Fractional Cost Analysis Example
I came across this comparison of a fractional condo unit down south. While the numbers are lower across the board than they would be at the pricey Jersey Shore, the fundamentals are the same...
...If you bought this unit the normal way you would pay around $175,000. With a 20% down payment your mortgage payment would be approximately $935.00 per month. This is assuming a balance of approximately $140,000 after 20% down with a 30 year arm loan at approximately 8%. Your HOA dues would be approximately $414.00 per month. Your total monthly dues would be approximately $1350.00 per month.If you bought this fractionally, with a deeded ownership of 6 weeks a year, you would pay $24,500. With 20% down your mortgage payment would be approximately $135.00 per month. This is assuming a balance of approximately $19,600 after 20% down with a 30 year arm loan at approximately 8%. Your HOA dues would be approximately $55.00 per month. Your total monthly dues would be approximately $190.00 per month...
Tuesday, July 17, 2007
The "Green" Argument for Fractionals
An article I read recently said that the average second home owner uses her property 17-20 days out of the year. That is a lot of vacant shore houses. The lumber used to construct a 3000 square foot home requires 2.2 acres of forest. The carbon dioxide output of any home is significant.
By owning a fractional share of a shore house, we effectively reduce the number of homes built. This equates to fewer homes sitting vacant but still consuming energy and creating pollution. The same number of people can visit the shore, but fractionals let us do so with fewer houses!
An article I read recently said that the average second home owner uses her property 17-20 days out of the year. That is a lot of vacant shore houses. The lumber used to construct a 3000 square foot home requires 2.2 acres of forest. The carbon dioxide output of any home is significant.
By owning a fractional share of a shore house, we effectively reduce the number of homes built. This equates to fewer homes sitting vacant but still consuming energy and creating pollution. The same number of people can visit the shore, but fractionals let us do so with fewer houses!
Friday, July 13, 2007
Why Buy a Whole Pie, If You Only Want a Piece?
If deciding between a beachside cottage or slope side lodge for a second home is a dilemma, fractional ownership may be the right choice. Owning fractional real estate allows you to buy the piece of the real estate you can use, lowers the expenses and guilt that comes with a second home that is under utilized.
Fractional ownership is not new. Families have shared ownership of vacation homes for as long as there were second homes. But today’s fractional programs are more formal and create a situation where you may never know your property’s co-owners. Fractional is similar to condominium ownership, but fractional shares time and real estate space. Condominium ownership in America started slowly and took decades to mainstream, fractional will get a boost from the baby boom generation’s propensity to innovate. Fractional ownership is growing, over $300 million in fractional real estate was sold in 2005, nearly a 40% increase over 2000.
Fractional is Not Timeshare – Timeshare is Not Fractional
Timeshare was the original “fractional share” where you can buy 1 week of ownership or a 52nd share. Timeshare has ballooned to a $3 trillion industry in the US in the last 20 years and is growing at a double digit pace.
Comparatively Fractional has many lower risk characteristics. It is less risky because Fractions are typically sold in ¼ share or 12 weeks a year; 1/8 share or 6 weeks; 1/10 or 1/12 or 5-4 weeks ownership, so the underlying real estate values are less diluted by sales and marketing expenses. It costs a lot to sell a single condo to 52 different buyers, and timeshare developers often expense 50% of the cost of a share to marketing. A single unit of timeshare or a 1/52 share might sell for $10,000 a week, or $520,000 for the whole property, might have a real estate value of $250,000. A ¼ share of the same condo might sell for $75,000, or $300,000 for 4 quarter shares, representing a 20% increase over the whole ownership real estate value.
Better Living through Thinking In Smaller Bites
The average American gets a whopping 2.4 weeks of vacation per year, so fractional ownership is enough for most of us. The pure economic common sense of only paying for the fraction you can use is a dynamic you don’t need to be a financial guru to understand but even Warren Buffet once commented that he did not own a private jet because it wasn’t a “justifiable expense”, then he bought a fractional jet company, making the ownership cost a bite-size expense. Fractional aviation has seen an explosion in sales, as have many luxury items – yachts, cars, and vacation real estate.
