Vacation Homeowners Turn to Fractional Sales Tactic

With credit markets still tight in the United States, owners of vacation homes and second homes are turning to fractional sales as a way to cash out some of the equity in their homes without applying for a (now hard to get) home equity loan, and without necessarily even giving up the house.

Buying investment property in fractions may not not be the best way to go, but for investors looking for property for sale in hot vacation spots, buying a fraction of a luxury home can be cheaper than a condo or even a month at a spa.

Buying a fraction of a property is different from buying a time share mainly because with fractional buying, the new buyer’s name is actually added to the deed. Different states have different requirements, but typically you must occupy the home for some minimum amount of time each year (that constitutes your ‘fraction’ of the ownership). For instance, in Florida, that period of time is two months. In practice however, most successful fractionally-owned vacation homes are more flexible than that, with the owners working out schedules amongst themselves how they see fit once the deal is closed.

Buying a fraction is not as easy as buying a home outright. Financing is not generally available, although some owners are starting to offer owner-financing to attract buyers. (Banks are understandably not crazy about fractional selling.) Buying with cash is a more realistic option. Cash is always welcome in the new (and growing) world of fractional vacation home sales.

This home on the Florida Gulf is available for $149,000 per fraction at the owner's website www.gulfowner.com

The main benefit of buying a fraction of a vacation home is luxury and affordability. If you can buy a two month fraction of a luxury beachfront home more inexpensively than you can stay at a five star hotel, why not do it? With the fractional purchase, there’s the possibility that your initial investment will appreciate. That certainly doesn’t happen when you drop thousands at a Hilton year after year.

On the down side, fractional buying can become exactly the headache it sounds like it can become. If you find you can’t stand the other owners,  or if you can’t get the property when you need it, hard feelings will rear their heads. Another problem is that many of the hottest areas for fractional selling are also areas that have been hard hit by the recession. As property values continue to tank, you may well find that buying your own slightly less luxurious vacation property is just as affordable, (and you don’t have to share it).

Fractional selling is taking off right now because people are having trouble selling luxury homes, and also because some people who can no longer afford to keep their luxury second home (it’s rough all over, isn’t it?) hope they can hold on to at least  a couple of months a year there by selling off fractions and retaining one for themselves.

Time will tell if this strategy pans out. So far, sellers who put their properties up on fraction report getting more inquiries about how to sell on fraction than on how to buy into their home.

That alone tells you a little something about the viability of the idea.

But if you want big luxury at a fraction of the big price and can pay cash, it just might be your lucky break.