Fractional Ownership Structure for a 2nd Home/Cabin/Vacation Spot

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Fractional Ownership Structure for a 2nd Home/Cabin/Vacation Spot

Jason Merchey
Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes

I'm thinking of fractional ownership of a cabin in the woods or mountains or on a lake or whatever, shared legally with 3-7 other people. In the Asheville North Carolina area, more or less. I suppose within 25 miles of Asheville would be good.

I saw this type of ownership structure a couple times when I was an agent a long long time ago, but I just don't really know of where to look now that it's more affordable. But I think: heck, if I could spend $200k on an $800k cabin with some acreage, or by a lake, or whatever, and use a Google calendar or something to pick who gets which days -- amounting to a pro rata share for each owner -- and we each pay $7.5k a year for cleaning and insurance and property tax and such, that would be awesome. Sellable shares with everyone's approval, that kind of structure. Guests of owners could use the place, etc. 

Would prefer there be no loan on the property, etc.

Christmas and summers in a mountain cabin! A getaway spot that is more predictable than an AirBnB, less expensive than owning, safer than buying with a loan, and so on. Only decent people with good credit need apply!

Very rarely does one want to live in a cabin 365 days a year, so if you get it for about 85 days a year and it's 1/4th the price, that's great, right? 

If anyone hears about anything along these lines, let me know!

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
5y

You would be better off to put your 200k towards a down payment on a cabin that you would fully own. Then you would have 100% control and make 100% of the profits. Buying an asset that makes money is good use of leverage and how people get rich in real estate.

Don't put all your cash into something that you only partially own.

Rent it out and make money off it when your not there.

If you buy it just to use then is a liability not an asset.

You should read the book "Rich Dad Poor Dad"

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  • Jason Merchey
    OP
    Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
    5y

    @Abigail Gibson if anything comes to mind, let me know.

    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    5y

    You would be better off to put your 200k towards a down payment on a cabin that you would fully own. Then you would have 100% control and make 100% of the profits. Buying an asset that makes money is good use of leverage and how people get rich in real estate.

    Don't put all your cash into something that you only partially own.

    Rent it out and make money off it when your not there.

    If you buy it just to use then is a liability not an asset.

    You should read the book "Rich Dad Poor Dad"

    2Reply
  • Abigail Gibson
    Realtor · Asheville, NC · Member since 2019 · 47 posts · 45 votes
    5y

    Hey Jason, 

    I haven't seen anything come across my plate in the fractional ownership world, but this strikes me as a modified syndication/or modified timeshare model. 

    I think our local real estate investors group would be a good group to get interest going in something like this. I think the issue would be the ownership structure in relation to passing something on - if someone who owns the property dies, is it inherited by their multiple children and then you have to navigate all of their schedules and desires, or is it owned in joint tenancy -- if you happen to die before you sell your shares you are just unlucky because the ownership is redistributed to the other owners and not passed onto heirs? I know both scenerios could be tricky to navigate. I may be over thinking the whole thing, there may be a model where everything is very clearly written out by a lawyer so that you don't have issues later.

    I do know a few people in Asheville who own property with friends, and they all share it/use it when they want to, but it is always with someone they know very well. 

    It seems that @ryanhowell has been the Asheville Real Estate block, maybe he's done a deal like this.

    0Reply
  • Waylon Zook
    Etna Green, IN · Member since 2015 · 207 posts · 157 votes
    5y

    @Jason Merchey

    The biggest issue i would see is how to split the time at the cabin. If you have 200k to spend on a cabin think about buying two paid for rentals and use the the income to rent a cabin anywhere at any time. You have a neat idea but it would be near impossible to everyone happy all the time.

    0Reply
  • Jason Merchey
    OP
    Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
    5y

    THanks all. I don't really think of this as a profit-making venture, but as a way to defray the costs of a second home. I do get the advantages of buying with a loan, and I would consider doing so. I do have some fear having a loan of 70% on a piece of real estate, though. It's just not really my favorite idea; call me very conservative. 
    @Abigail Gibson okay well if you want to have a local meeting, let me know!

