Fractional Real Estate Ownership may be the answer to making luxury second home ownership affordable! With fractional ownership, a costly vacation home is jointly owned with a group of other people; each owns a percentage share of the asset (ie; 1/6) and has defined rights (deeded rights) and privileges pertaining to its utilization.
Fractional ownership offers you, the "share owner", dependable access to the real estate you want, but are not inclined to pay for 365 days a year. In addition, all maintenance, management, upkeep and repair costs, taxes and insurance are shared among the "share owners".
Already successful in many parts of the world, fractional ownership is relatively new in Montana.
There are four primary options for funding the purchase of fractionally owned real estate.
- Cash -- Purchase your fractional share outright (Obvious, but also the easiest for all parties involved).
- Asset Transfer-- Tap the equity in your primary residence, stock portfolio, or other assets (By cashing out of an existing asset, you avoid the need to explain you new investment to a bank).
- Obtain a Mortgage from the Property Seller's Lender-- The property being sold is often under the construction or short-term financing of a local bank. In some cases, the existing lender may welcome the prospect of having a portion of the debt transfered to a new borrower (Spreading the risk). In this case, you could obtain you mortgage from the same lender the seller used to build or purchase the property.
- Obtain a Mortgage from a Third Part Mortgage Lender or the Seller-- The developer / seller, and private investment firms may offer purchase mortgages to buyers of fractional properties, especially when arrangements have been made in advance by the developer / seller.
The Seller's Realtor will know the availability of this type of financing, if it exists for the project you are interested in. For this type of financing, a investment prospectus would have been prepared for an individual, or group of investors, and a pool of available money will have been created to facilitate new loans. The specific real estate project that is eligible for the third party mortgage lender financing would have been approved in advance by the investors. In other words, the loan would not be available for a "unique" fractional purchase transaction. Terms would typically be 3 or 5 year balloon notes with 25-30 year amortization schedules. The loans would be renewable every 3 to 5 years and the interest rate would be based on a leading public index, such as the LIBOR.
David Boye ( daveboye@gmail.com) has researched this method of financing and is equipped to assist a developer in the creation of mortgage loans and the acquisition of investors for a developer's specific project.
There used to be a few national lenders that were in the business of providing specialized mortgage products to finance the acquisition of fractional ownership properties. Examples were NextStar Funding, Vacation Finance, and a few select others. However, due to the recent constraints placed on the credit markets and the banking industry, these lenders have ceased taking on new real estate projects. At this moment, these "secondary market" lenders are only servicing existing loans and projects already approved for financing. |
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