Good day readers,
When I tell people that over half of all the real estate transactions in Aspen Colorado in 2006 involved fractionalized properties they can’t believe it. Of course, Aspen’s real estate prices put that community on a short list of uber-rich markets in the United States including Manhatten. When a fraction can cost $1 million, the only way to "get into Aspen real estate" is via a fraction.
By comparison, three years ago in Crested Butte, there weren’t any properties for sale over $1 million. Last year, we saw over 60 properties sell above $1 million in Crested Butte and Mt. Crested Butte! So, I guess it was only a matter of time before Crested Butte would see a fractional real estate opportunity pop up. 21 and 21.5 Sopris Ave is a fractional property for sale in the west end of Crested Butte. For $450,750, you share ownership of this property with only three others. This means you get guaranteed usage for 12 weeks a year at 2 week intervals.
For those new to the fractional real estate idea, here is the nickel tour:
The main attractions for buyers are price, a share in potential appreciation and convenience.
Fractional real estate provides both a legal and use structure that makes sharing a property easy. For example, in a quarter ownership, there are four owners. Each owner would get his or her own title just for his or her legal quarter interest. They can put a mortgage on it, pay their mortgage off, or sell without having to deal with other owners.
There are a number of different programs, but the bottom line is that there is a plan so that each of the owners has absolute certainty about when they can use the home.
A third-party manager is employed to maintain the property, and all the owners contribute equally to the cost of maintenance, management, a fund for future replacement of furnishings and normal repairs.
Generally, if you own one quarter of a property you get to use it every fourth week, except if one of your weeks happens to fall on the scheduled maintenance week. If you want two or three weeks together you could either go through an exchange system that the project has set up or see if one of the other owners wants to trade weeks. Some plans provide for use for two weeks at a time (21 and 21.5 Sopris Ave), or a month at a time. Also there are more flexible arrangements where there is scheduled time for peak demand periods but usage for the rest of the year is based on a rotating selection process
Financing a fractional ownership can be a challenge as many lenders aren’t familiar with them. If the project is big enough or if it is in a major resort area, the lenders may have already put a financing package together for the project. Otherwise it’s often means using a mortgage broker to find a lender who will make the loan. Many buyers pay cash and others will re-mortgage their home or another property in order to buy their fractional property. Visit First Fractional Funding’s web site to learn about financing a fractional.
Fractional costs are higher than if the home was sold for full ownership. The reason is that the seller ends up with higher legal, marketing and financing costs. Typical premiums in Colorado range from 10 percent to 60 percent depending on the number of the fractions and the type of property – slope side condo or luxury single family home.
For more information on fractional real estate in Crested Butte, contact me directly.
Thanks for visiting today,
Buying a fraction of a vacation home
Borrowed from Sue McAllister
Tim Hoagland, owner of a small business in Los Gatos, can’t afford to buy a second home in the Lake Tahoe area. But he was able to afford one-seventeenth of a townhouse in a new development in Truckee called Old Greenwood.
For $56,000, he will be able to use the two-bedroom, furnished home for at least 21 days a year, plus have membership in the Tahoe Mountain Club, which includes access to private restaurants and recreational and spa facilities. Plus, he can write off the interest he pays on his mortgage on the place.
Hoagland is one of increasing numbers of Californians discovering “fractional ownership” of vacation properties, which allows multiple people to share ownership of a house or condominium.
“It was very affordable, and the whole resort has the lifestyle amenities I’m interested in,” said Hoagland, 46, a landscape architect who likes to golf and ski. “I don’t see a downside yet at all.”
As with timeshare vacation programs, owners typically schedule their visits to the property through a central management team. But unlike with timeshares, in which participants are essentially buying membership to a vacation system, people who buy into fractional properties are partial owners of the real estate, with the right to sell their interest or leave it to their heirs.
There were 188 fractional interest projects in North America last year, according to Ragatz Associates, which researches the industry, and about $2 billion in new sales and resales. That’s about 28 percent more than in 2004.
“Fractional’s going to continue to flourish because it gives access to many more people” than can afford to wholly own a condo in San Francisco or a cabin near Lake Tahoe as a second home, said Joe Nootbaar of JMA Ventures, a real estate developer in San Francisco. In 2004, JMA Ventures bought Ghirardelli Square in San Francisco and is turning the top floors of the historic brick buildings into fractionally owned townhomes with an urban loft feel — and fantastic views of San Francisco Bay and Alcatraz.
