In February 2022, house prices were nearly 20% higher than the same month the year before.
The skyrocketing property market is excellent news for homeowners. Their assets are jumping in value! But for those looking to buy, it may seem impossible.
There's a third group, though, that can still invest in this market. They are homeowners who are looking for a second property.
Their current assets are good news, but buying again may seem too expensive in this market. Investing in a luxurious vacation home may especially feel out of their reach.
Enter shared ownership homes! These ingenious business models allow five or more parties to co-own a property outright. No debt is involved, just a cash payment for your part of the property.
But is it really possible to find another four or more investors who can agree on one property, when to use it, and when to sell it? That's where an asset management company comes in.
Asset management companies organize everything. Their clear paperwork defines all areas that can cause issues, from bookings to exit strategies. Plus, they help you find all the other investors in the first place.
Read on for our guide on shared ownership second homes.
Choose Your Vacation Rental Destination
Before you choose a home, you need to establish your ideal destination. Typically, when people choose a vacation home location, they consider two factors:
- Where they would like to vacation
- Where they will be able to attract vacationers
When you work with an asset management company, you only have to consider the first bullet point! The company has already handpicked the best properties in the best areas. Plus, they can help you find vacation renters.
What Destinations Can I Choose From?
Lifestyle Asset Group sources homes in these areas:
- Colorado
- Florida
- Caribbean
- Eastern US
- Mexico
All of these are popular vacation destinations for second-home owners and ordinary vacationers. The location variety also makes the trips themselves affordable for all budgets. Whether you want to drive to Florida or fly to Mexico, there's a second home ownership option that fits the bill.
Select Your Second Home
Now you know where you want to invest, it's time to pick a property.
Some like to set in stone the property they're looking for before they browse the latest collections. It helps them stay focused on what type of property they want to invest in. If you have specific requirements, you might want to do the same.
Others prefer to look through all the current options and see what takes their fancy. After all, you may have your heart set on a home in the Keys until you see the perfect Mexican retreat. For those with less specific requirements, try to look through the whole collection with an open mind!
When you select a home you'd like to know more about, you'll be able to see all of the costs transparently. That includes the up-front cash payment as well as annual fees.
Of course, all the property information and detailed photos are also provided.
Each property will also tell you how many other investors have already bought a share. But don't worry, there is no hierarchy between co-owners depending on who invested first. Here's precisely how your LLC will work.
LLC Structure
How does shared ownership work? That depends on your fractional ownership model. We think we've figured out the most secure route for all co-owners: opening an LLC.
Fractional ownership typically splits dozens of identical homes between hundreds of co-owners. Instead, this method buys you a fraction of one unique home.
As investors, you'll open a limited liability company (LLC) that owns the property. Therefore, no one is ever in debt to the bank or asset company.
Buying through an LLC protects each investor as well. It is financially separate from your personal finances, as the LLC is its own legal entity.
LLC Operating Agreements
The operating agreement is what makes this specific fractional ownership model so unique.
To begin with, all parties that share ownership of the home are randomly assigned a number between 1 and 5. Owner number one gets the first pick of two weeks in the year they would like to have access to the house. This works through all the co-owners until owner number 5 has been chosen.
Then the process happens again in reverse, so co-owner number 5 picks first.
This process happens twice. Each co-owner thus selects eight weeks of the year to occupy the home.
Each year, position 2 moves up to 1 and so forth. Throughout the five-year agreed ownership, every party will occupy each position once.
The process is adjusted if there are more than five owners. Some may choose to go into the purchase as a 1/10th owner rather than a 1/5th owner. But don't worry, we have booking methods just as tried and tested for those situations!
This process only assigns 40 weeks of the year to the co-owners. That leaves 12 weeks of the year for maintenance or free occupancy. This free occupancy is still available for owners to book.
When Can I See the Contracts?
Unlike many fractional ownership models, this one allows you to see all the paperwork before you pay a deposit. And your deposit is refundable until all co-owners have been found and the LLC is established.
Paying Maintenance
Maintenance is included with your annual fees, along with other benefits.
The annual fees aim to ensure owners experience as little stress as possible with second home ownership. They allow the asset management company to cover all of these areas for you:
- Repairs and maintenance
- Local concierge
- Property taxes
- LLC tax return filings
- Insurance
- House utility bills
- Homeowner association fees
- Reservation management
- Residence exchange system
This flat rate system removes any guesswork from the property. You know exactly how much you have to pay per year for your home to stay in tip-top condition.
What Does the Concierge Service Involve?
Lifestyle Asset Group's concierge service is one of the items covered by annual fees. Even though you own the home, the concierge's job is to make it feel as much like a luxury rental as possible.
Therefore, the service includes pre-arrival grocery shopping for every booking. On the first booking, the local concierge will greet you at the property. After that, they are available whenever you need to get in touch.
The local concierge can also coordinate local activities to make each stay memorable.
How Does the Week Swapping System Work?
Lifestyle Asset Group manages many LLCs, so we facilitate swapping bookings between properties. If you choose to, you can exchange your four to eight weeks for stays in other LLC homes worldwide! That means you can access hundreds of private homes, even though you own only one.
Booking Your Stay
As explained, the weeks you stay at your property are chosen methodically and fairly. This process happens one year in advance, so no party gets caught out with a short-notice trip.
Each LLC also has a dedicated Reservation Specialist.
They help you manage any changes or cancelations you need to make. That includes coordinating the use of the 12 free occupancy weeks left over. They also organize home swapping as requested if you want to use your weeks in a home elsewhere.
Agreed Exit Strategy
The benefits of shared home ownership include investing for a fraction of the usual cost. After a few years, you can resell your portion for a profit and choose to invest elsewhere.
The problem with the fractional home ownership model is organizing the resale.
What if not everyone wants to resell? Is it doable to resell just a fraction of a property? How much will I have to pay in realtor fees just to sell a fraction of ownership?
These troubles plague second home shared ownership. So we've found a way to fix it!
In your original contract, all parties agree to resell the property after a set number of years. It is typically between five and eight. This can be delayed by one year by a supermajority vote.
Going in, you know when you'll get your money back – plus likely capital gains. There will be no battle with the other owners about when to sell the property. The exit strategy is established at the outset.
Choose Shared Ownership Homes Experts
With such a significant investment, working with a company that puts your interests first is essential.
At Lifestyle Asset Group, we care about our partners. We aren't a soulless company that takes over neighborhoods and only communicates via an app.
Instead, our handpicked homes have local representatives. They are always available to help you as needed.
Take a look at the shared ownership homes we have on offer today. Even if one doesn't catch your eye right now, sign up to stay updated with new offerings. That way, you'll be the first to see new properties!
