In a Ragatz and Associates Annual Report, which analyzes data on the Fractional and Private Residence Club sectors, there are a number of data points that are startling. In particular:
- Annual fractional real estate sales in North America (consisting of the US, Mexico, Canada, and the Caribbean) over the 14 year period from 2006 through 2020 plummeted from $2,152 billion in 2006 to $505 million in 2020, a decrease of $1.647 billion or a staggering 326%.
- The report cites a number of factors that contributed to this remarkable fall from favor including the lack of consumer financing and increasing competition from vacation home rental companies like Airbnb and HomeAway.
Our experience has shown that the real root cause of this decline in sales is something very different. It is all about the resale.
The Achilles heel of the fractional real estate industry is in the resale
Until now, the ability to resell one’s fractional or Private Residence Club interest is the industry’s Achilles Heel. There is virtually no resale market and those fractional interests that do sell are sold at painfully deep discounts from the original purchase price. To best illustrate, we will use an example of a listed fractional interest located near the beach along scenic highway 30A on the Gulf of Mexico, in northwest Florida:
- An owner within a luxury condominium project originally listed his/her fractional interest for resale with a brokerage firm specializing in fractional resales in July of 2018 for $162,000.
- Over the ensuing 18 months, to January of 2020, there were 5 price reductions.
- The reduced pricing that became effective in January 2020 is $117,500.
- As of May 2020, it is still unsold, despite a reduction in the first published list price value of nearly 30%. It is likely, though not reflected on the listing, that the original price paid for the interest was well above $162,000, making the discount from the original purchase price perhaps greater than 40%.
Brokerage firms that specialize in the marketing of fractional and Private Residence Club interests charge approximately 25% of the resale transaction, so using the current pricing of $117,500 above, that would equate to a commission of $29,375, netting for the owner of this particular fractional investment about $88,000 of the $165,000 to $170,000 originally paid for this vacation home fractional product.
That is a loss of nearly 50%.
Losing 50% of your original value, if you can sell it at all, is the real reason the typical fractional offering is no longer working.
Lifestyle Asset Group began with the end in mind
This is the driving reason we created our luxury real estate partnership offerings where just 6-8 shareholders own and enjoy a stunning vacation home in their favorite destination.
Investors enjoy all of the great benefits fractional ownership affords. Yet, we began with the end in mind with a defined exit strategy.
As opposed to listing your fractional interest for sale at some future date with hopes to see 40% or 50% of your original investment, our partnership model offers each investor with a defined exit strategy, which is a term of 8 years. At the end of that term, the home is sold as whole ownership and shareholders receive back 100% of their original capital plus an equal share of any appreciation that occurred.
And during this 8-year term, each shareholder enjoys approximately 35 – 42 nights per year of use in a stunning, one-of-a-kind vacation home, (not a cookie-cutter residence with 44 identical units in the development).
Annual costs of operating the home are shared among the investors based on their percentage of ownership.
Our company, Lifestyle Asset Group, manages everything associated with the management of the property and the reservation process among the partners.
It’s about time! Welcome to a new and improved version of the fractional real estate model
Lifestyle Asset Group’s partnership model is the new and improved version of the fractional industry.
Currently offered are the popular destinations of the Hawaiian Islands, Los Cabos, Cape Cod, Martha’s Vineyard, and St. John, USVI. See all of our current offerings here: https://lifestyleassetgroup.com/destinations/
This model is a game-changer within the fractional and shared ownership industry and that is why our approach is called, “The next generation of second home ownership.”
Interested in buying into one of our Offerings? Or do you own a luxury vacation home and would like for us to help bring in partners?
Send us an email or call us today.