Canny investors, deterred by the unedifying reputation of the timeshare and the prohibitive cost of owning a vacation home they might only visit once or twice a year, are sharing homes with like-minded people by fractional ownership. Like timeshares, such arrangements buy the owner the right to use property for a portion of the year. Unlike timeshares, fractional ownership is an equity interest recorded by deed, which can be bought and sold like any other real estate interest.
Fractionalizing a Property
Compile a proposal for your product. Sirkin and Associates suggests that you consider the following key elements: price, annual dues, number of shares, usage plan, guest and rental policy, financing options, whether the entire property will stand as collateral for a loan, management strategy and the procedure for reselling shares.
Practice a pitch that explains your proposal in just a few minutes. Use family and friends as your test audience.
Appoint a fractional broker or a real estate agent who has experience in fractional ownership. Work with your agent to design a marketing plan for your property. This might take the form of advertising, seminars or open house events. Advertise locally to attract people who regularly visit the area.
Identify a list of prospects. Include personal contacts such as previous renters, friends who have visited the property, family and neighbors.
Present your sales pitch to your prospects, either by seminar or webinar, or by holding an informal event at the property, such as a barbeque. Have a sales contract ready and encourage buyers to sign up on the day of your event. You can chose whether to close each share immediately or at a later date, when all the shares are sold. Follow up unsigned prospects by telephone or personal contact. Even if they decline to buy a share, use their feedback to perfect your sales technique.
Reselling an Existing Fraction
Check that you do in fact own a legal fractional interest, evidenced by title deed. Typically fractional owners are tenants in common, with each owner's name and percentage interest appearing on the deed. Tenancies in common may be bought and sold like a fee simple interest in real estate entire.
Check your ownership and use agreement and owner's rule book for any restrictions on exit. For example, you might have to first offer your fractional share to the other shareholders for a period before offering it for sale on the open market.
List your fraction on a website that specializes in the resale of fractional shares, such as Fractional Index. Set a realistic list price by comparing the list and sale prices of similar properties. Alternatively, appoint an appraiser to determine market value.
Appoint a real estate agent to list and market your fractional share. Choose an agent with experience in fractional share ownership, as many potential buyers will be unfamiliar with the concept.
Sign the sale contract, perform any contract obligations and attend closing to sign over your fractional share by deed in return for the sale price.
Be patient. Fractional selling requires a lot of hard work.
Check out legal restrictions before creating fractional ownership. Certain structures might need state regulatory approval.
- Be patient. Fractional selling requires a lot of hard work.
- Check out legal restrictions before creating fractional ownership. Certain structures might need state regulatory approval.
Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. She practiced in various “big law” firms before launching a career as a commercial writer. Her work has appeared on numerous financial blogs including Wealth Soup and Synchrony. Find her at www.whiterosecopywriting.com.