Wendy Cole is the managing editor of REALTOR® Magazine. She can be contacted at firstname.lastname@example.org.
Carving Out a Share of the Good Life
Fractional ownership of second and vacation homes brings new opportuntities to practitioners.
July 1, 2008
You have clients who’d love to buy a luxury vacation home on a stunning mountain range or a sparkling lakefront. But the asking prices of $1 million or more are simply out of range. Before you decide there’s no way you can help them reach their dream, consider what fractional ownership might do for prospective buyers on a budget.
The seven-year-old American Fork, Utah-based GrandShare specializes in fractional ownership, putting cabins, condos, and other amenity-filled dwellings for sale to multiple buyers. Unlike a time-share where access, rather than actual property, is being sold, fractional investing as devised by GrandShare is a one-stop shopping process with the backing of lenders and other real estate support specialists.
In a fractional transaction, buyers typically buy a one-fourth portion of a property. (They don’t have to know the other owners.) A $1 million second home costs each buyer just $250,000. For that price, owners can use the home for three months a year and rent out any weeks they don’t use. The buyers receive deeds for their shares and build equity. If one owner defaults, the shares owned by others are untouched by the foreclosure process.
GrandShare uses MLS data to find and purchase properties being offered as fractional sales and homes it can convert into fractionals. The process offers opportunities for involvement by real estate professionals.
“We understand the value that real estate professionals bring to transactions,” says Mark Chesney, GrandShare founder and chairman. Real estate practitioners can serve as a listing agent for property GrandShare initially buys outright or as GrandShare’s representative when the property is resold fractionally to a group of buyers. GrandShare also pays referral fees to salespeople who bring the company clients.
“These days, a million-dollar house can sell faster as $200,000 shares than at a full million,” Chesney says. “Our process offers a great hedge in this unpredictable market. Buyers are not fully exposed to risk as they would be with full ownership, yet the investment offers significant upside potential.”
He expects that second-home owners may be enticed to put a property up for sale fractionally if the carrying costs have become a financial burden or if they use it infrequently but still want to keep a stake.
Fractionals create more complicated transactions than other sales because of the co-ownership arrangement. “That’s what we’re here for. We help real estate professionals write the contracts along with many other details,” says Chesney.
For more information, visit www.grandshare.com.