Fractional Home Shares

Posted by Gary Hoeferkamp on July 26, 2022.

I first ran across this concept in Honolulu 15 years ago during a visit, and thought it was novel, and boy the prices there must be really high (they were) if you could only afford part of a house. Haven't seen much about it since then, but in the last year or two it has been widely advertised as a way to cut your costs on a high end property that you would not live in full time anyway, or as a type of investment property.

Fractional shares are just that - you own a fraction of the home or condo, typically a quarter or an eighth, but can vary. Most of the ones I am seeing are for owner-occupants only, but some are strictly for rental properties (Arrived Homes backed by Jeff Bezos) where you might own 10%, or less than 1% for a much smaller sum, and some are hybrids that set aside certain months for renting to subsidize the owner-occupant costs. A similar investment to the rental-only option is the more established Real Estate Investment Trust (REIT) sold on stock exchanges, and has all types of real estate, not just residential. That provides a much faster buy and sell transaction, where the fractional ownership is not as predictable or fluid on salability, but can fluctuate with stock market momentum. Pacasso is a recently formed company that has very attractive homes in their portfolio, and offers to resell them for you. They claim a quick sale and a higher price.

What about timeshares and how are they different? Typically a timeshare is for 1 or 2 weeks that can be for the same week, same place, or "floating" where you can book at your choice of any week at varying properties, as long as they are available, and they are usually condo units at resort type locations with amenities. The newer fractional shares being advertised are more for high end single family homes that you would return to regularly like a 2nd home, with the area familiarity appealing to you. Timeshares are infamous for not reselling well, so the value is expected to be in your return usage every year, which can hold plenty of value in itself. The newer Pacasso style has yet to be determined if they will widely hold value, and what kind of resale market there really is.

Private Residence Club, Vacation Home Partnership and Shared Ownership are other arrangements and terms that imply similar ownership or usage agreements as fractional ownership. Some are leasing and not really owning. If you are considering purchasing any of these, please read all paperwork carefully! At first glance these purchase avenues sound exciting, worthwhile and cost effective, and they may be for you. But they may not be either. Know what you are getting into, and how you will get back out. There are always fees involved in these for ongoing expenses, and the value may go up, and it may go down. And can you reserve the space when you want it the most? Here is an excellent article if you wish to dive deeper into this topic: Fractional Ownership – Answers To Frequently Asked Questions (andysirkin.com)

Two weeks ago I rolled out a new pilot program on a salaried Apprenticeship Program at Hoeferkamp Real Estate. I have had two applicants but the position is still open!

Here is an update on current real estate sales activity in STL, all prices, existing single family and condo as of today. I have found this statistic shows the most current state of the market, as it will quickly indicate dropping sales and rising supply, and hence the direction of the market:

• Manchester has 6 homes available and 33 under contract
• Ballwin has 23 homes available and 59 under contract
• Kirkwood has 28 homes available and 60 under contract
• St Peters has 34 homes available and 91 under contract
• Arnold has 14 homes available and 41 under contract
• Florissant has 54 homes available and 116 under contract

The ratios run from 2 to 3 pending sales for every 1 available in 5 of these 6 areas, with Manchester the strong one at 5.5 to 1. Adding the total of these 6 areas is 2.5 to 1. My last comparison in late June was 2.8 to 1 with the total number of homes in both categories almost exactly the same, 556 to 559. That indicates a slight slow down in the STL market, with the pending ratio ticking down, but no real increase in the supply. This is pretty seasonal as the spring market has cooled off and we are approaching late summer. I have noticed a few more homes not selling the first weekend, giving buyers a better shot. I have set 6 subdivision high price records for my clients so far this year.