Flipping to Fractionals at the beach?

Question

I would like to solicit feedback from both consumers and the pros on the feasibiltiy of buying a nice house near the beach near retail (I'm thinking NJ), then flipping it as quarter-share fractional interests at a premium.

My research indicates that fractional interests, when done right, can demand a premium over market value of anywhere from 10-40%.  For example, if I purchased a house for $800,000, then remarketed it as 4 (four) fractional ownership interests at $250,000.  Each buyer would receive 10-12 weeks of usage and a deed to their 25% share of the property.  I would gross $200,000 before other costs.

I believe the demand is there to get ownership of a beach house for $250k; especially since conventional financing is now available and beach houses are only used for 3-5 weeks a year at most.  I would argue that the premium is valid due to the value I added to the property by getting the legal structure and agreements in place, then finding like-minded buyers.

I'm looking for people to poke holes in my logic.  I have solicited feedback before, but now the summer is here.  Please chime in!

Account Closed · Answer

Wouldn't these purchase deals be structured as TICs?

N/A N/A · Answer

Can anyone recommend an attorney who can do the legal work to fractionalize my homes in AZ?

Rod G

N/A N/A · Answer

Has anyone found an excellent software to manage these transactions.  I came across one but did not have the depth or actual experience dealing with RE and outside of the US.  I am looking for the shell to allow website access for owners, documents, scheduling etc.  Are most doing fractionals doing this all off line or creating a proprietary system in house?

Ellie
SeaBreeze

Chris Seveney · Answer

I was on a call yesterday with someone who raised close to $100M last year and was sharing their marketing experience. One of the first things they mentioned was "investors do not do fractional" or digital ledgers etc. It has been aruond for more than a decade and still has not taken off in real world applications that many thought. So I would be very cautious of fractionalized offerings.

Eugene Kolea · Answer

Hi. This comes way late but how did you TIC cash buyers for your property? Is there a website for it? Because TIC and shared ownership or fractional buyers are nowhere on any website I could find.

Please let me know how you found and how you would go about finding some today.

Thank You

Gene

N/A N/A · Answer

Sharedengergy,

First I would like to say that you do not have to worry about the Realtors taking your business.  The 5% that are making a living at this are professionals and have enough to keep them busy.  The other 95% are either, part time or less motivated (for whatever reason).

Your second option is the way to go if you want my opinion.  If you can establish yourself as an expert in these types of transactions and perform a excellent service...more business will follow.  Not only are you providing cash to the owner, but you are managing the property and creating residual income.

I am here in Costa Rica and there are properties which are already existing and ocean front and cost upwards of 650k plus.  Back in the states these properties would be 1.5M.  If you could own a piece of that 650k home over looking the ocean why not.  I am in the process of doing exactly what you are trying to do in the states.  Be careful though, with some associations have it written in to no allow this type of ownership.

Ellie 
SeaBreeze

Account Closed · Answer

Summer is here. You wanted feedback so you could decide on your course of action before the summer.

Any updates as to your decision?

John Corey

L Craig · Answer

Thanks, great advice.
My main concern is that I am not local (about a 2 hour drive to my market area).

While I have done a decent job in my spare time building a mailing list of interested parties (including a great survey that has taught me a lot about what buyers want there), I fear that not being on the ground there would hold me back.  This would not be a full-time endeavor for me unless it REALLY took off (boy would that be great).  I could probably continue to source leads by increasing my web presence and some local advertising, someone more local to the area would have a clear advantage, I believe.

Lastly, the real attraction here is the 10-12 week summer season; usage the rest of the year would just be gravy to some.  We'll see; thanks again.

L Craig · Answer

I have spoken with representatives of the following lenders and all are willing to lend to both me as a fractional developer, and to my fractional buyers.  Patrick Morrissey is local to my market.  For buyers, down payments range from 20-30% and adjustable rates are generally about 75-100 basis points higher than a traditional mortgage (no fixed available).

http://www.vacation-finance.com/index.htm
http://www.dotcomdesignstudio.com/gallery/patrickmorrissey/fractionalfinancing.htm
http://www.firstfractionalfunding.com/

L Craig · Answer

Interestingly enough, there has been a LOT of thinking, but not a lot of do-ing.  Through feedback here and elsewhere, I am now convinced that they is adequate interest in fractionals in this market.  What I struggle with today is how to attack it.

Option 1, which was my original plan, was to get control of a $1-2MM property using mostly borrowed and possibly silent investor funds.  I would need approx 20% plus a few months carrying costs; perhaps $350k.  Once in my control I would get the lawyer started on the deeds and agreements, and the realtor started marketing the property.

Option 2, is an idea that I have only been thinking about recently.  This idea involves not taking control of a property, but instead, helping existing beach home owners sell shares in their own properties.  There are plenty of people that would be interested in taking some cash out of their vacation home while still using it once in a while.  This option eliminates my capital needs, since I do not own the property.  The bad news is that now I am providing a service that cna be easily offered by a local realtor.  I fear I would be run out of business if I was successful at all.

So there's my current status.  Thoughts appreciated!