In the latest Ragatz and Associates Annual Report, which analyzes data on the Fractional and Private Residence Club sectors, there are a number of data points offered and most of it does not need any real interpretation. However, there is one very significant point made in the report that begs for some discussion, as the statistics are startling. In particular:
- Annual fractional real estate sales in North America (consisting of the US, Mexico, Canada, and the Caribbean) over the 10 year period from 2006 through 2020 has plummeted from $2,152 billion in 2006 to $505 million, a decrease of $1.647 billion or said differently, sales in this sector have fallen by a staggering 326%.
- The report cites a number of factors that contributed to this remarkable fall from favor including the lack of consumer financing, increasing competition from vacation home rental companies, and new iterations therein.
Our experience has shown that the real root cause of this staggering decline is something very different. It is all about the resale.
The Achilles Heel of the Fractional Industry is in the resale
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 actual 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 2014 at $162,000.
- Over the ensuing 18 months, to January of 2016, there were 5 price reductions.
- The reduced pricing that became effective in January 2016 is $117,500.
- As of May 2016, it is still unsold, nearly two years later, despite a reduction in the first 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.
Brace yourself but that is a loss of nearly 50% but it still NOT sold yet.
Sure, The Ragatz and Associated Annual Report include certain valid reasons the fractional and Private Residence Club sales have plummeted 326% in a ten year period. But 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 where 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 every demand associated with the management of the property and the reservation process among the investors; a reservation process of simplicity and fairness.
It’s about time! Introducing 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.
The debut offering is in the beautiful Gulf Shores area of Santa Rosa Beach Florida (generally known as 30A) involving a stunning $3m, 6 bedroom, 5.5 bath residence located in the coveted WaterColor community. Currently offered are the popular destinations of the Hawaiian Islands, Los Cabos, Cape Cod, Martha’s Vineyard, and St. John, USVI.
There are so many great things about fractional ownership interest but not if the price to get involved is 50% of your initial investment.
That is why sales in the industry have gone from $2.152 billion to $505 million in a decade. With these partnership offerings created by Lifestyle Asset Group, a recognized leader in the innovation of vacation home ownership, buyers can now enjoy all the positive aspects of fractional ownership that made that sector a thriving $2 billion industry 10 years ago with the new paradigm that you may very well see a sharp increase in your original investment level and not a 50% or more dilution.
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 this concept?
Send us an email and let us know your favorite destination where you’d like to invest in an LLC. It only takes 8 participants!