A PWC research piece highlights the increased awareness of fractional ownership vacation homes among the baby boomer set.

Although this research was funded by an industry participant, it was performed by PWC, a highly respected firm with a reputation of high integrity. The results are even more positive toward the future of F/O vacation homes than I expected. If 1/6 of affluent households plan to look into F/O in the next 5 years, the sky is the limit. Read on...

PricewaterhouseCoopers Study Finds Growing Awareness of Luxury Fractional Ownership
Almost One-Half of Affluent U.S. Households are Familiar With Fractional Ownership and One-Sixth May Purchase Within Five Years

Source: PricewaterhouseCoopers

NEW YORK, Dec. 7, 2006 (PRIME NEWSWIRE) -- As a growing segment of the broader vacation home sector, fractional ownership has achieved an initial base of awareness in the U.S. according to the Measuring Luxury Fractional Ownership Awareness study conducted by PricewaterhouseCoopers on behalf of The Ritz-Carlton Club, Interval International, and Starwood Vacation Ownership, Inc. The study reveals almost half of all affluent U.S. households (41%) have heard of fractional ownership, and one-sixth of affluent households indicate they may consider purchasing at a fractional ownership resort within the next five years.

"Fractional ownership is indisputably growing in popularity as the vacation home market continues to evolve," said Scott D. Berman, Principal, Hospitality & Leisure Practice, PricewaterhouseCoopers. "Despite the increase in product awareness, there are many U.S. households with means who are still not familiar with fractional ownership and its lifestyle attributes, creating demand-side opportunities where fractional ownership is suitable."

According to the study, among potential fractional ownership buyers, the most important factors in considering a fractional ownership purchase relative to other types of resort real estate include access to a highly-desirable location, residential features, and the overall ease of the fractional ownership experience, such as pre-arrival preparations and freedom from maintenance responsibilities. Additionally, possessing a deed in their fractional ownership purchase was an important factor among those respondents.

When choosing a location for a second home or fractional ownership purchase, broad destination characteristics are more important than any particular activity. Characteristics consistently receiving ratings with the highest level of importance were natural or scenic beauty (78%), ease in getting around once at the destination (69%), close proximity to water (64%), and the cost of real estate (59%).

Additionally, the study found potential fractional ownership buyers are more than twice as likely to purchase fractional ownership at a resort managed by a luxury hotel company (68%) than an independent or boutique resort (32%).

Traveling to a mix of vacation destinations is widely preferred by high-income individuals (73%). This is consistent with the fractional ownership model, which frequently permits owners to travel to their home resort as well as other fractional ownership resorts in a club portfolio. Only seven percent prefer to travel to the same destination, while one in five prefer to travel to new destinations for their vacation experience.

The study findings also highlight the resiliency of the luxury market real estate buyer. Only one in seven respondents indicated that recent trends in the real estate market have caused them to be more cautious about purchasing a second home (14%), demonstrating the majority of affluent households are not significantly concerned with current real estate market trends.

Methodology
Measuring Luxury Fractional Ownership Awareness was conducted by PricewaterhouseCoopers on behalf of The Ritz-Carlton Club, Interval International, and Starwood Vacation Ownership, Inc. The online survey was conducted by Synovate. The purpose of the research was to gauge the awareness of fractional ownership among affluent households, and understand the preferences of potential fractional ownership customers.

Synovate distributed the online survey to a random sample of 2,891 high-income American households selected from Synovate's Online Consumer Opinion Panel, made up of over one million American households. A total of 897 individuals responded to the survey. The margin of error is plus or minus three to four percent for most questions, and plus or minus nine percent for the question related to the preference to purchase at a resort managed by a luxury hotel brand company, which had a smaller response base.

The response base consisted of individuals with an annual household income of $200,000 or more, and 55.0 percent of respondents reported an annual household income in excess of $250,000. According to Woods & Poole, an economic research firm, 2.5 percent of U.S. households had an income of greater than $200,000 in 2000. The average age of the respondents was 50 years, and 76.6 percent were married or in a domestic partnership.

It looks like someone in Daytona has the same thoughts as me....

This article from a local Daytona Beach, FL newspaper describes exactly what I think could work at the shore. Granted, Florida has a longer "peak period" each year, but the idea is the same.

November 26, 2006
Fractional ownership
Sharing costs may make beachside more affordable By THOMAS S. BROWN Business Writer
For people who yearn for a getaway place near the beach but can't afford the price, one-sixth of a loaf may be better than none.

That's the thinking of Joe Palmer and John Bailey, two real estate agents who are experimenting with selling a form of residential property called fractional ownership.
Their development project at first glance resembles a miniature time-share. They bought a three-room cottage in Ormond-by-the-Sea last fall, renovated it and are selling it in six pieces, each good for two months of occupancy per year.

"This concept really is beginning to take off in places like North Carolina and Las Vegas," said Palmer, owner of Sunrise Realty in Ormond Beach. "We decided to see if it will work here."
Initially, Palmer and Bailey considered doing just a conventional rehab and resale of the 55-year-old cottage, which Palmer bought for $140,000. After an extensive renovation that cost nearly $20,000 and included a kitchen and bath makeover, new furniture, and a new heating and air-conditioning system, the resale price they initially had in mind was $189,900.

But as interest rates rose this year and real estate transactions slowed, Palmer and Bailey decided to try reaching a less wealthy clientele through a different approach.
"Fractional ownership is a good deal for middle-income people who want to be here for Race Week or Bike Week and want the privacy of their own place but can't afford to buy a second home," said Bailey, a Sunrise Realty agent.

