Fractional ownership: Get a piece of a vacation home
Two-thirds of buyers pay cash or finance the purchase through a home equity line, Jeffery McClintock, a real estate agent in Breckenridge, Colorado who sells fractions in luxury mountain homes in the Colorado rockies. About a third will finance the deal. Buyers should expect terms that are similar to those paid by real estate investors -- a percent or two higher than they would get if they were buying a primary residence with a down payment of about 20 percent.
Financing rare
That's if they can find a bank willing to do the deal. Lenders are gun-shy
about taking on the loans because they see them as high risk, says Bruce Gibson, Manager, HLC Sales at Countrywide Home Loans. If the borrower
defaults, it could be difficult for the lender to sell the property.
"It's a very non-conventional product," he says. "If there is financing
available, it's generally through the builder or developer."
Some boutique banks will do the loans on an in-house basis; borrowers should
expect to pay higher rates because the bank can't resell these loans to the
secondary market.
They also can expect a hefty annual maintenance fee -- rates of $5,000 a
year or more are not uncommon. But then, they can call the management
company a few days before they get to town, have the fridge stocked with
their favorite goodies, arrange a tee time or a day of X-Country Skiing, and
make sure their are plenty logs to enjoy a warm fire.
To defray those costs, most people who buy a fraction in a vacation home
wind up renting it out for at least part of the time. "It's logical and practical to do it," if you think about it. "You could buy 52 weeks, which is
whole ownership, but you would be dependent on many, many weeks of rental to cover expenses. This way, you need fewer weeks of rental. The risks are really minimized."
Who's learning their fractions?
Who buys into fractional ownership? Typically, they are people who could
afford a vacation home, but don't have the time to use it, says McClintock.
"I had a client who buy a home from a local builder for 1.2 million and turned around and offered the house for 1/4 shares and made a premium over what he would have if he would have just sold it outright. Fractional share ownership is like making an appointment with yourself for your
vacation. It has some inherent motivating factors to use it.
The more expensive the property, the more it makes sense. "When an
second home went from $400,000 to $1 million, that's when people started
looking at fractional ownership," McClintock says.
It's not an investment you make because you think you're going to make a
killing in real estate. The shares usually are sold at about a 20 to 25 percent premium, so unless the property values in a market just go through the roof, your gains will be modest. But the vast majority of fractional ownership buyers aren't real estate investors; they just want a getaway.
Lenders for Fractional Ownership
First Fractional Funding (Denver), Erik Anderson: 303-221-3119 www.firstfrantionalfunding.com
Maverick Lending (Dillon), Angela Page: 970-468-9322 / 877-357-7243
www.mavericklending.com
Summit Resort Lending (Frisco), Eric King: 970-668-1681 / 866-352-0290
www.summitresortlending.com
United Mortgage Funding (Denver), Curt Vogel: 303-220-0444
www.umf4loans.com
Vacation Finance, JH Heck: 888-562-6466
www.vacation-finance.com
Carteret Mortgage Corp.: (970) 513-9077 / F) (970) 262-9059
Steve Gordon
VP Fractional & Condotel Division
www.mtgsandbeyond.com
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