Partial ownership condo

[tfezell]

Does anyone have any experience with this set up? I am currently persuing the opportunity to purchase 1/6 of a beach condo. This is not a fractional resort so to speak, but a privatley owned cond, cost split between 6 parties. There seems to be good guidlines established as to paying expenses, sharing time, etc. I just wanted to hear from someone who may have experience with this type of ownership. I feel good about it, but I do not have personal experience or know anyone closely that does.
Please share the good bad and ugly if you have any information.

 

[bizaro86]

I would recommend that you also have in your agreement a procedure for how and when to sell the condo. What will you do if one or more members want to sell, and the others do not? What if the one's who don't want to sell can't afford to buy out the ones who do?

Lots to think about,

Michael

 

[tfezell]

Yes, Michael I thought of that also.
Basically it is on the owner to sell his part, just as you would sell a single family dwelling, if no current partner wishes to buy him out. So he has to list it, and stay in until it sells. He can also set his own sales price as he sees fit (within a range and approval of the other partners.) Everything seems to be set up as a single ownership of a condo when it comes to the legal aspect such as a mortgage, but with multiple owners to share the cost and maintenance.

I know there are so many things to consider - that is why I am seeking advice of those who have gone before me. I am sure I will have a moment if we buy that I will said, wish I had thought of that!

thanks for your help, all is appreciated.

 

[lprstn]

My DH is a realtor and runs into this fairly often in beach dwelling areas. This is common in certain areas and usually works out pretty well. The stipulations of the agreement is handled through a 3rd party and usually spelled out in the purchase contract. You should be fine.

 

[glenmore]

We own one-fourth of a condo in Myrtle Beach and love the arrangement. If one partner decides to sell, it is their responsibility to find a buyer. This has happened twice in the past two years (we were one of the newbies to buy in).

Our condo is in the name of a partnership and each partner is listed on the agreement. One partner takes care of all the bills and collects the monthly fee which covers all expenses. There is enough additional money that when we meet once a year, we decide on a project (e.g., new tile, carpeting, furniture, tv, appliance, etc.). This same partner issues a financial statement each year.

We are very fortunate that we have very agreeable partners. Thus, when we have our annual meeting, we only assign summer weeks - each partner gets 2 summer weeks. We rotate Easter week, Thanksgiving, and Christmas week. The rest of the weeks are assigned on a "first come, first serve" basis through email. If a partner has a week on the calendar and they cannot use it, they will send out an email and let the other partners know in case they would like to use that week.

We do not rent the condo. It is only for the use of the partners and their family and friends. This saves considerably on the wear and tear of the unit.

I think one of the key factors in the success of such a venture rests squarely on the congeniality of the partners. If you enter such a venture with people who are polite, considerate, and very easy to get along with - you will enjoy it tremendously!

 

[tfezell]

Just what I wanted to hear Glenmore. I seriously think we are going to do this.

 

[tombo]

My parents own 1/6 of an oceanfront 3 bed room on the Florida panhandle and it has been great. They bought from a previous 1/6th owner over 20 years ago and have never regretted it. Each couple pays about $200 a month for electricity, water, cable, phone, insurance, condo MF's, etc. What a deal! They get 8 or 9 weeks a year (depending on how the calendar falls) for about $2400 a year. That is about $300 a week for a 3 bed room condo ocean front condo.

With 1/6th olwnership you are guaranteed at least 2 good summer weeks. The owners drew names out of a hat years ago and said Tom week 1, Bill week 2, etc. After the 6 each had their week they started over again in the same order. You know a year or years in advance what weeks you have and they never have changed the order. If you luck out an get 4th of july or Christmas, great, but there is no complaining. Sometimes owners will swap with each other for a particular week but normally the weeks are set for now and forever in the future.

They bought in for $25000 over 20 years ago and the last person who bought in paid over $100,000 for their 1/6th. The group has rules like no pets period, no renters, any potential buyer has to be approved by a majority vote of the owners, current owners have the right to buy any week for the same price that anyone else has offered (ROFR on a small scale) , and all refurbishing or purchases have to be approved by a majority vote. Each owner leaves a check for the cleaners (they all must use the same cleaning company and can't clean it themselves) as they leave and must be out by 11 am on Sunday so the next owners can arrive no earlier than 4.

There have been some minor disagreements through the years, but only 2 owners have sold in the last 20 years, and one of those sales was purchased as a second 6th by a current owner. The hardest thing in this arrangement is getting 6 different women to agree on paint, furniture, wallpaper, appliances, etc when they replace items due to wear and tear. My parents and the other owners are getting up in years, so I hope the situation will stay good as the kids start taking over ownership. From my family's experience it is a wonderful investment and something I would gladly buy into if I could afford $100,000.

