Fractional Ownership

Filed in Lakeside Living by on May 6, 2014

6205378645_13e0b370c3_zJust like the many lakes they dot, fractional ownership properties come in a variety of shapes and sizes each providing resort-go-ers a way to become vacation property owners without shouldering the lakefront price tag solo.

The phrase “fractional ownership” is generally used to describe a “shared ownership” of a common interest community. Simply put, it is a percentage share of an asset. There are three forms of common interest communities: condominiums, (typically apartment-style), planned communities (historically, townhouse-style) and cooperatives, notes Real Estate Laywer Jennifer Carey of Duluth based Hanft Fride Law Firm. “Fractional ownership”, she explains, is commonly used to describe shared ownership of a vacation home or resort property.

“Fractional shares are fractional ownership interests, typically in condominiums or planned communities,” says Carey. The most common form of fractional ownership is the quarter share, which is an undivided one-fourth interest in real estate, together with the rights to thirteen weeks of use.” With its deeded ownership and usage rights usually in the form of weeks, common interest community “fractional” ownership is a growing sector of the resort industry. In this regard, Cary notes fractional ownership interests and time shares are not the same product. Under Minnesota law, however, fractional shares are legally a form of time shares.

Because they are real property, a mortgage can be taken out to pay for the purchase of shares of the property. “Most buyers will pay cash or finance the purchase of a fractional share through a home-equity loan. Sometimes, financing is available through the builder or developer. Some banks will make the loans on an in-house basis; since these loans can’t be sold on the secondary market,” notes Carey.

With any property purchase, various setups apply, explains Robert Bigwood, a Fergus Falls based attorney and property lay specialist at Pemberton, Sorlie, Rufer & Kershner Law Firm, PLLP. “As for taxes, if it is a cooperative setup, the cooperative would pay the real estate taxes and charge through to the owners are dues. In other setups, the value of the common elements is added to the units, which are taxed to the owners are real estate, but if the common elements are taxed to the association, it would again collect those as dues from the owners.”

East Silent Resort Currently Listed Property

East Silent Resort Currently Listed Property

The advantage of such an arrangement is twofold. Firstly, a fractional owner can more affordably purchase lake property based on the amount of time they would realistically be using the property. Secondly, maintenance for said property is taken care of by a professional management company or resort entity that in turn takes care of upkeep for a fee, with no out of sight, out of mind worries for the owner.

Management companies, from resorts to real estate entities, can also rent out the property on behalf of the fractional owner for the days they’re not using the property. This can generate additional funds for an owner further offsetting the cost of ownership. “We like our resort to be active, so renting out a unit on the days an owner is gone helps them, as well as us,” says Nick Leonard of East Silent Resort. The sheer nature of being a resort, adds Leonard, makes renting out the unit an easy task. “We know our guests and who wants to use the units so it becomes one less thing for a vacation property owner to worry about.”

Providing for a mix of renters and owners, fractional ownership in a common interest community is a new opportunity for resorts to generate buzz and business, creating new 21st century markets for nostalgic 20th century resorts. “Shared ownership is a way for us to keep the resort experience growing and open to families in the future,” Leonard concludes.

These properties offer families a modern way to participate in the age-old tradition of vacationing on one of Minnesota’s many beautiful lakes. Offering the up north lake home experience alongside resort amenities at an affordable price is what fractional vacation home ownership is all about at Trappers Landing Lodge. “Vacationing up north has long been a tradition for many Minnesota families,” says Bob Ryan, Own and CEO of Odyssey Development and Resorts, “We are honored to be a part of those memories in the making for our owners.”

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