Fractional Fairy tale: The dream of owning a vacation home can come true via tenancy-in-common
Writing this time to thank all of you who read the SFGate.com article and have contacted me over the last few weeks. I had a feeling there was a lot of latent interest in the growing shared ownership vacation home trend, and it is nice to have that feeling validated by so many of you being excited about the article.
With that said, the article is typical of press coverage in that it isn’t always exactly clear, and the lack of clarity can lead to innacurate perceptions of what people quoted in the article actually said-and in what context. For example in this instance, the article may be giving people an unrealistic expectation of profit from being a fractional developer if people do not understand what goes in to the idea that you could get up to a 150% return on your investment. While it is generally true that the creation of a fractional opportunity makes the overall sale value of the property higher than it may be as a whole, there is really quite a wide range of what someone could expect to earn as a value-added above and beyond what the property would sell for as a whole.
What goes into the difference between adding 10% to the sales price and instead being able to double it? In general, the difference has to do with the number of shares created, the exclusivity and price-barrier to entry of the opportunity if it were a whole, and the quality of the amenities and location. On the high-end of what one might earn are properties where the oportunity is slopeside, golf-course side, or waterfront, probably also in a gated community with a high level of service and amenities available, and in a small enough increment that the price-point is low.
Now, there ARE some complications with one of the key components of that equation. For one thing, the idea that you can keep slicing your pie up into smaller pieces to reap maximum value may be a slippery slope towards entering a more heavily regulated type of sales offering. In California, for example, the Timeshare Act regulations need to be considered if you are offering more than 10 shares, and other States may have different rules in their Subdivision and Timeshare laws than California. Additionally, the more shares you create the more deals you have to complete before you have a successful project. And that means educating more potential buyers as well as added difficulty in distinguishing the product you are offering them from a traditional timeshare purchase?which they are probably wary of due to the dismal history of lack of appreciation of timeshare properties.
At any rate, there is always more detail than one might think when reading an article and reading a catchy quote on how much money people are making. Thanks again for reading the column, and I will write again soon.
