How to Purchase and Manage a Fractional Ownership Property

We've all wanted to have the comfort and tranquility of being able to vacation at our dream destination year after year, but many of us can't afford owning a property that we'll only spend a few weeks a year at. In the past it used to be that you could pay a fee (whether monthly or annualy) and have the ability to be able to "share" time (also known as timeshare) at a property or development of properties with other people. However, with timeshares you don't have the pride in ownership that's associated with owning a property that you get to spend your down time at. Furthermore, with timeshares you often can't spend your vacation time at the same property year after year. As people's frustrations with timeshares have increased the evolution of being able to spend a portion of time at a property each year with other individuals has evolved into fractional ownership. Fractional ownership is a specific type of property ownership in which the physical deed of the property is split into fractions. This can most likely be any number of fractions but is most common with five fractions, seven fractions, and sometimes even ten and twelve fractions. Fractional ownership of a property allows you the ability to get that dream property that you're only going to get to spend a few weeks or months a year at, while subsidizing the costs with other owners like yourself. Fractionally owned property can appreciate in value and your deed can even be sold at a profit. While there are oftimes restrictions on the deeds such as relating to expenses, changes to propertys, etc., fractional ownership has spawned into an evolutionary monster and now stretches even beyond property and into luxury cars, yachts, jets, and more. So what does it take to own and manage a fractional ownership property? Here are the steps you'll need to take.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Access to the Internet
• 25% cash deposit for the value of your property
• Access to a fractional mortgage lender

1. The first step you'll need to take in finding, owning & managing a fractional ownership property of course will be to locate the property that you want to purchase fractionally. This home will have to be one that you can afford to put down 25% of the fraction that you're purchasing. So, for example, if you wish to purchase a 5 million dollar property with four other owners that will give you a total of five owners for the property at 1 million dollars per deed. You'll need to make sure that you have access to a 25% cash deposit for your fraction (as will all other owners), thus you'll need to come up with 250,000 for a deposit.
2. The next step will be to make sure that you either know of several other individuals who are willing to purchase the property with you, or have access to a realtor or fractional MLS system (see resources below) who can help you locate other individuals willing to purchase that property with you. Of course, this is easier said than done, however, it is far more simple managing a 750,000 mortage on say a 5 million dollar property then it is a 3.75 million mortgage on the same property.
3. Once you've located the property, and found other individuals who are willing to purchase the property with you, you'll need to find a fractional mortgage company willing to lend you the money on a fractionally owned deed to a property. While this was rare in the past, more and more lenders have stepped up to the plate, as it is far less of a risk for lenders to lend to five owners than to one since it acts as a diversification of the risk. Additionally, if one owner were to default another could take his/her place without losing the property. For fractional mortgage companies see links in the resources below, however, the one company doing fractional mortages on a wide-spread basis is first fractional lending.
4. Once you've found a fractional lender to work with you'll also need to find an attorney who can "split" the deed for you. This is a critical part of the process as it involves creating an ownership type that will allow you to physically own a portion (or percentag) of the property. For a list of attorneys see some of the resources below.
5. Once you've taken all the steps in finding the property, locating other individuals to purchase the property with you, found a lender, an attorney, and you've closed the deal, now you're onto the task of actually managing this fractional property. To date, there haven't really been any automated systems or companies our there who've been able to successfully been able to handle the management of fractionally owned properties. There is, however, one company who has seemingly permeated this market and is growing at an exponential rate for fractional ownership management software and that is fractional ownership group (see resources below for link). Instead of having to take all of the steps above, fractionalownershipgroup.com provides a service where they assist you with the entire process from end to end. This also invovles the day-to-day management of the property, from document management, to service requests, to lottery date assignments, and much more, all done via a simple to use online interface.
   
   While you may need to pay an extra 2 percent of the property value upon closing for setup with their service as well as an annual fee, developers are swarming to fractionalownershipgroup.com for a simplified solution to all their fractional needs.

Tips & Warnings

• Be sure to know what type of property you're looking for in the outset. A good rule of thumb is that you'll need to be able to put a 25% cash deposit for the fractional deed that you're purchasing.
• If you're not going to use a reputable system such as fractionalownershipgroup.com, be sure to find a good lender, fractional deed attorney and other qualified individuals to purchase the property with you.
• Be careful of what you get yourself into and beware of deals that seem to good to be true. If a company is asking for money upfront to find & help you purchase your fractional property be sure to thoroughly read their contracts first, and make sure you follow up on references of other inviduals who have used them in the past.
• Don't fall in love with any one property! If you don't get yourself emotionally attached, you'll think with your wallet rather than with your heart.
• Find an area that's appreciating in this downturn of a market. Yes, there are still good investments out there if you can spot them, so be sure to do your homework and find a property and area with a good solid track record, good schools, amenities, and more importantly location, location, location.