BiggerPockets

Converting Your Vacation Home Into A Fractional Home

Monday, October 12

With today's inconsistent and sometimes stagnant real estate market the priorities of both homeowners and sellers has changed a great deal.  In today's market it is difficult for home owners to sell their home for its true value while buyers often hold out for a lower price which further devalues many a home.  Even those buyers who target vacation properties have become much more conservative with their finances as the costs of maintaining such properties and dealing with a deficient number of prospective renters has made would be owners wary of owning such a property in these troubled economic times.
 
Those who are on the verge of owning a vacation home but are finding it difficult to part with their capital can take comfort in knowing that there is indeed an option available to owners of vacation properties that will allow them to retain the benefits of ownership, all the while reaping the benefits of a seller.  This involves converting your vacation home into a fractional property. Fractionalizing your vacation home will allow you to capitalize on the appreciation your home has accumulated over the years all the while allowing you to retain partial ownership of the property.  Additionally, selling off fractions of a vacation home, may allow an owner to pay down or even pay off the loan they originally took out for purchase of the home.  Furthermore those who fractionalize their vacation homes continually enjoy the benefits of home ownership while reducing their annual costs by as much as 90%.  With all of these benefits available to vacation home owners many have begun fractionalizing their properties.
 
Should you be interested in fractionalizing your vacation home, Cobblestone Design Group can assist you in a variety of ways.
 

• Home Evaluation:  Our interior designers will come to your home and assess whether or not the interior of the home will meet the standards of prospective buyers.  If for some reason the interior of your home does not meet those standards, our designers will advise you on what it is you need to meet the standards of today's fastidious buyers.
   
• Property Location:  Location is everything in real estate and when dealing with vacation homes it rings even truer.  While assessing your vacation home, our team of professionals will help you determine the value of your property by taking into account the number of tourist attractions in your home's immediate area, the popularity of the neighborhood your home resides in, and how many different seasons tourists frequent the area in which your home is located.  Of course the more frequently vacationers visit the area your home resides in the more attractive and valuable your home becomes.  If your vacation home is in a more secluded area however and its community doesn't offer as much as other vacations spots might our team will develop strategies that make your home more attractive to those interested in owning a fraction of a vacation home.
   
• Legal Evaluation:  Any time you're dealing with real estate it's a good idea to have all your bases covered, especially your legal bases, so that you know where you stand and what you can and can not do.  At Cobblestone we understand how intimidating and perplexing the legal side of real estate can be.  We therefore hire a real estate lawyer for you so that meeting all local and state regulations isn't something you'll have to worry about.
   
• Property Presentation: In the majority of scenarios we only get one chance to make a first impression.  This is especially true when you're trying to entice buyers into purchasing a fraction of your vacation home.  Our team of professionals will not only assess your home but will assist with any remodeling that needs to take place.  We put a heavy emphasis on the things that make a home feel comfortable so that your home becomes even more attractive that it may initially be.  Amenities such as luxury linens, kitchen supplies, high-speed Internet access, and even top notch landscaping are all items we make sure to include should your home not already possess such amenities.
   
• Create a Fractional Use Plan:  As fractional real estate experts, we assist all of our clients in developing a plan that allows all owners of a fraction property to benefit equally and fairly.  Our clients may choose one of two options when creating a plan with us.  The first option involves us bringing in a management team that specializes in fractional properties.  The second option involves bringing in a real estate agent though we encourage our clients to choose the first option as the majority of real estate agents possess little knowledge of fractions properties and more often than not do not comprehend or embrace the concept.

 

Should you have any questions about fractional real estate or should you be interested in either selling or buying fractional real estate please contact us so that we might assist you!

Fractional Vacation Homes and the Realtor

Sunday, October 04

Over the past couple of years I have had the pleasure of speaking to hundreds of Brokers and Realtors across the country about fractional vacation homes. It seems none of them has too much of an interest in fractional vacation homes.

