By Jennifer Openshaw
RISMEDIA, August 16, 2007—(MarketWatch)—This is the last in the four-part series on fractional ownership. Promise. If you’ve been watching my column, you learned about buying into this evolving Millionaire Zone vacation-home ownership alternative.
Smart buyers know that, for everything they buy, someday it must be sold. And the ability to sell it for a good price tells a lot about whether buying was a good idea in the first place. So, smart buyers ask about the resale value and market for fractional ownership interests before they sign the papers.
And it’s a good question. Not that I think you’ll be displeased with a fractional arrangement soon after you buy it. But really, even in today’s market, a piece of real estate should hold most of its value, no?
Most of you have been approached about buying a time-share. The sales pitch is nice, and you’re told it’s “real estate” and you can sell it any time you wish.
That’s mostly true. But here’s the problem: the market is flooded with time-shares, and people realize it isn’t the best investment or their needs change.
You’re likely to get about 50% to 60% of your original purchase price. Add in commissions and maintenance fees during your ownership, and dollar for dollar, that time-share might be one of the most expensive real estate “investments” you ever made.
So here’s the key question for anyone lining up to buy a fractional: do time-share economics apply to fractional sales? Answer: not really. The fact you have a deeded property with more flexible use in a higher quality development, often in a better area, loaded with amenities, helps you out.
Based on recent evidence collected on Old Greenwood fractionals in the Lake Tahoe area of California and Nevada, resale asking prices run 90% to 100% of what was paid at the time of a unit’s release.
That’s not bad in a flat market, although it’s worth noting that some 80 Old Greenwood listings are currently carried by one real estate agent alone, against some 800 units claimed to be sold by the resort operator in the first place.
According to that agent, Truckee, Calif., real estate specialist Nancy Costello, resales of fractionals, like the rest of the industry, “are pretty flat”. Some of today’s inventory comes from original buyers getting special “founder’s” pricing on new releases. They bought with the idea of flipping the units into the market — much like a stock IPO. Sooner or later, this glut will be absorbed.
Costello thinks that, despite the glut, buyers won’t get much of a discount off of asking prices. She also advises: “If you buy a fractional, buy prime weeks and prime properties with lots of amenities. People are especially attracted to the country-club amenities — something they can use all the time and show off to their friends.”
Like most others in the industry, Costello also feels that the fractional market will mature in the next few years, and that will make the market more liquid and resale-friendly. She added: “Resale prices are a little less predictable than fully owned real estate. So a buyer takes a little less risk on the purchase [lower capital commitment] but takes a little more risk on the resale.”
My column last week explained so-called shared ownership, where a single, unique home is divided into anywhere from two to eight interests under a customized arrangement.
Shared ownership makes sense for a somewhat flexible buyer wanting to own a larger piece of an expensive property.
But Dreamslice International founder Jeff Cutler gave me another tidbit that might be quite interesting for those of you lucky enough to already own a vacation home. You can sell fractions.
Suppose you own a “legacy” home bought by your grandfather in what was once a remote patch of woods in the 1940s. It’s worth a bundle now, but you hardly use it — it’s probably vacant for 10 months out of the year.
By selling fractions, you can cash out of a large portion, while not giving up your piece of the legacy.
And you can diversify — perhaps you’d like to spend a month or two in your mountain cabin and another month or two at the coast. Now you’d have the money to find a shared arrangement at the coast and own both with plenty of money left over.
Bottom line: I hope this series on fractional ownership helps at least some of you find your piece of the vacation-home pie.
Jennifer Openshaw is the author of ” The Millionaire Zone” and founder of TheMillionaireZone.com. She hosts ABC Radio’s Winning Advice and serves as an adviser to some of America’s top corporations. You can reach her at firstname.lastname@example.org.