Fractional Interest Exotic Real Estate- Your Next Vacation Home? 7/1/07
Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC
Fractional Interest Exotic Real Estate- Your Next Vacation Home?
“Fractional Interest Exotic Real Estate- Your Next Vacation Home?”
Have you ever dreamed of owning a luxury home on an exotic island or at an exclusive golf resort or on the snow covered slopes of one of America’s top ski resorts? For most people, this has only been something you can dream about– until now. The newest real estate craze– fractional share ownership of luxury real estate—is just starting to catch on. The concept was born out of the timeshare business.
With a traditional timeshare, you purchase a specific week at a particular resort. However, fractional ownership is a far cry from the old fashioned timeshare unit. First, the properties fall into the super luxury class, most starting at $1,000,000 and often running into the millions. They typically are full of amenities such as stocked bars, first-rate wine cellars, daily maid services, and your own private automobile. Many of the properties are associated with 5-star hospitality organizations such as the Ritz-Carlton, Four Seasons and Aman Resorts. Also different is that ownership of these properties is typically restricted to a handful of investors instead of fifty or more for the typical timeshare property. This means the fractional property owner will have a month or more each year to enjoy his or her resort home or condo.
These are expensive properties so you will be forking out big bucks to play. I reviewed an offering for a client for a property located in Beaver Creek, Colorado. This super luxury penthouse condo on the slopes was 5,000 square feet and sported a price tag of over $6 million and was one of 4 properties purchased by eighteen investors. The total investment by my client was approximately $1,350,000 and included additional properties in Hawaii, Mexico and Manhattan. Each investor is allowed 28 days a year across the four properties and the management company rents the properties out the rest of the time to cover maintenance fees. Their plan is to sell the properties in five years. Not all properties are this expensive, but you should expect to pay $150,000 to $200,000 initially plus a healthy annual maintenance fee. Most of the properties are purchased for cash, so you don’t get the typical leverage associated with most real estate purchases. Still, top properties in select locations should appreciate in value over time which means that your interest could prove to be a reasonable investment.
Who is a good candidate for fractional interest real estate? First, you should have a strong desire to spend your vacation time at a particular resort, year after year. Second you should have a relatively large amount of time for vacation since you will own one month or more at your particular resort. Finally, you should be willing to pay a premium in your annual fee for someone else to handle all the maintenance details. By owning fractional shares, you could own properties in different locales such as the mountains, islands, golf resorts and ski resorts for what you would pay to own 100% of one property. Not only does this give you more choices, but it also diversifies your holdings. Not a bad idea if you have the time and money.