Fractionals often allow for economic justification of even higher priced second (and third) homes in prime rare-air locations. As resort real estate prices have soared, so has fractionals’ popularity. How can you own $1 million dollar condos in multiple locations? An eighth share of a $1 million condo may sell for $175,000 each. So if your client wanted use of two $1 million condos in different locations you could own both for just $350,000, that’s affordable luxury.
Through out the US, in all the best vacation home locations, fractional projects are being developed. Both condominiums and single family homes may be sold in fractional shares, but marketing of resort projects are often the norm and easier to sell to consumers as they offer a lifestyle benefit that is more than just real estate ownership. Resort rental programs rent your real estate when you cannot use your allotted time further increasing the investment benefit to owners of fractional real estate and minimize the hassle-factor associated with owning property that is too far away to manage.
Beginning a Trend
76 million baby boomers will seek retirement nests in the next 14 years, fractional will become a more popular and common-sense choice for those who want luxury at an affordable price and the best locations without the hassle and expense. Fractional is just one of many new vacation and possible retirement ownership options available to today’s consumers that is cropping up in every major resort market in America.
By: Bob Waun
CEO – Vacation Finance
www.vacation-finance.com
Waun@vacation-finance.com
Vacation Finance is America’s First Second-Home Lender, based in Birmingham, MI and lends to fractional, timeshare, condo hotel, cottages and vacant resort land, offering a unique wholesale solution for brokers seeking to capitalize on the baby boomer second home wave.
If deciding between a beachside cottage or slope side lodge for a second home is a dilemma, fractional ownership may be the right choice. Owning fractional real estate allows you to buy the piece of the real estate you can use, lowers the expenses and guilt that comes with a second home that is under utilized.
Fractional ownership is not new. Families have shared ownership of vacation homes for as long as there were second homes. But today’s fractional programs are more formal and create a situation where you may never know your property’s co-owners. Fractional is similar to condominium ownership, but fractional shares time and real estate space. Condominium ownership in America started slowly and took decades to mainstream, fractional will get a boost from the baby boom generation’s propensity to innovate. Fractional ownership is growing, over $300 million in fractional real estate was sold in 2005, nearly a 40% increase over 2000.
Fractional is Not Timeshare – Timeshare is Not Fractional
Timeshare was the original “fractional share” where you can buy 1 week of ownership or a 52nd share. Timeshare has ballooned to a $3 trillion industry in the US in the last 20 years and is growing at a double digit pace.
Comparatively Fractional has many lower risk characteristics. It is less risky because Fractions are typically sold in ¼ share or 12 weeks a year; 1/8 share or 6 weeks; 1/10 or 1/12 or 5-4 weeks ownership, so the underlying real estate values are less diluted by sales and marketing expenses. It costs a lot to sell a single condo to 52 different buyers, and timeshare developers often expense 50% of the cost of a share to marketing. A single unit of timeshare or a 1/52 share might sell for $10,000 a week, or $520,000 for the whole property, might have a real estate value of $250,000. A ¼ share of the same condo might sell for $75,000, or $300,000 for 4 quarter shares, representing a 20% increase over the whole ownership real estate value.
Better Living through Thinking In Smaller Bites
The average American gets a whopping 2.4 weeks of vacation per year, so fractional ownership is enough for most of us. The pure economic common sense of only paying for the fraction you can use is a dynamic you don’t need to be a financial guru to understand but even Warren Buffet once commented that he did not own a private jet because it wasn’t a “justifiable expense”, then he bought a fractional jet company, making the ownership cost a bite-size expense. Fractional aviation has seen an explosion in sales, as have many luxury items – yachts, cars, and vacation real estate.
