| What is Vacation home fractional ownership? |
| Vacation home fractional ownership is an arrangement where more than one person owns a vacation property together and shares the costs and use of the property. Each fractional owner owns a percentage of the property on title and there is a legal co-ownership agreement that defines usage times /rights, costs and responsibilities among the co-owners. |
| Why co-own and share a vacation home? |
| Although many people dream of owning vacation property, most either can’t afford the type of property they want, or reason that they would not use the vacation home often enough to justify the expense. Fractional ownership provides a solution to these problems by allowing you to pay only a fraction of the costs and ongoing expenses of vacation home ownership, and share the risks of unforeseen maintenance problems with others. Of course, in exchange for spreading the costs and risks, you give up some of the usage rights and freedoms that you would have if you owned the property alone. But job and school commitments prevent most people from using a vacation home for more than a few weeks or months each year, and some loss of freedom and control is often an acceptable sacrifice for the huge cost savings. |
| How much does is cost to become a fractional owner? |
| This varies significantly depending on the value of the property and how large of a fraction you choose to buy. California Fractional Properties has developed a Preferred Pricing structure that allow you to design your ownership based on how much you want to spend and the times you want to use it. You can expect to spend from the low $200,000 - 500,000. Keep in mind that you are buying an Estate style Coastal Property that would cost you $2,000,000 – $5,000,000 by yourself. You hold Title and will capitalize on any appreciation. |
| Is there financing available? |
| Yes. Aside from a cash purchase, home equity loans and first home refinancing, there are also lenders who have created new mortgages on fractional shares. California Fractional Properties is currently working with a team of lawyers and bankers to develop more financing options. We will gladly put you in touch with lenders who can facilitate all of these options. |
| What are the estimated monthly expenses? |
| The monthly costs vary by property. During the due diligence and inspection period of the purchase process a complete breakdown of the estimated costs will be provided. To avoid disputes and cash shortfalls, it is absolutely essential to collect co-owner payments based on a budget and regular assessment system rather than "as needed". This means that at the end of each year, all of the expenses for the following year are estimated, including property tax, insurance, maintenance, repairs, improvements, utilities and management, then an amount is determined that will be needed from each co-owner to pay the bills. The anticipated expenses include some reserves for long-term recurring expenses such as painting, roofing, system upkeep, and furniture & appliance replacement. The amount required from each co-owner is then divided into equal quarterly payments, and each owner is required to contribute their payment on schedule. All of the Homes California Fractional Properties represents are set up and designed to be first class resort style retreats. The costs will be far less than if you owned the entire property, however they will be sufficient enough to maintain the utmost integrity of the property you are buying. |
| Are payments on a shared vacation home tax deductible? |
| Tax treatment of vacation homes depends on how often the property is used for "personal use" and how often it is used as a "rental". There are three possible tax treatments, each with their own rules on tax deductions: "Pure Second Home", "Pure Rental Property", and "Second Home/Hobby Rental". You qualify for "Pure Second Home" tax treatment if the property is a "rental" for no more than 14 days in a particular tax year. With this tax treatment, mortgage interest and property taxes are generally tax deductible, but other expenses are not. Rent income is entirely tax-free. You should consult your tax advisor. |
| How much time is allocated with the fractional ownership? |
| Each fractional vacation home has it’s own agreement set in place defining which owners get which particular weeks out of the year, depending on how many fractional interests are owned. For example if the Vacation property has six fractional owners all owning the same percentage, the owners of each fraction would get roughly 2 months of usage time, to either use or rent. Depending on the property the 2 months could be split up to have one summer month and one winter month, or the fraction could be split up so an owner has 8 weeks falling within a couple of different months throughout the year. California Fractional Properties had designed a unique system to allow for great flexibility when choosing the time desired. |
| How many Fractional Owners are there for each property? |
| California Fractional Properties believes that there should not be any more than ten fractional owners for any given property. By limiting the ownership to ten, the properties maintain their exclusive feel, and the homes are likely to have less wear and tear. This also allows for a palatable pricing structure and the ability to have a minimum of five weeks of usage for each owner to either use or rent. |
| Can I rent out my time if I‘m not using it? |
| Yes, let’s say you have usage rights for three weeks in December and two weeks in July. You have decided that you will personally use two of the weeks in December and only one of the weeks in July. At your request CPF Management will rent out your home for the two weeks you won’t be using it. Give us as much notice as possible and we will market the rental time through all of our resources. The income will be passed onto you. If you rent your property during a prime week you can often cover many of your annual expenses. |
| Who does the cleaning? |
| CFP Management cleans the property for all the owners. The property will be cleaned every week, regardless of whether anyone stayed there the prior week. It is our belief there can always be extra detailing done. Charges for housekeeping are included in the homes annual expenses. Cleaning is a management task with a surprisingly high potential to cause displeasure and discord within the group. Most co-owners enjoy using their vacation home much more when they arrive to find it clean and orderly, and cleanliness is essential for successful rental to non-owners |
| Once I own my property, can I swap dates with another owner? |
| Absolutely, swapping dates and combining weeks can be done at the discretion of the owners. Your personal calendar shows your dates of use for years in advance and gives plenty of time to make changes with other owners. |
| What about damages to the property? |
| Damages beyond normal wear and tear are the responsibility of the occupying owner. The fractional ownership agreement defines the policies and guidelines for replacing damaged items. California Fractional Properties Management inspects the home after every visit. |
| How is the property maintained over the years due to wear and tear? |
| Included in the monthly fees will be a schedule to create a reserve for normal wear and tear items such as painting, floor polishing and furniture replacement. As the as the necessary repair / replacements arise the funds will be available to keep the property fresh. Budgets and dues may be adjusted annually to insure the property is being maintained proactively. Additionally there are a few weeks a year blocked out for scheduled maintenance. |
| Who pays the bills and collects the expenses? |
| A bookkeeper handles a variety of duties including processing bills when due, providing summary reports to owners and keeping an escrow account from which they will pay bills. As an owner, you would pay your share equal to your fraction of the estimated monthly expenses and the bookkeeper will handle the rest. |
| What about selling my fraction? |
| Yes, you can sell, gift or will your interest at any time you like. You will own fee-simple title to your specific fraction. California Fraction Properties, with a California licensed Real Estate Agent on payroll, can help you with the sale of your fraction. |
| If another fractional owner of the property sells his share for more than he purchased it for will it increase my property taxes? |
| No. The starting point for you property tax is based on the amount you paid for your fractional ownership. When the property tax is increased as the result of the resale of a fractional share, the buyer should pay the entirety of the increase. A resale by one co-owner will not increase a non-selling co-owner’s property tax burden. |
| How will I be taxed when the vacation home is sold or I sell my share? |
| You are likely to qualify to have any profit taxed at the lower long-term capital gains rates, and you may qualify to complete a 1031 tax-deferred exchange. In general, the tax treatment of your profit or loss on resale will depend upon how the property was used in the 12 months preceding the sale. If you are contemplating a sale of a vacation property (or just your share of one), it is wise to consult a tax expert at least a year before the planned sale. |
| For more information on Fractional ownership please contact Tobias A. Lawry |
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| TOBIAS | 949.303.8911 |
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