Would you buy fractional ownership?

[nickmarr]

I am currently dealing with Florida developers who have exhausted the local Florida real estate market in search of buyers. One has asked me what the view of UK buyers was towards fractional ownership. This is where a buyer would own maybe up to an eighth of a Florida home. The advantage seem to be that you can own a luxury home for a small investment. Overseas buyers would then be able to use thier home an eighth of the year. However it feels like timeshare to me and think this is not what UK buyers want. What are your views?

[KICIta_]

Dear Nick,

I mentioned this in a similar post for shared ownership (meaning exactly the same as fractional ownership). It is not the same as time share as you in fact own 1/4 or 1/8 of this property. When it comes to selling your share, you will be able to gain from the capital gains on the property in proportion to your share. The only way that your property can be divided is by time and normally you will get a a 2 weeks for every 2 months (if its a 1/4 share) so you can go on a 2 week holiday and it also provides for the problem of having a winter allocation in a summer resort. I believe UK buyers are more and more aware of it and even willing to buy on a fractional scheme in Bulgaria (as mentioned in the shared ownership bit) as well as numerous uk sites for shared ownership on luxury items from handbags to private jets.

Hope that helps.

Originally Posted by nickmarr

I am currently dealing with Florida developers who have exhausted the local Florida real estate market in search of buyers. One has asked me what the view of UK buyers was towards fractional ownership. This is where a buyer would own maybe up to an eighth of a Florida home. The advantage seem to be that you can own a luxury home for a small investment. Overseas buyers would then be able to use thier home an eighth of the year. However it feels like timeshare to me and think this is not what UK buyers want. What are your views?

[rowlandsbb]

Popular in Portugal and often because prices have gone high
In reality it is a form of time share [ which can also be sold!!!] but the market for re sales has not been tested
Often with the good mortages available now it is better to use the money you have available for a deposit and buy a property which you own all of it
If this means being less up market then it will still , I suspect, prove to be a better buy

[KICIta_]

Yeah you can sell your time share but you wouldnt actually gain from capital gains..
I also believe that different people have different risk tolerance and in stead of investing 100% in a 5* resort they may as well invest 50&50 in two different countries or even in property and an yachts.

Originally Posted by rowlandsbb

Popular in Portugal and often because prices have gone high
In reality it is a form of time share [ which can also be sold!!!] but the market for re sales has not been tested
Often with the good mortages available now it is better to use the money you have available for a deposit and buy a property which you own all of it
If this means being less up market then it will still , I suspect, prove to be a better buy

[rowlandsbb]

For serious risk takers or gamblers I suppose that may be an option
But for many the approach to property investment has to be from an economic base and in reality ' gambling' is for experienced property investors although a lot of beginners are talked in to this type of investment
Same applied to time share in the early days and now it is 1/4 or fractional share [ do not see the difference 2 weeks time share is a fratcion of 52!!]

Now many people buying time share to use for holidays have had value for their money....but it is not an investment for your pension or portfolio
Same applies to fractional or 1/4 share
By all means buy it for your holidays [ as people buy a caravan in UK] but if you want a property investment always buy 100%

[The Soup Dragon]

My view is that most look negatively on fractional / shared ownership. Many will do so as it’ll remind them of time share (even though it shouldn’t) and others will do so because the owners are collectively paying quite a bit more than the property is worth. (This was the norm when I looked into fractional ownership a couple of years ago.) Then there are the other negatives already mentioned on this thread. I’d rather co-buy a property than go down the fractional / shared ownership route.

KICIta - Never invest in yachts, your asset will depreciate.

[KICIta_]

I completely agree with you but then again people have different needs and they also have different circumstances and reasons for investing being shared or not. You are right, it has nothing to do with time share (as i mentioned the only similarily is the devision provided by time/weeks). However, if the legislation allows the fractional ownership for property for any specific country then I believe you actually have a lot more rights by buying a share than you would by co-buying (and of course you can adjust to that but you would need a legal document which would be pretty much similar to what you would actually sign as a shared)

I have just spoken to one of the companies that do fractional ownership - out of my own interest- and apparently it is booming in the uk, with exhibitions and an average of more than 100, 000 hits per day which means that the demand is there...the market situation in the uk is not helping either in encouraging people in invest in one property esp in emerging countries...
I do not agree with you on increasing the price of the property by buying it shared ownership...maybe the market has developed since you last looked into it, but pretty sure that is not the case now.