The 54 units, dubbed Heritage Place at Ghirardelli Square, will be completed next fall. Ranging from one to three bedrooms, they will be sold in one-tenth interests that start at $250,000. Each owner will be able to use the property for five weeks a year. The units will be operated by Fairmont Hotels & Resorts, with full concierge service, spa, bar and meeting facilities.
Ownership terms — and the fraction of interests sold — vary among developments. At some properties — including those run by Tahoe Mountain Resorts, like Hoagland’s unit — owners “buy” a primary week of use each year, and can book remaining time flexibly. Fractional owners become part of a homeowners association, just like in a condominium development.
But most of the new fractional properties are much more luxurious than most condo developments. New fractional homes in resort destinations or big cities typically feature concierge service, valet parking, luxurious spas and top-notch restaurants.
The concierge can help you find a babysitter, or buy your groceries. You can store your ski gear at your fractional home, and someone might even warm your ski boots before you put them on your spa-pampered feet. You can display your family photos, and when you arrive the next time the staff will have placed them right where you left them, even though other co-owners may have stayed at “your” house since the last time you visited.
“From the moment they walk in, it feels like your home, and it’s a hassle-free environment,” said Robert Van Dijk, project director for the Ritz-Carlton Club and Residences in San Francisco, which is scheduled to open in November 2007.
Located at Market and Kearny streets in a historic 1890 building, the development will include 49 fractionally owned units. Prices start at about $212,000 for a one-twelfth share, which is the minimum interest a buyer may purchase. Van Dijk said some people are buying bigger chunks,
Fractional owners have a deed to their partial ownership of a specific unit. But at some of the new, luxury developments, they won’t always stay at their unit when they come to visit. That’s why all the units are identically furnished and equipped. That system concerned Tim Hoagland at first, until he realized that some of the townhomes at Old Greenwood had better views than the one he holds (partial) title to.
A fractional property may be cheaper than buying a vacation home, but that doesn’t mean all buyers pay in cash. Mortgages are available for fractionals, said Joe Bono of Diablo Funding in Truckee, though buyers typically need to make a down payment of 20 or 25 percent. Borrowers need good credit scores — i.e., FICO scores near 700 or higher — as there is no subprime lending for fractionals. “Literally, there’s a handful of banks that will do these loans,” Bono said.
Interest rates are higher than for normal second-home purchases.
For years, Don and Jody Harrier and their two daughters have been vacationing near Lake Tahoe. But when it came to the idea of buying a second home there, “We’re priced out,” said Harrier. Instead — with the help of a mortgage with a rate of 7.25 percent — they bought a share of a three-bedroom, 2,000 square-foot unit at the luxurious 8050 Northstar Private Residence Club for $300,000. Part of the new Village at Northstar, 8050 is built atop the Big Springs Express ski gondola.
The Harrier kids are excited about the Village’s year-round ice rink, and Don Harrier is thrilled about the location, amenities and convenience of the service.
“We can fax up our shopping list and the concierge will stock our kitchen with what we need,” said Harrier, an architect in Menlo Park.
Although fractional developers play up owners’ ability to hand their fractional real estate down to their offspring, the industry is too young to gauge how long owners will keep their units before selling.
Timeshare memberships are sometimes sold for pennies on the investment dollar. But the worth of fractionals will mimic that of the real estate market as a whole, says Van Dijk of the Ritz-Carlton Club. Resales are typically handled by a project’s management company, and according to the Ragatz study, about $48 million in fractional interests were resold last year.
Real estate author Tom Kelly, whose most recent book is “Cashing in on a Second Home in Mexico,” said many potential buyers are enthusiastic about fractionals, but there’s little history on their worth as investments.
“People are kind of sold on it emotionally,” he said. “The big wild card is, what is it going to be worth at the time I want to get rid of it?”
Patrick Hourigan, a sales agent with Tahoe Mountain Resorts, said he thinks high-end fractional properties will continue to attract Bay Area buyers, who form the majority of his clientele.
“They want that service,” like the concierge, the valet or the members-only bar, he said. “It’s convenient and luxurious and they have the time of their lives.”