In our slow market, several property owners feel that they can get more money if they divide their condo or their home into fractional interests. I received an e-mail this week from a waterfront owner in Tampa who wanted to sell 3 three-month interests in his property, and maintain one three-month interest for himself.
I haven't responded, because I don't have the expertise (yet) to handle these situations. If it were a condo, the condo association and their rules would probably determine whether this can be done. In a single family - what about the zoning requirements of a "single family home"? The zoners probably never considered four different one-at-a-time owners. What about deed restrictions? Who's going to control the expenditures? Is it "Not a security" if none of the owners expect income from renting out all or part of their 3 months? What if only 2 or 3 of the shares sell?
Sounds like lots of issues and concerns. I'm wondering if any of you have been involved in these situations, how they were structured, and what the outcome was.
I guess it could work like a longer term time share? But someone need to be in control. Interesting concept.
Hey there Sharon, this is something cropping up here as well.( saturation of Million plus homes- trying to find joint owners to slip ownerrship )
No direct experience but we have had some discussions as an office regarding the pitfalls (insurance for one). Ironically, there is a wonderful article which I have passed to my BIC- I will try to get it back. It speaks of a man that opened his own business that runs like a "club"- basically buys weeks (like a timeshare idea) to mansions in places like Aspen and Paris- this 'Club' gets to swap arouund their weeks and etc. I almost think it was Money magazine- I'll see what I can do to track it down.
Going back to your post-We have been selling to "groups" of investors for quite a while. The one thing that makes this different is they arent likely to know each other so personalities and opinions of intent will arise much faster when you mix owners IMO. The other hurdle is the seller may be biased or descriminating in accepting his new "partner" . (hypothetically of course- I am sure there are ways to make this work well..just too new and foreign to the markeplace right now)
I'd be curious how this ends up...never heard of it before with homes but have with Motor Home ownership.
Sharon,
I've seen others doing it here as well. Another one I've seen are the splitting of duplexes into condos. I always wonder who gets to decide on maintenance, problems, lawn care, etc in cases like that. There's no association to dictate such things.
Maybe setting up an LLC with rules & regulations & have each partner agree to those outlined terms. Obviously a condo association would have to approve such instrument but that may be a possibility - at least help legally.
Kee us posted...has anyone consulted a real estate attorney?
Teri - I know that most of the fractional interests are sold with the intent of the owners renting out their shares, and that is a security here in Florida. I just didn't know if no income was involved, if it was still a security.
Michele - I hope you can find the article - would enjoy reading it.
joanne - I'd like to see more attorney involvement as well.
Yes, if I hear or learn more, I'll be sure to post it and let you all know.
Thanks for your comments.
Well, there are a lot of ways to pave the road to the courthouse.
This is one of the surest ways I've ever seen. I hope they save the money they collect for the "shares" because they'll need it to pay their attorneys.
Lenn
Wow, that's a radical concept and one that should keep our interest here. I've never encountered anyone doing this. I would think the legal ramifications would be daunting. But who knows?
http://www.forbes.com/business/forbes/2006/1225/068.html Forbes
http://users1.barrons.com/lmda/do/checkLogin?mg=evo-barrons&url=http%3A%2F%2Fonline.barrons.com%2Farticle%2FSB114869210443564948.html%3Fmod%3D9_0031_b_this_weeks_magazine_main Barrons
Here are some related articles, still fishing for the really interesting one of the fella that is making a club out of the joint elite owners.
Sharon,
Thanks for the post. Would it no make more sense for the seller to form an LLC? Advertise that the LLC is looking for partners in this venture. The interested parties would provide the down payment and closing cost funds and have the property purchased by the LLC.
Sharon,
Quarter-shares have become popular in my resort market. All of these properties are condominium units, and the management and ownership rules are set forth in excruciating detail in the condo master deeds. Although four quarter shares are more costly than a whole ownership unit, the price entry point and continuing operating expenses are much less.
Sharon ~ when times get tough, people get creative. I think you are wise to bone up on the particulars before you talk to your prospect. It looks like it could be both a good and bad idea, depending on how much regulation one anticipates.
kk
Sherman - thanks for the many rich links to information.
Michele - thanks for looking up the Barron's article.
This is an old post, but I have a realtor friend that has an attorney brother who does fractional sales. Next time the situation arises, I will refer my friend.
Jeanine - it's always a good idea to have experts you can call on.