They are selling the flamingo-pink dwelling at 12 Brooks Drive by the month, with each buyer required to buy a package of at least two months. Peak-season months are priced at $29,900 each, while other months are being offered for $19,900 or $24,900 each.

If they succeed in getting their asking prices quickly, they'll end up with nearly $300,000, almost doubling their money.

"This could become a model for other investors who are having trouble moving property in a slow market," Palmer said.

A management company will take care of maintenance, utilities, taxes and insurance. Bailey estimated the monthly maintenance fee will run about $275.

Marketing began shortly after Labor Day with newspaper ads and eBay listings. While they've had several prospects come by for a look, including people from Lake Mary, Orlando and Ocala, no one has signed a contract yet. Some have said the 528-square-foot bungalow with carport, while picturesque with its bright colors and nautical theme, is just too small for their needs.
"We're just getting started and it takes awhile for people to understand the concept," Bailey said. "If we have success with this project, we'll probably do more of them."
Fractional shares, also called private-club residences, came on the U.S. real estate scene in 1994 when ski resorts in Colorado and Utah began offering part-interests in their high-priced chalets. The idea has spread gradually to many other mountain and beach resorts, but in Florida fractionals remain overshadowed by much more numerous time-share resorts.
ICI Homes in Daytona Beach has started testing the fractional concept at two resorts near Walt Disney World.

One community, the Lighthouse Key Resort in Kissimmee, is selling fractional shares starting at $41,000 each for a two-bedroom condominium. ICI's next fractional venture will be the 870-unit Discovery at Legacy Resort, off State Road 535 in Orlando, where shares starting at $50,000 will give owners access to town houses and condominiums that otherwise would cost $700,000 or more.
In the Volusia-Flagler market, fractional ownership of a single-family home remains a curious novelty, according to several Realtors, a lawyer and an instructor. As such, it may take some convincing to persuade a buyer to share a dwelling with several strangers.

The key issue is to make sure all details of the arrangement are put in writing at the outset, said Shawn Goepfert, past president of the Daytona Beach Area Association of Realtors.
The South Daytona broker has had some experience in group purchases of properties. He's participated in several limited liability corporations formed to buy and sell houses in recent years, and currently is a partner in three such groups.

"Some of them are with friends of mine. Others are with strangers who have never even been to Florida, but who have contacted our office because they want to invest in Florida real estate," Goepfert said.

Unlike the Palmer-Bailey project, Goepfert said his investment groups usually exist for limited periods, sometimes just a year. The investors don't intend to live in the properties, just to develop and market them.

A big problem with LLC ownership is that banks usually are reluctant to grant mortgages to such groups, Goepfert said.

"Sometimes, each of the partners has to sign papers saying he'll be financially responsible for the whole mortgage before a bank will lend any money."
Michael D. Clower, a Daytona Beach lawyer specializing in real estate issues, said group purchases of a vacation home harness the purchasing power of each of the members, allowing them to buy high-end property that would otherwise be out of their reach as individuals. But after the papers are signed, any number of disputes can arise.

"Fractional ownership has all the pitfalls of doing business with your relatives, or, worse yet, with your friends," Clower said. "You may find that one member of the group doesn't want to divvy up the expenses the way the others do, so he just doesn't pay his share. What do you do then? That's how the lawsuits start."

Clower said the best way to head off such clashes is to draw up a detailed agreement that spells out everyone's responsibilities.

Be sure to agree in advance on inheritance and sale procedures, added Bart Jones, a Daytona Beach Shores Realtor and former real estate instructor.

"Simple joint tenancy means when a partner dies, his heirs can do whatever they want with his share of the property, maybe even sell it outside the group," Jones said. "If the deed is for joint tenancy with the right of survivorship, the other partners will get the deceased person's share."
Bailey said the LLC agreement for their Brooks Drive property gives the co-owners the first right to buy any partner's share of the house. If the co-owners decline to purchase it, the departing partner or his heirs can put it on the open market.

Bailey said the management company will maintain strict control over the property. Individual co-owners won't be allowed to alter the house, change color schemes or replace appliances without getting approval from the co-owners.

However, Palmer and Bailey say their set-up still will be more personal than the typical time-share unit in a large building with hundreds of suites. Each co-owner will have the property to himself during his allotted months and will be free to live as casually as he likes, as long as he doesn't damage the home.

"And each owner will get a warranty deed that gives ownership of the land and building, and that's something that will have lasting value," Bailey said. "Time shares lose a lot of their value in re-sales, but fractional shares should hold their value or go up."


Fractionals From Afar
Shopping for a fractional share of a vacation home outside Florida? Be prepared to spend a pretty penny. While the asking price for two months' ownership in a 500-square-foot beachside cottage in Ormond-by-the-Sea is about $50,000, fractions of larger vacation homes in other states typically run much higher for less occupancy time. Here are three examples:
$153,000 for four weeks a year at The Hammocks, Bald Head Island, N.C.,a three-bedroom, three-bath golf home with its own guest cottage.
$325,000 for five weeks a year at Tonopalo, Tahoe Vista, Calif.,a three-bedroom, 3.5-bath home with indoor and outdoor hot tubs.
$338,000 for six weeks a year at Snowmass Village, Colo., a two-bedroom town house with underground parking.