Fractional Ownership: Cost vs. Usage Chart

This chart very clearly illustrates the benefits of fractional ownership. In most cases, even if the owner holds full ownership of the property, a vacation home is used no more than 25% of the time (that's 13 weeks!) This chart compares that 25% usage against the allocation of costs for the two ownership structures.

LOCAL Financing of Fractional Ownership Purchases

I have had a few conversations with Patrick Morrissey, a Mortgage Financial Consultant with Etekcapital out of Margate, NJ. Patrick specializes in lending to buyers of fractional ownership properties at the shore. He understands the business and has customized products that the big banks can't touch. It sure is nice to have a specialist in our own back yard!

For more information on your financing options check out http://www.patrickmorrissey.com/fractionalfinancing.htm

Interesting article on what's going on out West...

http://www.prospermag.com/go/prosper/The_Magazine/august_2006/17th_of_heaven/index.cfm

Shore Activity Update:

I am aware of 4 confirmed listings for fractional ownership homes in Ocean City (all 1/5 shares priced around $500k each), and one in Avalon (a 1/4 share). I am closely monitoring their level of acceptance to gauge demand. These properties and the developers involved are truly the first movers in the area and could be known as real pioneers a few years from now when fractionals at the shore are the preferred form of ownership.

We'll see, maybe I'll join their ranks this year......

Carl Berry: What Consumers Should Know About Shared Vacation Ownerships
By Carl G. Berry

Consumers are still “baffled” by the various vacation opportunities offered in today’s changing second home/vacation club marked. To simplify matters, we present a concise question and answer platform to help consumers decide what kind of product best suits their needs. These are beginning questions to help consumers sort out the wide array of information available from web sites, developers and consumer advocate groups.

1. When owning your vacation property, how important is the security of your investment to you?

The most solid shared resort ownership model is a fractional purchase. It fills a void for both consumers and developers: it has a great image; it offers a variety of products and locations; and many major hospitality brands have jumped aboard. It is fully deeded and secure, just like any other form of real estate. The bottom line is that it meets a need and it works! Today’s Fractional Real Estate Owners and developers have benefited by the legal frameworks designed for Timesharing: they are protected with deeds and title insurance, have the ability to obtain consumer loans; they can even re-sell their property.

2.How important is vacationing in various locations to you?

Multi-site clubs (Destination Clubs) such as Exclusive Resorts and others offer members many geographical locations for their use. Many of these properties are in the most popular vacation destinations in the world. However, most frequently, club members do not have a deed to the real estate interest backing up his/her membership.

3. Do you want to own real estate?

Those who buy a membership in a multi-site club are just that, “club members.” They do not own real estate. Those who buy a real estate interest in a private residence club or high end fractional property are owners and members of the owner's association comprised of all the owners at that project. In other words you own your property even if it is just a portion. You are represented by a board of directors of a Homeowners Association.

4. Do you want to ensure the value of your purchase?

If you are comfortable with a country club style membership which provides luxurious vacations, then a destination club can certainly meet your needs for an expensive buy-in. Whatever type of membership or ownership you choose look for credibility in a developer. What have they done before? With who are they associated? Do they know the area? Have they honored the buy-back commitments outlined in contracts? Are your annual dues or fees going to support club operations or are they going to pay the mortgages on the homes in the program? All these elements are keys to a strong, secure investment.

5. What are you looking for in vacationing?

If you are out shopping for vacation products, what should you look for? Since it is real estate, the first component is always location in a popular vacation destination area. Be sure to decide on the area that fits your family’s needs. Are they skiers? Shoppers? Hikers? Swimmers? Art Lovers? Sightseers? Spa goers? Make your choice wisely and you will be happy with your investment in your leisure time.

For more information: www.carlgberry.com www.starresortgroup.com

Carl Berry, CEO, Star Resort Group, is widely acknowledged as the leading expert in the field of shared luxury resort real estate. Most recently Star Resort Group’s project list includes Northstar Club (Truckee, California), Snowmass Club (Aspen, Colorado), Purgatory Lodge and The Pinnacle (Durango, Colorado), Kirkwood Mountain Resort (South Lake Tahoe), Saguaro Ranch (Tucson, Arizona), and Meriwether Ranch (Melrose, Montana).
Article Source: http://EzineArticles.com/?expert=Carl_G._Berryhttp://EzineArticles.com/?What-Consumers-Should-Know-About-Shared-Vacation-Ownerships&id=423939

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.

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....