Great article from AZ Central that although a little old paints a great picture on the possibility of buying a fractional.
Owning a piece of your dream home
More 'fractional' buyers share cost of vacation spots
The Arizona Republic
May. 20, 2006 12:00 AM
Never in their dreams did Jeff and Susan Hull think they could own a second home worth $2.5 million on a beach in Rocky Point, Mexico.
But the Phoenix couple do, at least part of one. They share ownership with eight other families.
Shared ownership is a growing niche in the second-home market. Nationally, just over one in 10 homes bought are used for vacations, according to the National Association of Realtors. As housing prices go up - they rose 55 percent in the Valley and about 12 percent nationally in 2005 - more people are finding the only way to own a vacation home is to share it with others. For less money and less upkeep, they're buying half of a home with friends or one-eighth through a management club.
The Hulls bought into a fractional ownership, where numerous buyers, who may or may not know each other, share ownership. A growing number of buyers agree: In 2004, sales of fractional interests worldwide amounted to about $1.1 billion, nearly double 2003 amounts, according to a 2005 study by Ragatz Associates, a resort industry consulting and market research firm. Fractionals differ from time-shares in that they tend to be more expensive properties offering longer periods of stay. Like fractionals, some time-shares include deeds to real estate.
Experts caution buyers to approach shared ownership just as they do primary homeownership, understanding that shared homes require upkeep and that, depending on the housing market, they may depreciate in value. For the Hulls, who researched vacation homes, it was the right fit..
"You get to own what you dream for and still keep it in your budget," said Jeff Hull, 44, who owns a contract manufacturing business. His five-bedroom vacation house is just what he and his wife wanted: a home for entertaining. If he had bought a second home on his own in Rocky Point, he would've struggled to afford two bedrooms, he said.
Benefits beyond beach and mountains
If you rent a home or stay in a hotel, you get a vacation and memories. If you own a part of a second home, you get those and you share in your home's appreciation, said retiree Dan Phillips, who owns a one-seventh share of a 2,900-square-foot home at the Rocks Luxury Residence Club near Pinnacle Peak in north Scottsdale. He and his wife, Stella, paid $232,000 for their share three years ago; now, shares cost $335,000.
The Rocks has 40 homes, 14 of which have been sold as shared ownership. A majority of the remaining units have been purchased by destination-club companies, whose members pay to stay in luxury vacation homes around the country and overseas.
The Rocks is one of few fractional properties in the Valley; our five months of summer are a detractor, said Chris Tivey, managing partner of Star Resort Group of Scottsdale that deals in luxury fractional ownership, private residence clubs and time-shares.
Most Valley buyers are looking for vacation homes to escape the summer heat - they're attracted by beaches, mountains and ski resorts. Durango, Colo., Lake Tahoe, Nev., and Puerto Vallarta, Cabo San Lucas and Rocky Point, Mexico, are among the hot spots, Tivey said.
The amount of time spent at a shared second home depends on the owner's interest, which can be one-half, one-sixteenth or anything in between. If the fractional is part of a resort club, stays are set by the club, after owners submit their preferences.
When buying into a shared-ownership situation, consider the purchase as a vacation investment, not a real estate investment, said Lou Ann Burney, spokeswoman for the American Resort Development Association in Washington, D.C.
Long-term concerns include whether there will be a resale market for the fractional share, said Jay Butler, head of the Arizona Real Estate Center at Arizona State University's Polytechnic campus. Repairs and maintenance, basically who takes care of the property, can be an issue if the home isn't cared for by a property-management company, he said. Many properties have built-in maintenance fees or charge annual dues.
The time allotment of shared ownership also can be a drawback. You can't just show up on the spur of the moment and you might not get your first choice of vacation weeks.
For Chicago residents Greg and Jackie Colando, sharing homeownership meant finding a compatible couple. They consulted good friends Larry and Julie Wert about their views on long-term ownership and whether they were OK with not renting out the home. Each agreed on their plans and that they were flexible about vacation times. The two families bought at Superstition Mountain Golf and Country Club; construction will start soon on their 2,400-square-foot home.
The Hulls share their share of the Rocky Point home with Susan's parents, and get a week at the beach home every eight weeks. It's a perfect arrangement for the couple, who have two preteens. Although they'd love to visit every month, they wouldn't have time; they couldn't take their daughters out of school that often.
Home builders eye fractionals
Now even home builders are starting to look at shared ownership.
Some people want a second home but aren't ready to buy yet, said Drew Smith, sales and marketing director for Trilogy Communities, Shea Homes' active-adult division. Buying a fractional share would give them a taste of vacation ownership and living in an active adult community without the large mortgage payments, he said. The company is considering offering a fractional or time-share component in the future.
Active adult developer Robson Communities has changed its floor plans and covenants, conditions and restrictions to accommodate multiple owners, Executive Vice President Steven Soriano said. In the past few years, the builder, which has seen shared ownership rise from 2 to 7 percent of its sales, has introduced plans with dual master bedrooms. Multiple owners can use the amenities all year round, not just when they are staying in their homes. One set of owners pays the full dues price; additional owners pay half, Soriano said.
"That makes for an efficient luxury lifestyle," he said.
Before you buy a fractional ownership, determine:
- How much you can afford?
- The legal arrangement. Make sure you have a legal agreement when purchasing with others.
- Is the home sold at market value? Sometimes when eight people are going in on a house together, they might be lured by a seemingly low share price that adds up to an above-market total price.
- Preferred features of a vacation home. If you plan to vacation with children, other family members or friends, make sure that works with the home layout.
- The number of weeks a year you expect to use the property. Fractional properties are divided among numerous buyers, say, seven or eight buyers, giving you a one-seventh or one-eighth interest and a certain number of weeks of usage. You can always buy additional interests for additional weeks.
If arranging a shared home ownership on your own, make compatibility your No. 1 requirement. Discuss the following with potential co-homeowners:
- Preferred vacation times. Do either of you have children and can vacation only when school is out? How will you handle schedules if you both want the same weeks? Or will you be vacationing together?
- The number of weeks or months you expect to spend at the property.
- Size of home you desire.
- Amount you can afford. How will you finance the home?
- Number of bedrooms and other required features, such as a breakfast area or patio. Do you want a home with two master bedrooms, so each of you has one?
- Whether you want to rent out the home when it's not being used.
- Upkeep, maintenance and cleaning of the home. Will you hire a property-management company? Who is responsible for repairs and upkeep? Put it in writing.
- The length of time you plan to own the home.
- What happens when one of the owners wants to sell.