The Case for Fractional Ownership – Oceanfront Property in Florida

Fractional ownership is a way to get round the globe, without the hassle of being locked down to a location for an entire year.

1. The Case for Fractional Ownership

There are companies from all over the world that are offering fractional ownership of real estate. If you were advised of this, there are a couple good reasons why you should be careful. An entire 22 week period on the beach, on your own island, for instance, would be something like $250,000. The more weeks you need, the higher the price, and the worse is the resale market. Commercial real estate is booming. People in places such as Malaysian and Singapore have dirt-cheap homes. Any Ms July who needs to balance her finances can surely afford an oceanfront property, as opposed to a half built shanty on a second-hand car lot. And who wouldn’t want an untouched chunk of prime Florida real estate, to call their own?

2. The Risks of Fractional OwnershipBefore you buy into a fractional ownership, there are a lot of things to consider.

First, how will you handle the concerns of time – 14 weeks for a whole year? Usually, most people will go ahead and buy a whole year’s lease, and put the property up for sale when they’ve just returned from their honeymoon. And that’s assuming that there’s someone willing to pay $250,000 for the whole year. If it’s a second-hand condo, it could be enough to pay off the whole year’s lease on the share you get. If you want, you can put the property up for sale, and still whittle down the share you’ll actually own. It should be an interesting year round sport.Ideally, of course, IF you can influence the location you get – say, a resort community where they don’t let bags on the beach in the winter months. Fractional Island ownership is far beyond the reach of practical common sense – unless you are willing to take a ride in the wave, or own a share of a ferry that runs lots of times between the islands.

Fractional ownership does have the potential for problems, even if the idea of buying an entire island sounds too faux to be real. Owners of professional fractional ownership organisations are not allowed to spend more than 10% of their time in the property, which means that owning a share of the islands could mean owning a 500-square-mile strip of coastline, two-thirds of which may be swampy. And that’s assuming you can get just the one in that category – if you can get any at all. History suggests that ownership of even just one of the places is extremely rare.

Fractional ownership has a lot of potential, without much to show for it, but it’s worth thinking about the drawbacks and trade-offs. It’s not all sunny, of course. There are lots of poisonous brackets involved, and you really have to know what you are doing. If you cannot properly manage the rules of a gated resort community, you should probably get back into real estate, or at least look closely at alternatives like tenancy. Is fractional ownership realistic? Sure, it’s possible to find someone who will buy a whole year of share, and then find a few weeks free every year.

But this means the balance of power is shifted seriously – the four de factors of fractional ownership have taken on a whole new significance.

1. The Seller

The minor challenge facing such vendors is that they can’t just call the buyer in and ask (or worse, the owner or agent can call in and ask). They have to do the maths, and ask how the share investment is doing. And it’s not just the math. It’s nothing less than the common-sense case of balancing the share of a resort property against the income and expenses and its asset dimension. Fractional shares are almost certain to include a component of expenses. Expenses can be difficult to calculate. They include:

There are other costs, and beach resorts, with even a few decent ones, have a chance of some costs being poorly managed. This may lead to the seller, or a management company, being liable for payments that might not even be completely necessary. All of which causes problems for the owner.

2. The Buyer

The other thing that can go wrong in the form of a poorly managed share is the chance that a resort will lose value in the near future. There’s little that an owner has to worry about, except who is going to buy it. Owner-occupied shares may start out lower than those that are vacant, but they’re liable to rise.