Co-op DC: Fractional fractional ownership

[smbrannan]

In order to get a co-op DC off the ground, would it make sense to buy into fractional ownership at a larger number of locations. I.e. rather than buying a single condo in one golf location, it might buy a quarter share at 4 different locations.

This has the benefit of giving members more choice of locations to visit, but of course it means less choice of when the resorts could be visited.

Also, I think buying 4 1/4 ownerships at four locations would be more expensive than a single full ownership at a single location. This could limit the potential appreciation in the value of the underlying properties.

Any views????

 

[Steamboat Bill]

If you have 8 members per one 1/4 ownership...what is 1/8th of 1/4?

1/32..which is still better than 1/52

 

[PA-]

In order to get a co-op DC off the ground, would it make sense to buy into fractional ownership at a larger number of locations. I.e. rather than buying a single condo in one golf location, it might buy a quarter share at 4 different locations.

This has the benefit of giving members more choice of locations to visit, but of course it means less choice of when the resorts could be visited.

Also, I think buying 4 1/4 ownerships at four locations would be more expensive than a single full ownership at a single location. This could limit the potential appreciation in the value of the underlying properties.

Any views????

4 quarter shares would be FAR less expensive than 1 full share, unless you are talking about a developer purchase. Timeshares depreciate, whole owned condos appreciate. So if you are talking about an existing condo, a whole share is more expensive.

 

[smbrannan]

4 quarter shares would be FAR less expensive than 1 full share, unless you are talking about a developer purchase. Timeshares depreciate, whole owned condos appreciate. So if you are talking about an existing condo, a whole share is more expensive.

So the market price for 4 quarter-shares of a condo is lower than the market price for whole ownership. That makes sense because the quarter share provides less flexibilty to the owner. But developers price quarter-shares higher than one-fourth of the price for a full unit, don't they. Why is this?

And if you buy a resale, quarter-share is there still the same appreciation potential (on a percentage basis) as there would be if you bought a resale full share?

If the answer is yes, then this seems to be a viable option for a DC to offer a wide range of locations to the initial investors.

 

[caribbeansun]

Quarter shares sell for more because there's more marketing and administration required than there is for a whole ownership unit.

IMO quarter shares do not have the same access to appreciation as whole ownership. Mind you the quarter share resale market isn't mature so this could change.

Quarter shares tend to be viewed more like a bundle of timeshare weeks rather than as a real estate investment and I'm sure different properties display different characteristics as far as appreciation is concerned.

Personally I wouldn't want to put a lot of money into quarter shares.

 

[hipslo]

Quarter shares sell for more because there's more marketing and administration required than there is for a whole ownership unit.

IMO quarter shares do not have the same access to appreciation as whole ownership. Mind you the quarter share resale market isn't mature so this could change.

Quarter shares tend to be viewed more like a bundle of timeshare weeks rather than as a real estate investment and I'm sure different properties display different characteristics as far as appreciation is concerned.

Personally I wouldn't want to put a lot of money into quarter shares.

Assuming that the whole really is worth much more than the sum of the parts, what's to prevent folks from purchasing, resale, 4 quarter share units in a unit? (I understand it could take some time to be able to do that, as this is not a liquid market, but assuming one had the patience it could be doable). Wouldnt they then own the equivalent of a whole unit for a fraction of the cost? These sort of market inefficiencies are exploited every day by buyout artists in the public equities markets, including as to REITs. What's to prevent astute buyers from doing the same sort of thing in the fractionals market?

 

[PerryM]

Not worth it?

Assuming that the whole really is worth much more than the sum of the parts, what's to prevent folks from purchasing, resale, 4 quarter share units in a unit? (I understand it could take some time to be able to do that, as this is not a liquid market, but assuming one had the patience it could be doable). Wouldnt they then own the equivalent of a whole unit for a fraction of the cost? These sort of market inefficiencies are exploited every day by buyout artists in the public equities markets, including as to REITs. What's to prevent astute buyers from doing the same sort of thing in the fractionals market?

Problem is that the 4 quarter shares come with eye-watering MFs that a whole ownership condo would not have. I don't know what would be involved in merging the 4 fractions together and converting it into whole ownership - I'm not sure the HOA would give any discount in MFs since it still is used as a fractional.

 

[hipslo]

Problem is that the 4 quarter shares come with eye-watering MFs that a whole ownership condo would not have. I don't know what would be involved in merging the 4 fractions together and converting it into whole ownership - I'm not sure the HOA would give any discount in MFs since it still is used as a fractional.

Thats a very good point. However, if the discount on the purchase price were sufficiently large, it could still be a good deal, potentially, depending on the disparity of mf's between a whole ownership condo and 4 fractional interests. Also, if fractionals are like TS in this regard (and I dont know whether and to what extent they are), a number of other expenses that are not included in a regular condo mf would be included here - such as insurance, property taxes, and utilities - perhaps lessening the impact of the disparity. Just a thought, and perhaps worth looking into, I dont claim to be an expert on fractionals.