 

[tfezell]

Thanks for the information Tombo. I was hoping to hear good things about this ownership opportunity. I hope this works out!

 

[glenmore]

Since we only have 4 partners, the question of leaving it to our children came up.

As most of us have 2 children, we didn't want to see the partnership expand to 8 partners. So we revised our agreement that if a partner left their share to their children (as in 2 or more) one person had to be designated to make all reservations, pay the monthly fee, etc. We all feel that it is so easy to deal with only four partners; we wanted to keep it that way, if possible.

We also have the no pets as well as no renters, and we pay a cleaning fee each time we leave too.

Hope your venture turns out as well as ours had - it's been a great investment in time enjoyed by the whole family.

 

[caribbeansun]

Be aware that this will significantly limited your liquidity. It would be better for the group decided that they would vote on selling every 5 years. Also consider what might happen should you "get hit by a bus" - how would your estate realize on the capital invested without such a provision?

These arrangements can work out provided EVERYTHING is spelled out in great detail. As a minimum it should include the following:

- liquidity provision per above
- right of first refusal for other owners to purchase a selling interest (optional)
- right of remaining owners to approve a new owner
- shotgun clause to buyout an owner
- process to be followed in the event of a divorce
- process to be followed in the event of the death of an owner
- usage entitlement
- manner inwhich reservations are to be booked that is equitable and fair to all owners
- financial obligations and expectations for all owners
- insurance requirements
- resolution mechanism in the event of non-payment of annual costs by one or more owners
- indication of who will do the accounting and reporting to the group as a whole

Yes, Michael I thought of that also.
Basically it is on the owner to sell his part, just as you would sell a single family dwelling, if no current partner wishes to buy him out. So he has to list it, and stay in until it sells. He can also set his own sales price as he sees fit (within a range and approval of the other partners.) Everything seems to be set up as a single ownership of a condo when it comes to the legal aspect such as a mortgage, but with multiple owners to share the cost and maintenance.

 

[tombo]

Be aware that this will significantly limited your liquidity. It would be better for the group decided that they would vote on selling every 5 years. Also consider what might happen should you "get hit by a bus" - how would your estate realize on the capital invested without such a provision?

These arrangements can work out provided EVERYTHING is spelled out in great detail. As a minimum it should include the following:

- liquidity provision per above
- right of first refusal for other owners to purchase a selling interest (optional)
- right of remaining owners to approve a new owner
- shotgun clause to buyout an owner
- process to be followed in the event of a divorce
- process to be followed in the event of the death of an owner
- usage entitlement
- manner inwhich reservations are to be booked that is equitable and fair to all owners
- financial obligations and expectations for all owners
- insurance requirements
- resolution mechanism in the event of non-payment of annual costs by one or more owners
- indication of who will do the accounting and reporting to the group as a whole

My parents have all of the above in their owner's agreement which a lawyer drew up. When a new member buys they have to sign an agreement obligating them to the rules.

One thing another person mentioned that I wouldn't like is assigning weeks on a first come first served basis. My parents condo has the weeks they get to use fixed forever, they can look out 3 years and see what weeks they will have. It was drawn out of a hat, Bill first week, Sally second week, etc until the 6th owner had their week. Then the 7th week is name Bill's week, week 8 is Sally's week, etc forever. No arguments that Sally got 4th of July or Presiden't week or Spring break 3 years in a row. No problems with the adminstrator giving preferential treatment ot another owner. Some people can plan way ahead and some can't depending on their job. If it is set in stone what weeks everyone has then there can not be any complaints. They can always swap a week they can't use for a week they need with any owner that they can get to agree to swap with them.

As far as the heirs no matter how many children you have the estate leaves 1/6th to whoever they want, however they want. If they leave it to 4 kids, they still only have one vote, they still only have the weeks pre-ordained decades ago to use. However the heirs want to divide up their usage is up to them, the actual weeks available for them to use was decided a long time before they became owners. If 2 children want to buy out the other 2, that is totally between them as it makes no difference to the other owners or to the way their fractional condo operates.

As I said I never remember a disagreement in 20 years other than what color paint, flooring, furniture, appliances, etc to buy during renovations. Of course I can easily understand this as the same thing happens at my house, and there are only 2 of us that have to come to an agreement.

 

[Teresa]

Cover all the possible 'problems' in your agreement

Unexpected problems can crop up so you need to address those while you are all 'business FRIENDS'.

Think of all the things that can go wrong. For instance,

Someone dies (who's going to find a buyer for their interest?).
Someone loses their job (and can't pay).
Someone loses interest (yes - it's their responsibility to find a new owner but what if they don't?)
Someone stops paying their monthly costs (hostile or not).
Disputes between parties (imagine some strange ones)
Damages caused by users (whether owners or their guests). Disputes (I didn't do this, yes you did).
You get the idea.