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    5y

    @Jason Merchey

    Theoretically it could work, but it is very high risk of disagreements, threats of lawsuits, divorce among couples with ownership interests, inheritance by death, etc, incapacitation. Lots of potential traps could lead to less than pleasant experience.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    1Reply
  • Andy Kessler
    Pelzer, SC · Member since 2017 · 26 posts · 10 votes
    5y

    This fractional situation you describe would not be desirable to me at all. Sounds more like a time share and the coordinating between the groups sounds like a hassle. Also what do you do when one of them wants to rent out their dates as a STR?

    I would not be dropping 200k on a property I can only use 25% of the time and then I’d need to work out the most popular dates, create rules on use, etc. 

    I’m with John. Put 200k down on a sweet cabin or other property in the area you like and make it a revenue generating asset.  You now have control of all the days and decide if you make money or just use personally. 

    1Reply
  • Jason Merchey
    OP
    Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
    5y

    Okay, well I will admit that I have had some poor ideas in the past! Perhaps I should take a clue that if this were more desirable it would be more popular :)  

    0Reply
  • Abigail Gibson
    Realtor · Asheville, NC · Member since 2019 · 47 posts · 45 votes
    5y

    @Jason Merchey let’s arrange one in DMs!

    0Reply
  • Jason Merchey
    OP
    Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
    5y

    Ok, by this you mean Dungeon Masters, or Direct Messages? :p 

    0Reply
  • Beth Wade
    Investor · Bremerton, WA · Member since 2020 · 12 posts · 4 votes
    5y

    @Jason Merchey we have friends that have brought this idea up recently but going farther with the thought that if you choose not to use it during your time you could AirBnB (or similar) and keep the profit.  I immediately had a million questions, concerns, etc (and based on comments rightly so!) and am in the process of doing research to further conversations with them. Based on some of the comments it sounds like a big headache but I'm still interested in their business plan/model because it definitely intrigues me.  Just wanted you to know you aren't alone with your ideas!!

    0Reply
  • Jason Merchey
    OP
    Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
    5y

    Oh yah I totally envision any member being able to rent out their designated time, for sure. Thanks for saying hi!

    0Reply
  • Robin Jamison
    Member since 2021 · 2 posts · 1 vote
    5y

    Good afternoon.  

    We have two fractional ownership vacation homes (mountains, beach) and we have been very pleased.  We've been apart of the beach place for over 25 years (condo) and the mountain house for 14. The mountain house started with a piece of property and then we collaborated with a managing partner on the design and construction.  Now we are interested in a lake home.  We live in Charlotte so would ideally like to find somewhere not more than two hours away.  We are exploring our options.  Would love to share information.

    1Reply
  • Abigail Gibson
    Realtor · Asheville, NC · Member since 2019 · 47 posts · 45 votes
    5y

    @Robin Jamison sounds like you are largely looking at lake lure? I may have an option for you

    0Reply
  • David Luu
    Member since 2019 · 61 posts · 12 votes
    5y

    Just an FYI, something like this but managed by a third party sounds like what Pacaso is doing. It may or may not be suitable for people wanting fractional ownership of a vacation home depending on their needs.

    0Reply
  • Gi'angelo Bautista
    Flipper/Rehabber · San Francisco, CA · Member since 2017 · 176 posts · 70 votes
    5y

    Hi, I have seen this recently in the Bay Area market in the North Bay by a start up company. The start up company bought a property and renovated it and put it on sale on the MLS. Each share was about ~$700k and the house was probably worth about $2.5 million. The website says that each person would buy ownership in an LLC. Here is the website:

    https://www.pacaso.com/

    0Reply
  • Jason Merchey
    OP
    Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
    5y

    OK thanks all. I'll look up Pacaso. @Robin Jamison please IM me :)

    0Reply
  • Lynn Villa
    Member since 2023 · 2 posts · 1 vote
    3y

    I own a cabin 12 miles to downtown Asheville. I’m in the beginning stages at looking at the structure for my cabin and there is also a barn that has been converted that sits on 3 1/2 acres. I would love to connect with someone who knows how to set up this type of structure as I’m interested in doing it ASAP. 

