By Jennifer Openshaw
RISMEDIA, August 3, 2007—(MarketWatch)—Last week I planted a seed for many of you. How to own a vacation home – a top quality, high end, unit, perhaps in the $2 million range, for not so much money, not so much in upkeep, not so many of the usual ownership headaches. So now I’m back with more details on the deal.
Those of you in the Millionaire Zone intrigued with vacation-home ownership are likely intimidated by the cost. You’re concerned about what you get, especially at the low end of the price range. And you think paying a whole year’s cost on something you’ll use a few weeks out of the year is a dumb idea.
You’ve thought about time-shares. But something’s missing. These properties don’t usually qualify as a “special” destination. They grant no more than the right to use a place for a week each year — and only for that week. It just doesn’t feel like ownership, and on a per-square-foot or per-stay basis they aren’t cheap.
So I introduced fractional ownership last week as a best-of-both-worlds solution. Lake Tahoe’s Old Greenwood resort was cited as an example, which I’ll come back to shortly.
First, there are different kinds of fractionals, and it helps to know the differences:
– Traditional fractionals. They are located primarily in “mass market” resort areas and are typically condominiums or similar properties. They are similar to time-shares but can be more upscale. The property is deeded and the ambience is three- or four-star in quality. Orlando’s Lighthouse Key Resort is an example. Purchase prices typically start at about $40,000.
– High-end fractional and private residence clubs. Properties, amenities, and property management become much more high-end, high four-star or five-star quality. Many of the units are separate dwellings or are located with prime full-ownership properties. Old Greenwood is an example, as are the several Ritz Carlton Residence Clubs developments. Purchase costs usually range from $100,000 to $1.5 million or more.
– Destination clubs. They may be out of range for most. These very exclusive properties (or networks of properties) will set you back $1 million or (far) more, just for the membership, not to mention ownership. But they can include large ranch and ski areas, private yachts and other high-end amenities. Ultimate Resorts and The Yellowstone Club are examples.
– Shared ownership. Shared ownership is arranged individually, usually by a specialist real estate firm. A single vacation home is broken into shares and sold, usually, to two to four buyers.
The Old Greenwood example
Old Greenwood Fractional Residences, in the North Lake Tahoe area of California, offers deeded fractional ownership for 3- and 4-bedroom cabins of 2,470 and 3,000 square feet, respectively, and 2- and 3-bedrooom town homes of 1,270 to 1,843 square feet.
Use, in theory, is unlimited. Each owner buys a fixed “primary use” 7-day week, one of 26 weeks set aside for each unit through the year. Choice of primary use week is important, for the purchase price depends on it. A prime week like Christmas or July 4 runs 50-70 percent higher than an off-peak week, say in late January to mid-April.
You must use it and cannot exchange the primary week. You also get a “flexible use” week which may occur any time of year subject to availability and can be reserved up to 24 months in advance. Plus there is a one- to four-day midweek use, which can also be reserved, in addition to that.
Then — and this is important — you can reserve a one- to seven-day “spontaneous use” a week in advance, again subject to availability, as often as you’d like. The only catch? After five reserved visits annually you’ll be assessed a “cleaning charge” of $200 for each visit (not each night) to help defray the cost of your (many) stays.
The units are sold as a 1/17 fraction on the assumption that owners will use them about 3 weeks each year. But the usage can go much higher. According to Vice President of Sales Greg Traxler, some nearby owners use their units 11 or 12 times a year.
And these units far exceed the appointments of a typical resort hotel or condo. They have everything from fine hardwoods to granite counters to big-screen TVs, and are serviced with the fine linens, shampoos, robes and slippers you might find at a Ritz-Carlton or similar.
Finally, ownership gives membership to the ” Tahoe Mountain Club” — a country-club-style set of amenities including restaurants on property and at nearby ski resorts and Lake Tahoe itself as well as discounted access to the Jack Nicklaus signature golf course.
And how much does this cost? Two-bedroom town home shares range from $60,879 to $101,983, fee simple, while 4-bedroom cabins go from $137,500 to $250,700. Avoiding the peak summer weeks, a 3-bedroom town home will set you back about $100,000 to $115,000, while the 3-bedroom cabin runs $130,000 to $150,000 for most weeks.
Annual maintenance fees run from $3,380 on the 2-bedroom town home to $5,768 for the 4-bedroom cabin. But they include property taxes and utilities, club membership, cleaning, maintenance, outfitting and a reserve-account contribution for future upkeep.
Bottom line: for somewhere between $60,000 and $250,000, you get a first-class, turnkey vacation home with no maintenance, upkeep or secondary bills besides the maintenance fee. It’s clean and fully equipped when you arrive and made so again when you leave.
The downsides? You can’t decorate it to your tastes, you can’t use it any time you want and you can’t rent it out.
The advantages of ownership
Downsides aside, the Old Greenwood example gives a good snapshot of the fractional advantage:
Flexible use. With a time-share, you’re limited to the week you buy or can swap. With a fractional, you can use it as often as you want, subject to availability and rules.
Deeded property. You own the property. It’s not just an easement granting you use for a certain period. If the operator goes bankrupt, you have a board of directors, like a homeowner’s association, that can hire another operator.
Amenities. Country-club-style amenities, and you won’t have to bring or buy a coffeemaker, Cuisinart or anything else to enjoy first-class living.
Resale value. Aha — here’s the catch, right? Time-shares were overbuilt and oversold to folks who couldn’t really afford them, so resale values are typically 50 or 60 cents on a dollar. At Old Greenwood, resales go for 90% to 100% of the original purchase price and sometimes more, depending on how long they’ve been held and how much new units have risen in price (12% to 14% a year, according to Traxler.)
Still, it appears fractional ownership hasn’t caught on completely. Lenders are still leery of traditional mortgages on fractionals, and many buyers choose instead to use second mortgages or lines of credit to finance them.
Traxler’s take was simple: “Fractional ownership has grown some 500% in the last 3 years. More developers and more owners are seeing the light, and the financers will follow. Expect this concept to be mainstream in five years” — which, of course, helps the resale value, as fractionals become what everyone wants and can afford.
Finding the sweet spot
East-West Partners, the group that is masterminding and operating the Old Greenwood project, did extensive market research before going to market with Old Greenwood and an assortment of other projects in California and Colorado.
Traxler shared some of the findings. Typical owners want 18 to 30 days a year, 1/6 to 1/8 ownership, and want to spend in the $80,000 to $135,000 range. They want some flexibility and amenities to make their home a destination and not just a place to sleep, and don’t want to deal with cleaning, maintenance and snow removal.
And while many prefer to decorate their own way, they recognize the savings of not having to outfit a place with everything from furniture to TVs to kitchen appliances to bed sheets. They want the good aspects of ownership, without the bad.
If such ownership sounds like your sweet spot, I encourage a closer look. I’ve become more intrigued with the shared-ownership idea, so I’ll be back soon with more on that one.
Jennifer Openshaw is the author of ” The Millionaire Zone” and CEO of Openshaw’s Family Financial Network. She hosts ABC Radio’s Winning Advice and serves as an adviser to some of America’s top corporations. You can reach her at email@example.com.