Fractionals often allow for economic justification of even higher priced second (and third) homes in prime rare-air locations. As resort real estate prices have soared, so has fractionals’ popularity. How can you own $1 million dollar condos in multiple locations? An eighth share of a $1 million condo may sell for $175,000 each. So if your client wanted use of two $1 million condos in different locations you could own both for just $350,000, that’s affordable luxury.
Through out the US, in all the best vacation home locations, fractional projects are being developed. Both condominiums and single family homes may be sold in fractional shares, but marketing of resort projects are often the norm and easier to sell to consumers as they offer a lifestyle benefit that is more than just real estate ownership. Resort rental programs rent your real estate when you cannot use your allotted time further increasing the investment benefit to owners of fractional real estate and minimize the hassle-factor associated with owning property that is too far away to manage.
Beginning a Trend
76 million baby boomers will seek retirement nests in the next 14 years, fractional will become a more popular and common-sense choice for those who want luxury at an affordable price and the best locations without the hassle and expense. Fractional is just one of many new vacation and possible retirement ownership options available to today’s consumers that is cropping up in every major resort market in America.
By: Bob Waun
CEO – Vacation Finance
www.vacation-finance.com
Waun@vacation-finance.com
Vacation Finance is America’s First Second-Home Lender, based in Birmingham, MI and lends to fractional, timeshare, condo hotel, cottages and vacant resort land, offering a unique wholesale solution for brokers seeking to capitalize on the baby boomer second home wave.
Monday, July 09, 2007
Five Facts About Fractional Real Estate
1. Fractionals are here to stay. Fractional ownership has always been with us. Two or three couples team up to purchase a cabin by A clear mountain lake; a group of siblings opts to buy a seaside home to vacation together or separately; a ski chalet for one group of friends become a fall mountain retreat for another. Now the term Fractional Ownership has been formalized. Last March, Dick Ragatz of Ragatz Associates has reported at that more than $1.5 Billion in sales of Fractional Properties was achieved by this luxury component of the shared ownership industry. Today s Fractional Real Estate Owners have benefited by the lessons learned from Timesharing: they are protected with deeds and title insurance, have the ability to obtain consumer loans; they can even re-sell their property. Every major hospitality brand, from Four Seasons to Starwood to Ritz Carlton has given a commitment to Fractional Resort Real Estate. Star Resort Group, a sales and marketing organization in Phoenix verifies that nearly every mixed use development has a fractional component. There is no doubt that this permutation of luxury resort real estate works!
2. The most common share for high end fractionals is a 1/8 share (6 weeks) Fractional properties are akin to second homes; division of the share ranges from 13 owners per share to quarter interest shares (four owners per unit). However, research shows that most shares for upper end fractionals are six weeks, depending on location and use. The beauty of a fractional use plan is another buyer protection of sorts. Whereas the siblings who bought a home on the Gulf in Florida to share often come to blows about who gets to stay on the Fourth of July, fractional properties can allot the time fairly and equitably.
3. Consumer loans are becoming more readily available for fractional purchases Proof that fractionals are a readily acceptable niche in the market is the growing availability of consumer financing. Mortgages with rates similar to those on traditional homes are becoming more and more the norm.
4. Fractional projects do not have to be far from home to be successful Although many fractional projects are located in exotic destinations such as Punta Mita or Cyprus, the drive-to (or short plane ride) family vacation is still the most popular. Witness the popularity of ski resort destinations such as Tahoe s NorthStar Club (a two-hour drive from California s Bay Area) or the plethora of golf resorts in Arizona (within a short plane ride from most of the Western US). The idea that a second vacation home is easy to get to makes it usable many more weeks out of the year.
5. The niche of luxury resort real estate takes experts in Sales and Marketing Just because fractionals have distinct advantages in the luxury resort real estate market does not mean they are a slam dunk in generating revenue. This is not timeshare, nor is it whole ownership. While a buyer may intuitively want to purchase, nagging questions about the use of a fractional and what the ongoing annual costs may cancel out many sales if not handled with aplomb. Your choice of a team to run the sales and marketing is all important. Look to experts who have had experience and have made their own investment in fractional projects.
