New Trends In Resort Real Estate: Why Should I Share Ownership Of My Vacation Home?
By Jeff Cutler, Esq.
Realtor, RSPS
For current resort area homeowners or potential vacation home buyers just about everywhere, it is hard to escape the emergence of a new way people are going about buying their vacation homes. Almost anywhere in the world where you might want to own a vacation or resort home, people have already decided to fractionalize properties and sell them in shares.
Shared ownership seems to have arrived and to have become the answer to problems people may have had with the Timeshare Resorts of the past. For the most part the Shared Ownership or Fractional Residences and Vacation Clubs of today are mostly much more upscale and expensive properties that allow much more use than did the traditional timeshare projects of the past.
But with the emergence of shared ownership of vacation and resort homes as an option for buyers and sellers alike, what are some of the reasons people might choose to decide it is the right idea for them?
1 In many resort areas local owners have been tempted to sell because of recent increases in the value of their homes. Long-time locals and much needed resort workers that they have decided to take profits by selling and moving less expensive areas. These people may not only find a new way to sell their home (in shares which shifts the price point to the part of the market that is in highest demand), but additionally they would have the option of retaining a small share of their current home for their own continued use and investment appreciation.
2 Shared ownership allows vacationers, who might otherwise rent, to pay their vacation dollars towards an investment, complete with appreciation and tax benefits..
3 Long – time vacation homeowners who are cash poor but equity rich may sell a share of their home to fund maintenance, upgrades and modernization which are long overdue in vacation home inventories in many resort areas.
4 Resort area owners who have 2nd and 3rd properties in one particular resort area may have seen these investments greatly appreciate in value. These owners may wish to invest in other communities thus diversifying their real estate portfolios and vacation options. Shared ownership can be used as the vehicle to protect themselves from potential market slowdowns or corrections without completely disinvesting: they can keep shares in their resort area homes while selling other shares to fund investments elsewhere.
5 Vacation homeowners who have purchased recently may find a shared ownership sale to be an opportunity to reduce their debt load and other carrying costs in a property while retaining enough use and control to have it still feel like a personal vacation home.
6 Long-time vacation homeowners who have seen decreased use of their properties over time and who have been contemplating selling may see selling a share and keeping a share as a perfect compromise allowing them to avoid parting with a long-cherished family retreat.
7 A change in tax laws regarding 1031 exchanges allows shared ownership properties to qualify. Shared ownership properties create more tax-deferred rollover options, especially at the lower end of the market.
As with any new trend, there are potential downsides that could come into play. Overall, the complexities in partial share purchase transactions make it unlikely to be a market that need be feared as an emerging giant.
For instance, most modern shared ownership transactions rely on additional legal agreements such as sharing agreements and management contracts. The world of shared ownership properties is filled with horror stories from people who have had informal arrangements that did not work out well. It is imperative that both buyers and sellers seek professional legal counsel to ensure that they only enter into shared ownership of properties with good agreements, and that these agreements suit their best interests.
Additionally, many shared ownership deals take time and money to put together properly since they are highly regulated locally as well as under subdivision, timeshare, and securities laws. Even the neighborhood HOA may have a say over whether fractionalization of properties will be allowed.
Another hurdle for the non-cash and non-owner-financed buyers are loans. While more lenders are jumping into this emerging market, currently there are only a handful of local lenders willing to make loans on fractional property purchases. As more lenders embrace shared ownership loans, the interest rates are likely to become more competitive.
These are only a few reasons why the emerging trend of shared ownership of properties is creating such a buzz. Resort real estate owners and prospective purchasers should do what they can to stay informed about new developments and where things seem to be going from here.
(Jeff Cutler is an Attorney and Realtor certified as a Resort and Second Home Specialist by the National Association of Realtors. He is the founder of the Dreamslice International real estate brokerage and the dreamslice.com website. Click here to request more information on fractionals and shared ownership.)