Being in the Construction and development business for over 20 years I too for the longest time was hesitant or downright resistant to new ideas. As I grow older and look back and see some of the innovations that have taken place in the industry, I can say some have worked and some did not. I think one of the biggest changes I've seen is the introduction of Home Depot. In 1989, Home Depot opened its 100^th.h store, and the way lumber was sold started to change drastically. When I first went into Home Depot I was shocked at what they had, it was so large that I figured most people would still prefer to deal with the smaller local lumber yards. But soon more people went to Home Depot and found out they would rather buy there because it was cheaper. Now 19 yrs later we have only a small handful of local lumber yards left and from what it seems like, there is a Home Depot on every other street corner.

The reason I used Home Depot as an example is because I am very familiar with it and I never thought that company would survive. And now, over time I must admit I shop there myself. I am not comparing myself or my company to Home Depot by any means, what I am saying is we should always look at new ideas and concepts.

When I decided to enter the Stand Alone Fractional Vacation Home Market I always knew in the back of my mind I would need the support of the local Realtors but never did I think It would be so hard to get their attention. So I hope this post intrigues all Realtors but especially those who work in Luxury markets in the following areas.

1. Water frontage or beach areas

2. Ski Areas

3. Large Metro Destination Areas (ie. Las Vegas)

4. Golf Destinations

Through my many conversations a few of the same misconceptions and thoughts arose:

1. Its just like a timeshare

2. What if I don't get along with the other members?

3. What if my fellow owners don't pay there share

4. Who will take care of it?

 

The answer to the most common question: Unlike a timeshare, Fractional's are a deeded interest in the property and everyone is on the deed. Your fractional share can be sold or passed down to your family. The second is thought was, "What if my clients do not get along with the others in the group?". The answer to that is simple, they will never see them or probably never even meet them. Any contact through the member is done through the management company. The answer to the third most common question regarding non payment of fellow owners: When the fractional agreement is set up for a Stand Alone Fractional Vacation Home the documents will spell out everything that is needed so all owners will know what their responsibilities are and what is expected from them. It will also spell out when they will be using their property for the next 6 years using a rotating schedule (if developed as a 1/6 fractional). And lastly, each property will be assigned to a management company that will handle all aspects of the property, from paying the taxes to cutting the lawn to assisting owners in switching their time. And at closing an escrow fund will be set up to handle any short falls that may occur.

How can fractional's help you as the realtor?

Now while not all properties are suitable to be fractionalized and by no means are fractional's the complete answer to save a bad market, there are a few things that you as the realtor may benefit from. Lets say you have a listing at or above 1 million dollars in one of the above locations. You can offer that listing as whole ownership or as a fractional with the use of a reservation agreement for selling shares. If you can sell the shares first it would sell fractionally, if it sold whole and you did have buyers interested in the fractional concept, you would have a list for a future property.

Example: You have a listing on the market for 1 million dollars. Using round numbers lets say that home has a fractional value of 1.3 million. That would make each share approx.$217,000.00 if you developed it into a 1/6 fraction.

The agent selling all 6 shares would receive the commission on the 1 million dollar listing (6% = $60,000) PLUS an additional commission on all the fractional shares (i.e. @ 6% = $78120.00). This would be in a perfect case scenario where the same agent sold all shares....it would be hard work, but it could be done.

Another example would be if you had a buyer that is on the fence about selling because they still use the house but are tired of all the costs, converting to a fractional is the perfect solution. This same scenario would work in a new build development where a builder may have some luxury standing inventory.

Other possible benefits:

 

Additional revenue source

Move Inventory Quicker

Attraction Of More Buyers

More Options For Your Clients

Close More Sales Due To Affordability

More Networking

 

In closing I just wanted to touch on a few points about Stand Alone Fractional Vacation Homes. I could write for hours on this but I feel most of you would stop reading. While it is not the answer to everything, it is here to stay and will become a large part of the way Vacations homes will be sold. When I decided to make this an extension of my current development company I saw a demand for a product and while it is still in its infancy it will continue to grow. I am looking forward to fulfilling you and your clients' needs. I am always available to answer any questions you may have & for a more comprehensive list of development services we will be offering, please contact me.

I also want to say that I am very happy with the Active rain community, I have enjoyed reading the posts and the few conversations I have had with members.

 

Oh and one other piece of info :

If you'd invested $1,000 when Home Depot went public in 1981, you'd have been worth around $1.4 million in January 2000.