Carl G. Berry RRP, Managing Dirctor of Star Resort Group, which acquires, develops, and markets projects for its own account as well as providing sales and marketing, development and management expertise to other hospitality operators, landowners and builders. Berry has more than 30 years of resort and urban development experience. Founded in 1978 Carl’s company, California Resorts, Inc. (dba Resort Development & Advisors), is the market leader in urban share projects such as The Manhattan Club in NYC, San Francisco Suites and Powell Place City Shares in San Francisco. He is a co-founder of The World s Finest Resorts (now part of RCI s Registry Collection). He has served as Chairman of the American Resort Development Association (ARDA; and is a member of the Red Flight, Recreational Development Council of ULI.
1. Fractionals are here to stay. Fractional ownership has always been with us. Two or three couples team up to purchase a cabin by A clear mountain lake; a group of siblings opts to buy a seaside home to vacation together or separately; a ski chalet for one group of friends become a fall mountain retreat for another. Now the term Fractional Ownership has been formalized. Last March, Dick Ragatz of Ragatz Associates has reported at that more than $1.5 Billion in sales of Fractional Properties was achieved by this luxury component of the shared ownership industry. Today s Fractional Real Estate Owners have benefited by the lessons learned from Timesharing: they are protected with deeds and title insurance, have the ability to obtain consumer loans; they can even re-sell their property. Every major hospitality brand, from Four Seasons to Starwood to Ritz Carlton has given a commitment to Fractional Resort Real Estate. Star Resort Group, a sales and marketing organization in Phoenix verifies that nearly every mixed use development has a fractional component. There is no doubt that this permutation of luxury resort real estate works!
2. The most common share for high end fractionals is a 1/8 share (6 weeks) Fractional properties are akin to second homes; division of the share ranges from 13 owners per share to quarter interest shares (four owners per unit). However, research shows that most shares for upper end fractionals are six weeks, depending on location and use. The beauty of a fractional use plan is another buyer protection of sorts. Whereas the siblings who bought a home on the Gulf in Florida to share often come to blows about who gets to stay on the Fourth of July, fractional properties can allot the time fairly and equitably.
3. Consumer loans are becoming more readily available for fractional purchases Proof that fractionals are a readily acceptable niche in the market is the growing availability of consumer financing. Mortgages with rates similar to those on traditional homes are becoming more and more the norm.
4. Fractional projects do not have to be far from home to be successful Although many fractional projects are located in exotic destinations such as Punta Mita or Cyprus, the drive-to (or short plane ride) family vacation is still the most popular. Witness the popularity of ski resort destinations such as Tahoe s NorthStar Club (a two-hour drive from California s Bay Area) or the plethora of golf resorts in Arizona (within a short plane ride from most of the Western US). The idea that a second vacation home is easy to get to makes it usable many more weeks out of the year.
5. The niche of luxury resort real estate takes experts in Sales and Marketing Just because fractionals have distinct advantages in the luxury resort real estate market does not mean they are a slam dunk in generating revenue. This is not timeshare, nor is it whole ownership. While a buyer may intuitively want to purchase, nagging questions about the use of a fractional and what the ongoing annual costs may cancel out many sales if not handled with aplomb. Your choice of a team to run the sales and marketing is all important. Look to experts who have had experience and have made their own investment in fractional projects.
Carl G. Berry RRP, Managing Dirctor of Star Resort Group, which acquires, develops, and markets projects for its own account as well as providing sales and marketing, development and management expertise to other hospitality operators, landowners and builders. Berry has more than 30 years of resort and urban development experience. Founded in 1978 Carl’s company, California Resorts, Inc. (dba Resort Development & Advisors), is the market leader in urban share projects such as The Manhattan Club in NYC, San Francisco Suites and Powell Place City Shares in San Francisco. He is a co-founder of The World s Finest Resorts (now part of RCI s Registry Collection). He has served as Chairman of the American Resort Development Association (ARDA; and is a member of the Red Flight, Recreational Development Council of ULI.
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