common methodologies at other properties:

• Rotating weeks. Each owner is assigned a set of week numbers. Each year, that set of weeks “bumps up” by a week. For instance, if you are a co-owner of a quarter-share property and receive 12 weeks per year, in Year 1 we you may be allocated the weeks numebred 1, 5, 9, 13, 17, 21, 25, 29, 33, 37, 41 and 45. In Year 2, you would receive weeks 2, 6, 10,…. You get the picture. The benefits here are that 1) you know your schedule years in advance, adn 2)you are assured of getting certain prime weeks at least every four years. The disadvantage is the rigidity and that some like to plan around having the same week(s) every year. This can be mitigated by swapping weeks with other co-owners to some degree
• Draft system. An annual or semi-annual meeting, conference call or webcast is held for all co-owners during which each owner uses a draft lottery style order to choose their weeks for the year. Whichever owner had the first pick in Year 1 would get the 4th pick in Year2. We go around the table choosing weeks (or blocks of time), taking turns in order until at least the prime season weeks are scheduled. The advantage of the draft system is the flexibility in which weeks you are allotted each year. The disadvantage is the unpredictability of scheduling your vacation time more than 6 months to a year out becuase you do not know which weeks will be allocated to you for next year until the draft.
• Fixed Allocation. You get the same week(s) every year. This is best for those co-owners who like the predictability of knowing which weeks are theirs for years to come. The downside is that if you have Memorial Day week, you may never see the 4th of July without trading.
• Swapping. Regardless of the allocation system that ends up being chosen by the owners, you are free to swap and trade weeks. With a centralized web-based schedule, all the owners can see who will be using the house when throughout the year and contact them as needed to propose a swap.
  

I'll give my views on how to allocate off-peak season time in a future post.

Does anyone have any additional methodologies that they have seen at work? Which of these would you prefer?

Watch the Tram Car, Please...

An idea hit me like a brick this year... but first I digress:
Growing up in the Philly suburbs, there is something very spiritual about the Jersey Shore. The allure of the Shore is not tied to the (admittedly mediocre) quality of its beaches, nor is it linked to its (un)glamorous residents, or even its (semi-)fine dining. It's much deeper than all of these things. The Shore is about a feeling and about memories. The Jersey Shore is permanently embedded in the summertime culture of my area. For those of us that grew up here, some of our finest childhood memories were created at the shore. Some families did Avalon, others Wildwood, Long Beach Island, Ocean City. Certain freedoms were afforded at the shore that were not available at home; among them staying up late, walking to the store by yourself, cable TV (ok, this was 25 years ago). During my childhood I always vowed that, when I grew up, my family would taste this joy. My kids would be able to create memories as fond as mine.

Well... I'm a grown up now, and have three little darlings of my own. We have done weekly rentals every year since the kids were born and they are enjoying the Shore immensely. But this rental thing is getting old for many reasons:

• The Money. The rent for a decent house in Avalon is now $3,000. For a week! I have paid it for years but when you take a step back and think objectively, it's ridiculous.
• The Search. Unless you rent the same place every year, there is an annual scramble in the Spring to find and reserve a house. The web has made this infinitely more efficient, but it can still raise the blood pressure.
• The Money. $3,000 are you kidding me? Trust me, this number is conservative too.
• The Spoons. There is nothing more annoying than finally getting to the house, unpacking, cracking open that first one, and realizing that there is no bottle opener in the drawer... and that the TV does not get Nickelodeon.... and that the coffee maker leaks.
• The Weather. All it takes is a bad stretch of weather, and I find myself saying "... don't be sad kids, we'll come back next year too..."
• The Money. Allright, I'll stop.

I know people who own (or have family that own) homes at the Shore. It is these people that I am most jealous of in the world. They not only come and go as they please, but they leave their beach equipment there, and don't have to arrive Saturday at 2:00 like everyone else on the island. They spend Easter there; maybe a Thanksgiving or New Years Eve. They use the house in the off-season. All this, and they are rewarded with consistent property value appreciation and some occassional rental income. This is the answer to all my problems; I need to own my shore house.

But alas, a new set of problems. As a result of this steady demand-driven appreciation, you can not buy a house at the shore for under a million bucks. Let me restate that... a decent house in Avalon, Stone Harbor, Ocean City will be well in excess of a $1MM. In Wildwood Crest, you could get into a nice town house for $650,000. Sea Isle City and LBI are somewhere in between. I am a gainfully employed professional that makes good money and can not even consider paying even the low end of this range for a vacation home. Besides, I would only use it sporadically throughout the year. And who would keep an eye on it when I'm not there anyway? I guess that was a bad idea.

But wait! Why do I have to buy the house when I know so many other people that are in the same situation as me? I can split it with them! We split the cost of upkeep, split the income if we ever rent it out, and still each use it as much as we want. My answer is fractional ownership. More on this in my next post....