You should even have a clause somewhere to cover 'if there is a problem that is not in this agreement, then .........'

The best time to hammer out what to do if there are problems is BEFORE the problems happen and you're all friendly and excited. It's very hard to think clearly when you're embroiled in 'issues'. Don't be lulled into thinking that you are entering into this with 'sane' people. When everything is exciting and new it's hard to imagine that there will be ANY problems.

Also, I would be concerned about one owner being able to buy other owners' shares. It could happen that one owner owns 5/6ths of the 'project' and that other owner is dangling out there without any chance of out-voting bad decisions made by the 'group'.

 

[caribbeansun]

I disagree - this goes directly to the point of liquidity and the problems with minority ownership in anything - the majority can, within reason, have their way on things. If you owned 1/6 vs. 5/6 I would suggest that you wouldn't find another buyer to step into your shoes because of this very fact. That lack of liquidity is a killer and your opportunity to get market value for your share is likely none existent. Given that you would definitely want to be bought out. In fact you probably should have tried to get out much earlier rather than being the last one left since by that time it's likely too late.

Also, I would be concerned about one owner being able to buy other owners' shares. It could happen that one owner owns 5/6ths of the 'project' and that other owner is dangling out there without any chance of out-voting bad decisions made by the 'group'.

 

[tombo]

I would never buy a timeshare or fractional ownership with the thoughts of liquidity or profit. It is a purchase that you make for vacations at reduced prices.

If you own at a fractional condo or a timeshare you can get outvoted on anything at anytime. There are voting blocks in timeshares by owners who are active, and there can easily be cliques in a small group of owners. 4 owners can band together and control the whole condo. Of course if the rules were drawn up fairly there is only so many things that can be done by vote anyway. Plus if someone owns 2/6 or even 5/6 of the condo and votes to renovate, they will have to pay 2/6 or 5/6th of the total bill. You would be more likely to have a majority owner refuse to renovate because of the expense to them unless they are wealthy. If you want to make sure that everything goes the way you want, buy your own condo and you can be sure that everything will go your way.

If you are worried about return on investment or market share I hope that you don't own timeshares. I am not an owner of a fractional and I can't speak for all fractionals just the one my parents own. I own over 20 timeshares and most are very hard hard to sell for what you paid for them if you got them cheap resale. If you bought retail you are going to take a financial whooping.

My parents purchased over 20 years ago for $25,000. The last person who bought 1/6th paid over $100,000. There are currently 2 people on a waiting list hoping someone will sell for around $100,000 because they will own 1/6th of a condo that is currently selling for about $800,000 at this resort. My parents have had 20 plus years of staying 8 weeks a year at about $300 a week and they could sell right now for a $75,000 profit. I would love to see someone have success like that with a timeshare.My parents willnever sell for any price because they have watched their grandkids grow up at the beach year after year, and they want to leave it to us so their great grandkids can do the same. All of the owners are still friends and I can't imagine telling friends that they couldn't own another week to let in a stranger to the group.

Anyway it has been super for my parents and the only reason I started timesharing was because I couldn't afford $100,000 to buy in there or with friends somewhere else, but I can afford timeshares. I can always stay there with them, but they are still healthy and I want them to enjoy their weeks there together as long as they can. They are there now and called me tonight talking about how they will never get tired of sitting on the balcony at night listeniing to the waves. I hope they have another 20 years of enjoying the sound of the ocean from their balcony.

 

[caribbeansun]

I think ignoring liquidity is dangerous - liquidity is always important. People's situations change and they may need out for reasons totally beyond their control.

I'm glad things have worked out for your parents so well and indeed one would hope you'd never need liquidity BUT I sure would want some way of realizing on things should the need arise.

Consider death with heirs that don't want the property, consider divorce, consider economic hardship (loss your job after many years with little option for replacing the income), consider sudden disability as the result of an accident and so on. You ignore these potential scenarios at your own risk - I wouldn't want to leave myself completely exposed to these risks. Granted if we were only talking $25,000 I wouldn't be overly worried but if we are talking about $250,000 I'd likely pay a bit more attention.

I never ignore the investment merits of a purchase such as this (condo vs. TS) - after all I'm allocating resources away from income generating opportunities. I'm quite prepared to factor in non-financial considerations such as family memories, great vacations etc. but again to completely ignore the fact that there may be other opportunities isn't reasonable for me. It's not to say I'm constantly looking at this but I do revisit the decision about once every five years or so.

I don't really think comparing ownership in a condo to a TS is appropriate - two entirely different animals (a condo in my mind is a real investment whereas a TS has no real investment qualities). Having said that I've bought and sold numerous TS over the years and I've never lost money on any that I've purchased (even the first one I bought from a developer) and I've actually made money on most while enjoying excellent vacations along the way so there's obviously different approaches to be taken to everything.