Fractional Ownership is a middle ground solution to second home ownership. It is between whole ownership, with sole responsibility, and time shares where you purchase restricted time, not the real estate itself. With Fractional Ownership, you own an "undivided fractional fee simple interest" in a property which can be passed down through generations or resold.

The Fractional Ownership concept has been used in many ski resort areas out west for more than 20 years. It is similar to you and several friends or family members owning a home together, however, there are documents governing the use and management of the home.

Owning real estate fractionally gains popularity with each passing year, since the pricing and convenience are proportionate with the use and enjoyment of the property. This makes a second home truly a vacation, instead of a second job. You can go there knowing that everything will be as you expect it to be.

Industry research by Ragatz Associates, a resort industry research firm, shows that the amount of Fractional Ownership properties has been increasing at almost 100% per year for the last several years. It doesn’t appear that this trend will slow down as the Baby Boomers’ numbers increase while the supply of luxury homes is limited by the lack of additional prime locations. In 2003, Fractional Ownership was a $513 million industry; in 2004 it was $1.1 billion.

A recent survey shows that the average vacation home owner uses their home for less than two months per year. Owning and paying only for the amount of use of a vacation home is an economic concept that just makes sense.

What do I own?

With Fractional Ownership, you own an "undivided fractional fee simple interest" in the property. You receive a deed to an interest in real property similar to the purchase of other real estate. The deed will evidence the Fractional Ownership Interest, e.g., a 1/6 undivided tenant in common ownership interest.

An owner is able to resell, gift or will this fractional ownership interest in real estate, subject to an agreement with the other owners, similar to if it was a whole ownership interest in real estate.

The documents require that an owner offer to sell the fractional interest to the other owners prior to listing or marketing their interest for sale. This simply gives the other owners the right of first refusal. This is not required in the case of estate planning.

Who will own the property with me?

People that have been interested in the property thus far are all professionals, most own a second home already. Some are retired or about to retire, others are younger families. They all have many restrictions on their time due to their personal and professional obligations. They are interested in owning a beach home, as they tend to, or would, spend time here as it is, and want the convenience of owning their vacation destination. They are attracted to the fractional concept due to the shared responsibility for the property.

Can I buy more than one share?

Yes; you can buy as many shares as you like.

Can I buy a share with someone?

Yes; you can buy a share with a friend, family member or business associate. Each of your names would go on title, and you would be treated as one entity by the management company and other owners. It would be up to you how to split the use and responsibility.

How much time will I get each year?

You are entitled eight weeks per year to use the home. We have proposed a plan of usage based on successful fractionally owned properties in other locations. It allows for weekly rotation from Saturday to Saturday.

Once we have a majority of owners ready to purchase, we will poll them on the reasonableness of the calendar. If the group wants to change the calendar, we will. For instance Sunday to Sunday may work better for everyone, or a two week rotation in the summer instead of one week, or one owner may want an entire month each year that the other owners don't care about. We'll create a new calendar that accommodates as many special requests as is possible.

A calendar will be attached to the sale documents governing use for the first six years, after which the calendar can perpetuate.

Because of the small number of owners, potential conflicts in family and business schedules may be able to be accommodated through the cooperation of all owners.

Are there other methods of allocating time?

Yes; should the owners not want the rotating calendar, the owners may determine the method for allocating usage as suits their pleasure.

Another commonly used method of allocating usage is based on priority. There are two options here:

Prime Time: Each owner will be assigned a number from 1 through 6. The year is broken into prime 12 week periods for summer and the rest of year. Number 1 would have first choice in the summer and last choice for the rest of the year. Number 6 would be just the opposite. The numbers would rotate so that all owners would have equal opportunity for their choices over a six year cycle.

Draft: Each owner will be assigned a number from 1 through 6. At the beginning of each year, or each twelve week period, Number 1 would pick a week or more depending on the arrangement, then Number 2, etc. Once Number 6 has picked their time, Number 1 would pick again. This would continue until all weeks have been allocated. The numbers would rotate annually so that all owners would have equal opportunity for their choices over a six year cycle.

Because of the small number of owners, potential conflicts in family and business schedules may be able to be accommodated through the cooperation of all owners.

What if I cannot use my week?

Should you not be able to use one of your weeks, you can let friends or family use your time. You could, but are not required to, offer it to the other owners.

What if I want a week allocated to another owner?

It is common that usage time is swapped among owners of real estate owned fractionally. The calendar is published, so you can figure out who has a particular time slot that you want. Simply contact them to arrange a swap.

Because of the small number of owners, potential conflicts in family and business schedules may be able to be accommodated through the cooperation of all owners.

Can I rent out my weeks of ownership?

Currently, the documents do not permit renting of the home. The luxurious level of quality furnishings in the home are above the standard usually seen in rental properties. Renting could potentially diminish this level of quality.

Collectively, should the owners want to rent it, they can agree to do so and modify the documents once they determine the best way to handle the rentals.

Is maid service available?

Yes; the annual budget includes weekly cleaning and an annual 'deep-clean' service. A maid will clean the home after your visit. Should you desire maid service during your visit, that can be arranged directly with the maid service.

What about smoking and pets?

Currently, the documents do not permit pets or smoking. Should the owners collectively want to permit pets or smoking, the documents can be modified.

How is the home managed?

There is no requirement for third party management. The owners may manage it themselves or contract with a management company.

We have interviewed area management companies, and believe the Platinum Services would do the best job. They will collect the money quarterly from all of the owners, pay all of the bills, arrange for maid service and maintenance on the property, and ensure that the property is properly maintained.

Will I have access to all the resort amenities?

Yes; Sandestin offers so much to owners and guests. Click here to link to more information on Sandestin’s amenities. You must join the Sandestin Owners Club to have access to the amenities. They can be reached at 850-267-8208.

What do I have to pay annually?

The annual amounts to be paid are based on an estimated annual budget. Currently the budget includes all items required to maintain the home. Budgeted expenses include taxes, insurance, association dues, swimming pool dues, utilities, telephone, cable, alarm monitoring, property management fees, maid service, and maintenance reserves. Click here to see a copy of the budget.

Each owner will be responsible for 1/6th of the annual budget to be paid quarterly. The current budget stands at $30,000 per year or $5,000 per owner. You will pay $1,250 every three months.

Can I sell my share of the home?

Yes, just like any other real estate. The documents provide for offering a right of first refusal to all other owners before selling your share. You could offer it for sale yourself or list it with a realtor of your choice.

Can I finance my purchase?

Yes; owners may finance their respective interests. This does not encumber the whole house, only the individual interest being financed. While financing is usually obtained with home equity loans on a primary residence, other financing is available. We can put you in touch with lenders that have visited the property and agreed to lend on fractional interests.

Is Fractional Ownership a "Timeshare"?

It depends on, among other things, the definition under applicable state law. Properties typically offered for Fractional Ownership are considerably more upscale and offer substantially more usage than a traditional timeshare; additionally they may be much more flexible because of the small number of owners.

Can the purchase satisfy 1031 exchange requirements?

While you need to check with your attorney and accountant, real estate owned fractionally can fulfill 1031 exchange. In March, 2002, the IRS issued Revenue Procedure 2002-22 which rules that undivided fractional in real estate will be considered an interest in real estate and not in a business entity.

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