    1Reply
  • Lynn Villa
    Member since 2023 · 2 posts · 1 vote
    3y
    Quote from @Jason Merchey:

    Okay, well I will admit that I have had some poor ideas in the past! Perhaps I should take a clue that if this were more desirable it would be more popular :)  

    I have seen the structure in South Carolina at a Beach front community where it was very common and very structured. I’m going to see if I can find the paperwork. I think it could work. Please contact me if you’re still looking.
    0Reply
  • Mitch Davidson
    Lender · Asheville, NC · Member since 2020 · 463 posts · 507 votes
    3y

    @Jason Merchey. A group I work loans for uses a fractional type model. Basically, they get the loan in one person's name, whether DSCR or Conventional, and the partners either send that person their funds after closing or 2+ months prior (so that they season and don't see the deposits on bank statements). As someone stated above, you really need to cross your T's regarding the partnerships, especially regarding exit strategy. Also, keep in mind that NC is a "married" state, so any partner's spouse will have rights to the property, perhaps unless they execute a free-trader or unless their membership in the LLC is by way of a trust. FINALLY, know that the SEC does not approve of unaccredited investors doing fractional investing, at least on a larger scale. Roofstock has been talking to them for years about getting permission for unaccredited investors to do fractional, and permission hasn't been granted. Finally, until you have a track record with a few homes, I think most potential investors are going to not take the risk, if anything because there are many, many STR's out there there perform poorly due to who's managing them, etc.

    1Reply
  • Zach Edelman
    Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes
    3y

    How do you pick which days it gets rented vs. which days it can be occupied by the owners? Also, who decides on pricing? 

    1Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    3y
    Quote from @Waylon Zook:

    @Jason Merchey

    The biggest issue i would see is how to split the time at the cabin. If you have 200k to spend on a cabin think about buying two paid for rentals and use the the income to rent a cabin anywhere at any time. You have a neat idea but it would be near impossible to everyone happy all the time.

    Much better plan!
    0Reply
  • Jason Merchey
    OP
    Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
    3y
    Quote from @Mitch Davidson:

    @Jason Merchey. A group I work loans for uses a fractional type model. Basically, they get the loan in one person's name, whether DSCR or Conventional, and the partners either send that person their funds after closing or 2+ months prior (so that they season and don't see the deposits on bank statements). As someone stated above, you really need to cross your T's regarding the partnerships, especially regarding exit strategy. Also, keep in mind that NC is a "married" state, so any partner's spouse will have rights to the property, perhaps unless they execute a free-trader or unless their membership in the LLC is by way of a trust. FINALLY, know that the SEC does not approve of unaccredited investors doing fractional investing, at least on a larger scale. Roofstock has been talking to them for years about getting permission for unaccredited investors to do fractional, and permission hasn't been granted. Finally, until you have a track record with a few homes, I think most potential investors are going to not take the risk, if anything because there are many, many STR's out there there perform poorly due to who's managing them, etc.


     Hi Mitch, thank you very much for the reply. I think I have too many concerns around "a loan in one person's name." But thank you for all the info!

    1Reply
  • Jason Merchey
    OP
    Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
    3y
    Quote from @Zach Edelman:

    How do you pick which days it gets rented vs. which days it can be occupied by the owners? Also, who decides on pricing? 


     Those are key questions, Zach. I believe probably something like a Google calendar kind of thing that is "live" so one can see who chooses which days/weeks. One thing I would appreciate would be a scenario where on Jan 1, folks can choose what weeks they get in that calendar year, but I would probably hold back 10-15 days so that I could "plug in" last minute 1-2 night visits here and there. I think as long as I were willing to clean up after myself fastidiously, it could be accomplished last-minute and free of any cleaning charge. That is because I am a pretty spontaneous person, and would want to live within an hour, so therefore I could say to my wife on a Wednesday "Hey Thursday and Friday nights are free at the house, do you want to reserve those and do a last-minute trip?" It would behoove my partners because they fewer weeks I take, the greater the availability there would be for them to choose weeks over New Year's, Labor Day, the prime season, etc. etc. 

    Just a few thoughts. 

    Price-wise I would want to see it be real transparent and not a lot of add-ons and such. Groups like Pacaso, as far as I can tell, have admin and overhead that means you might own 15% of a house and get 15% of the time, and yet pay maybe 25% of the purchase price. Get what I mean?

    0Reply
  • Jake DiSabatino
    Rental Property Investor · Asheville, NC · Member since 2016 · 15 posts · 18 votes
    3y

    Hey @Jason Merchey,

    This model is well proven in larger destination cities. See the below list of resources for buying and selling properties. Sirkin Law seems to be at the forefront.

    https://andysirkin.com/article...

    Jake  

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