Fractional Q&A
Q. What is Fractional Ownership?
A. It is “shared ownership”. It is the same as you and several friends or family members owning a home together. The only difference is that there is an agreement governing the use and management of the home. Unlike time shares where you purchase restricted time, not the real estate itself, fractional ownership is an “undivided fractional fee simple interest” in a property. If the property appreciates in value, you get the appreciation. You or your designated entity are on title. Your interest in the property is fully liquid and can be sold at any time or passed down through generations.
>> go to top
Q. Why Fractional Ownership?
A. Many 2nd home owners, especially those buying in the Santa Barbara area, only use their 2nd home for a set time every year. The rest of the time they either leave the property unused, or try to rent the other months to partially offset costs. A recent survey shows that the average vacation home owner uses their home for less than two months per year. By buying fractionally, you pay for only the time you actually will want to use the property. You can enjoy a much more substantial home and vacation experience for the same money. Fractional ownership is the fastest growing segment of the real estate industry today.
>> go to top
Q. Can a Fraction Involve More Than One Owner?
A. Yes, you can include multiple owners to make up your fraction, such as friends or non-immediate family members. States have different thresholds for maximum number of fractional owners of a property, in California that number is 10. So to keep the total number under 10, multiple owners within a fraction will have to be organized as a single ownership entity such as an LLC or LP. This mechanism is a great way to divide your 6 weeks into smaller even more affordable segments, if for example you have 3 families that want to use it 2 weeks each year.
>> go to top
Q. Are 1031 Exchanges Allowed for Fractional Ownership Purchases?
A. Yes, as of 2002, IRS rules considered Fractional Ownership as “like-kind” real estate. Consult with your tax attorney to confirm details.
>> go to top
Q. How do the Fractional Owners Cooperate and Make Decisions?
A. Think of the group of owners as you would any group of owners in an association, such as for condominiums or a gated community. There are Rules and Regulations, management oversight, expense management and democratic voting processes. The main difference is that common expenses extend to the shared property, for example: utilities, furniture replacement and house repairs.
>> go to top
Q. What if an Owner Doesn’t Pay Their Fees?
A. As with any association, if an owner does not pay their fees, the association can place a lien and if necessary eventually reposess the fee simple real estate interest of that owner.
>> go to top
Q. What if an Owner Defaults on Their Debt for Their Fraction?
A. Any financing a lender approves on a fractional sale interest can only be secured on the borrowing owner’s specific real estate interest. A foreclosure would happen only on that fraction, there is no consequence to the other owners or their real estate interest.
>> go to top
Q. What is the “Santa Barbara Beach Club”?
A. The Santa Barbara Beach Club is simply the name of the property being sold as fractional real estate, and the related management association. The address is 5277 Austin Road, Santa Barbara, CA 93111. It is not a “club” in the sense of a social club or a multiple-property vacation club.
>> go to top
Q. How are the Fractions Being Sold for the Beach Club?
A. The fractions are being sold as 6-week consecutive time periods, with ownership of a set time of the year, every year. See the price sheet for the exact fractional ownership dates.
>> go to top
Q. Can I Buy More Than One Share?
A. Yes, you can buy as many shares as you want, and they do not have to be consecutive.
>> go to top
Q. What About the Short Time Periods Between the Fractions?
A. There are 2- and 3-day gaps between fractions, and one 8-day gap. They total 27 days and the ownership of these days is essentially a 9th fraction that will be retained by the developers. Priority for these “gap days” will be for preparation of the property for the next fractional owner’s use. The longer 8-day gap is an annual period in early Fall left open in case of the need for more major maintenance and repairs.
>> go to top
Q. What if I Can’t Use All or Part of My Fraction?
A. You are allowed to have friends or family use the property at any time. You are also allowed to rent the property for all or part of your fraction. See the “Investment” handout regarding potential rental income. Because of the 5-star amenities of this property, the Beach Club has been selected as a signature offering by Andrew Harper Travel, who along with other premium international services, will be handling vacation rental marketing. Typically these companies charge 10%, less than standard vacation rental commissions, and reaching a higher-end clientele.
>> go to top
Q. Can I Trade Weeks With Another Owner for a Different Time of Year?
A. Yes, there is no restriction on trading weeks. The association management can work as a clearinghouse for
trade requests, or you can contact other owners directly.
>> go to top
Q. Is a Cleaning Service Available?
A. Yes, the annual budget includes twice-weekly cleaning while owners are in residence, and an annual ‘deep-clean’ service. Cleaning service before your visit is also included. Should you desire additional paid maid service during your visit, it can be arranged through the association management.
>> go to top
Q. What About Smoking and Pets?
A. The association rules do not permit smoking except in designated outdoor areas. Pets are conditionally allowed.
>> go to top |
