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Kauai Real Estate |
Comparison to Full Ownership & Timeshare Fractional Ownership In The News
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A New Concept of Real Property Ownership  In Hawaii, state law allows a minimum ownership of 60 days (other states vary) to be purchased, deeded, owned outright, in perpetuity, in Fee Simple (not Leasehold or time share). In fact Hawaii has had such properties for many years but it is only recently that Fractional Ownership has emerged as a viable and possibly desirable way to own that 2nd or vacation home, but at a lower cash cost. Only recently have we been able to legally separate the shares of ownership so as to protect the rights of all the owners. A recent National Association of Realtors (NAR) study shows that the actual use of 2nd or vacation homes is only 6-8 weeks a year, yet an owner usually must pay for the full year, and insurance, maintenance, and other costs for the full year, most of which time the property stands idle and unused by the owners. There is also the matter of costly mortgage expenses. And worry about some water leak or other hassle. Fractional Ownership is a percentage of ownership in real property. This type of ownership may be familiar to you by example: Netjets. The size of the Fraction a person owns corresponds to the amount of time they are entitled to use the property. For example, if 60 days are purchased (the minimum in Hawaii), then the owner can buy a minimum of 60 contiguous days, often set up as Jan/Feb, March/April, etc. When and how those days are used depends on the legal documents of the developer, who is usually the original outright owner of the property, often a luxury home or resort condominium. Some developers set up Fractionals as rotating dates, others as purchase of a specific and unchanging time period, such as December 15 to Feb. 15. The documents describing the policies and practices, prepared here on Kauai by an attorney, Steven Lee, who is an expert in these matters, vary, and may permit use of a shared vehicle, the ability to swap times with the other five owners, and include great detail describing how costs are paid, what happens if an owner or owner’s guest damages the property, if an owner does not pay their share in full and on time, and so on. This expert document preparation protects your interests. Our clients who might find this type of ownership of great interest are those who love to visit Kauai (there were over 1,000,000 in 2006) but cannot afford or are otherwise unwilling to buy outright, and/or do not have the luxury of extended usage. In a way, this is a first step to having that 2nd or vacation home, or full-time retirement home, but only paying for the time used. A key provision to Fractional Ownership is the ability to mortgage your Fraction. And hold clear title. A leadership position has emerged from Old Republic Title and Escrow of Hawaii, a highly respected nationwide firm that has invested people and funds to become experts in the emerging specialty of Fractionals. We have also identified lenders for qualified applicants, and expert legal counsel. There are obvious added benefits to the owner. They include worry-free usage, as the developer, and later the owners, hire licensed/bonded/insured/certified property management firms which will offer a wide variety of services from simple landscaping and exit/entry cleaning to daily maid service, concierge and provisioning services. Your Fractional Marketing Team will put you in contact with such firms. One word about the math. It is easy math to think, "Oh, I am paying $200,000 for my 60 day Fractional, so times six that ‘values’ the property at $1,200,000." While this is arithmetically correct, it is not functionally valid, as the benefit is to only pay for what you use. You might consider the analogy of a 50 pound bag of rice versus a one pound bag. If you multiply the price of the one pound bag, which is all you need, times 50, the smaller bag is more costly per pound. But you only need and use one pound. This applies to Fractionals the same way. Pay only for what you use. There are Fractionals in many resort areas of Kauai, including Princeville, Kapaa, Poipu, and elsewhere. These are mostly condos, and the 60 day periods range from $160,000 to $350,000 in Princeville at this time. There are also luxury homes with pricing for 60 days in excess of $2,000,000. Fractional Ownership has been widely reported in the media as the new and sophisticated way to own deeded real property, in a quantity you are likely to use. Your Fractional Marketing Team has gathered expertise from legal, title/escrow, financing, management, and marketing, to offer you one stop shopping and expert advice on what to look for, and what to avoid. |
