Fractional Sales is Front Page News!

In the Honolulu Advertiser, Sunday June 24th edition, Andrew Gomes reported "Developing trend offers ownership of homes for 60 days each year". Here on the Trinity Properties home page, our real estate blog has been providing information on the concept of fractional ownership.
"In Hawai'i's real estate market, $250,000 doesn't buy much — maybe a small house in Wai'anae or a condominium in an aging Pearl City high-rise. But in a developing trend, $250,000 now also can buy ownership of a luxury condo or oceanfront home in some of the state's ritziest neighborhoods."

"Growing numbers of local real-estate agents have recently begun marketing "fractional ownership" of homes where up to six buyers purchase interests, allowing each one to use the property 60 days a year."

"Homes for sale as fractional, or shared, use have emerged partly as a strategy to put Hawai'i vacation homes back within reach of more buyers who have been priced out of the market by the doubling of home values over the past five years."

"The concept also is being touted as a new option for homeowners trying to sell their property in a slowing market — possibly for more than a single buyer would pay."
"Fractional residences in Hawai'i have a little more history on Kaua'i and mostly exist in resort areas, but lately have cropped up for sale in pricey residential areas from Kane'ohe to Kailua, Kona."

"Developers also are getting into the business, buying or building homes and trying to sell them in fractions.

Some concern exists that if the trend becomes hugely popular, it will reduce resident housing inventory and generate more vacation-home demand that could drive up prices in residential neighborhoods."

"Yet the practice is largely in its infancy here, and the level of buyer demand for the product in many Hawai'i neighborhoods has yet to be demonstrated.

Brokers are finding that fractionals aren't often understood by buyers, and aren't always welcome in communities, though in part this is because fractional ownership is a widely unfamiliar concept easily confused with time-share.

Fractional homes are similar to traditional time-share that's sold in one-week intervals in that buyers in both cases purchase limited annual use of a property. But unlike most time-shares, fractional owners may use their property however they choose, including personal use, renting it out or sharing it with friends and family."

"Fractional owners also must handle maintenance and management of their homes, and often can't easily trade their use period for time at other properties like the time-share industry, which maintains vast networks for swapping time-share use.

Brokers also suggest that fractional homes are more like residential real estate that historically has appreciated, in contrast with time-share.

In a general sense, the concept of fractional home ownership is not new. Families and friends have partnered to buy homes in Hawai'i for decades."

"Fractional residences in Hawai'i have a little more history on Kaua'i and mostly exist in resort areas, but lately have cropped up for sale in pricey residential areas from Kane'ohe to Kailua, Kona.

Developers also are getting into the business, buying or building homes and trying to sell them in fractions.

New Jersey firm NorthCourse Leisure Real Estate Solutions identified $1.65 billion in sales last year of fractional vacation homes in the United States, Canada and the Caribbean based on projects with four-week minimum use, or 1/13 ownership."

BREAKOUT YEAR

"In a 2005 article in Realtor Magazine Online, Oregon-based market research and consulting firm Ragatz Associates said fractionals had their breakout year in 2004.

Local real estate agents said the fractional home sales industry has been better established in some Mainland resort markets such as Aspen, Colo., and Lake Tahoe, Calif."

"In Hawai'i, there have been some fractional home sales, mainly on Kaua'i, over the years. But to date, none have been sold on O'ahu, according to brokers who track sales data.

That seems likely to change soon.

Old Republic Title & Escrow of Hawaii for the past four months or so has been hosting educational seminars on fractionals for hundreds of local real estate agents, lenders, developers and investors statewide.

Laura Merrifield, Old Republic business development director, said the interest and excitement in the real estate community has been tremendously high."

"It's a big thing on the Mainland, and I think it's coming to Hawai'i pretty rapidly," said Frank Wandell, a developer on the Big Island who in late 2005 bought a four-bedroom Kona house to convert for fractional sale.

Wandell listed the property for sale late last year for $189,000 to $269,500 per share, and to date said he has deals for two of the six fractions."

"It's the most sensible way to own a second home," he said, adding that he plans to follow up his first fractional home with several Big Island fractional homes on 1-acre coffee farms
Several real estate agents said they view fractionals as a way to sell a home for more than they might as a whole, as well as a way to expand the potential to sell homes in a slowing market.

"It's a way to realize top dollar, and get a little more money," said Nathalie Mullinix, owner of Kailua-based firm Realty Universal Inc. "I think fractionals are a way of the future here."

"However, brokers acknowledge that it takes more effort and time to find six buyers agreeing on 60-day use periods. Financing for fractionals also isn't offered by a lot of lenders."

If you would like a list of homes in Hawaii currently being offered for sale as a fractional, please contact the Trinity Properties sales team. Perhaps owning a home on the beach in paradise may become a reality than only a dream.