or beachfront views, should be 1.25 to 1.5 developer can pay down his debt and the day-to-day operations manager.
times the fair market value of a property obligations in incremental steps, and not “I’m approached every week by people
sold as whole ownership. In short, that have to wait for the entire property to who want to fractionalize their vacation
means that a luxury home that would sell sell, says Harris. home or get into the market,” says
at $1 million as whole ownership could This kind of return isn’t without risks. Cuthbertson. “I’m working with a few
generate between $1.25 and $1.5 million Traditional developers who haven’t been individuals who have the right product
if sold as fractional ownership. able to sell their existing stock may try in hand. But not just any home will do.
According to Bruce Cuthbertson, the fractional market only to discover it’s It needs to be five stars, not four-and-a-
president of La Sarenne Luxury Properties a different animal to master. “Fractional half stars.”
in California, the profit range hasn’t developers have to wear two primary hats,
dissipated because today’s down market one as the developer and a second as the
The feasibility test
may actually benefit the sales of fractional hospitality manager,” Cuthbertson says.
Most investors who’ve spent time
property. “Buyers are more discriminate Developers cannot treat a fractional
researching and executing fractional
with their purchases,” Cuthbertson says. project as an in-and-out affair. The lesson:
projects say there are four to five key
“Buying a fractional for $300,000 starts Do your homework before jumping in.
factors to consider before investing.
to make more sense than laying down Some investors might find the learning
“Getting into fractionals as an investor
$1 million to $2 million for an entire curve too steep or perhaps the day-to-day
or developer isn’t for the faint of heart,”
vacation home, which [the buyer] will time commitment too extreme. They may says Harris, adding that you can expect
use infrequently.” choose instead to team with a develop- to spend months in the education phase,
Fractional projects are seeing profits ment partner or with like-minded just learning about the industry, talking
in the 25 percent to 35 percent range, investors who are interested in the to other developers and consultants, and
say Rist, Harris, and Cuthbertson. fractional niche. Cuthbertson says he and thinking about a possible location.
Moreover, the time-value of money is other developers are beginning to partner Rist agrees. “The first thing is get your
an important factor not to be overlooked, with homeowners and investors who hands on a feasibility checklist to see what
especially for the small developer doing want to either fractionalize their existing questions need to be answered up front.”
one or two single-family home projects vacation home or invest in developing See page 19 for a sample.
at a time. As fractional shares sell, the fractional property without having to be Your checklist should address the
growingwealthmag.com I Growing Wealth I July 08 I 21
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