I would rather personally buy 50 in say Bulgaria and 50 in Thailand than 100% in any of them (taking into account that it will be a lot more affordable and also risk would be more diversified - both from rentals and capital gains point of view)

Re Yatchs- agree with you, its like buying a brand new car fully well knowing that the value is going to go down by at least 30% (if not more) by the time you exit the door of the car dealer... However, fortunately with property the opposite holds and value generally increases

Originally Posted by The Soup Dragon

My view is that most look negatively on fractional / shared ownership. Many will do so as it’ll remind them of time share (even though it shouldn’t) and others will do so because the owners are collectively paying quite a bit more than the property is worth. (This was the norm when I looked into fractional ownership a couple of years ago.) Then there are the other negatives already mentioned on this thread. I’d rather co-buy a property than go down the fractional / shared ownership route.

KICIta - Never invest in yachts, your asset will depreciate.

[segarrett]

I agree that time share is different to fractional ownership.

The considerations are different depending upon whether the property is being used as a holiday home, or as a pure investment.

For someone looking for a holiday home, buying a share can make good sense, particularly if they are thinking of financing buying the whole property through lettings when they don’t wish to use it. Although there can be good returns from lettings, it is rarely as good as the person selling the property would have you believe, and there are often substantial associated costs. Furthermore, the buyer might prefer to have a share in a property that is only used by the owners’ friends and family, and not let out, so that it is looked after better. Finally, if you want a holiday home which is not let out and you live and work a relatively normal life, then a quarter share in a property effectively means you and the other owners can have it pretty much whenever you wish. You need to ensure that there is compatibility in all your requirements– it won’t work if you all have school age children, or you all want to be there every Christmas!

For someone looking for a pure investment, then as noted above, this is one way of spreading risk. In some locations, more expensive properties appreciate in value more than cheaper ones, and some high growth areas all the properties are expensive. So they might get better capital growth through a share in an expensive property than by buying outright.

However you do need to consider the agents mark-up. Understandably if an agent is selling several shares, the cost of sales is higher so they charge more per share than the straight split of property value by number of shares.

There are ways around this. You can find like-minded people to buy with through websites like yours2share (which I run, to make it clear where my interests lie). If you can find compatible like-minded people to buy with, then it is up to you where and what you buy and how you run the arrangement.

I also think there is much more scope for fractional ownership, particularly to enable people to make the most of their assets and resources. For example, people who would like a base in the city to avoid extensive commuting can partner many other types of people. I have had an extraordinary range of ideas for properties that people would like to share (and indeed for other items: boats, aircraft, jewellery, fine art, horses etc).

Finally the key to making fractional ownership work is to ensure that the contract is right for you. yours2share has lots of guidance and template contracts to help with this. If you are buying a fractional share through an agent, read the contract very carefully and get professional legal advice. The same applies if you are doing it yourself, but here you need to invest some time at the start discussing in detail how it will work with your potential co-owners. The contract is the visible evidence that you have worked it all out properly, and the professional legal advice is your “insurance “policy.

[Gerry Pridham]

Originally Posted by nickmarr

However it feels like timeshare to me and think this is not what UK buyers want. What are your views?

Nick,
To answer this question, with anecdotal evidence, I am sure UK investors would not prefer this type of investment, as they would prefer to gear the investment with a mortgage and own it outright. However, there is the home ownership abroad market in the UK (not to be confused with the investor market), and the target client matters nothing to the seller.

My cousin has held a Florida timeshare for 20 years, and visits twice per year without fail. Now one of those trips is paid by the company he works for (AGMs about 100 miles from his timeshare, and they also pay the airfare for his wife). The other trip they take as their major holiday, so they spend in total four weeks per year there. He pays about £500 a year for management, maintenance and cleaning between occupancies, and he considers it very good value for money. he's not a property investor, but swears by this "investment" he made 20 years ago for about £5K. So maybe the market is in ordinary folks aspiring to part-own their home abroad.

[andyintheworld]

I have some off-plan properties which are apart hotel units which I thought about offering on a fractional ownership basis.

They are designed as 1 standalone unit divided into 2 studio apartments. they are very well located - absolutely beautiful beach and there is a big rental market there.

Two similar aparthotels next door are full a lot of the time but there are a lot of planning restrictions so its doubtful many more will be built.

They are in the Caribbean - I visited to check how far along they were with construction and it looks very nice so far. Completion is scheduled for February 09.
I just had the same reservations about the British market not being interested in shared ownership.

Since there are two units I was just going to sell them as 50% shares. I spoke to the developer and he was happy enough to go ahead as in essence you would have your own studio. There are no credit facilities - hence the idea to reduce the price by having two owners, purchasing through a company and owning 50% each. They would need to decide who owns which studio, although they are both identical.

Does anyone think this is marketable in the UK though?
Id have to do quite a bit of work setting this up and sorting out the contracts but they look like a good investment with good rental potential in a location where the number of future units is capped.
They are about £60k so would sell 50% for £30k plus any additional legal fees and hopefully attract a larger client base.

Has anyone bought/sold fractional ownership recently in or to the UK market at the 1/4 or 1/2 level of ownership?