All Forum Posts by: L Craig

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.

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/

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!

A couple replies:

The property would be managed by a local professional property manager who is paid out of quarterly maintenance fees charged to the owners. The PM coordinates cleanings, repairs, maintenance, mowing the lawn, etc.

These transactions would involve a TIC. I would have a TIC Agreement in place while marketing the properties. Each owner would sign the Agreement as part of their purchase. While a deed evidences their ownership, the TIC Agreement evidences their right to occupy. It descibes the rules for reserving usage, exit strategies, and other very minute details.

I do have 2 thoughts:
1. In my opinion, 5-7 might be too many shares. Realistically, people are buying these houses to use for 10-12 weeks during the summer. If you can't offer them at least 2 weeks in peak summer, it's going to be a hard sell.
2. With Option 2, you're assuming a ton of credit risk (obviously). Perhaps you could do this with some, but not all of the shares.

Did you ever get anywhere on this? I am in Chester County and have been thinking about a similar strategy for a year now.

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!

Sounds like a TIC (tenants-in-common) arrangement. A RE lawyer would draft a TIC Agreement that describes ownership %'s, living arrangements, exit strategies, rules for funding maintenance and capital improvements, etc.

The lawyer might recommend forming an LLC. If you do, net rental income would pass through to each individual in LLC pro-rata for tax purposes. You would most likely need to obtain financing individually through specialty lenders (it is now more common with shared vacation properties). Disclosure: I am not a lawyer or accountant.

To all you larger landlords and apartment building managers:

Is anyone aware of a financial services provider that will "purchase" your future rental cash flows at the beginning of a lease? I would imagine this would be done at a discount, but would afford you the predictability of getting paid a year's rent at the signing of a one-year lease. As the tenant pays monthly rent, it would be passed on to the purchaser of the rental stream.

Does such a service exist? If not, is there a market for one?

I am a rookie investor looking at rental properties in Philadelphia. I have studied the University City & Temple University areas and can not find properties that would break even cash flow if I paid near retail using traditional 80-90% LTV financing. Is this not possible in Philly anymore? Are there other sections of the city where break even is still possible? Do I need to buy at a deep discount or get very creative financing to buy & hold and break even cash flow on a rental?

My partners and I have about $30k in capital but have not been able to find a viable deal given our situation.

Help!