John Caliendo (Realtor) gives expert video advice on: What are the benefits of fractional home ownership?; How do I finance my portion on the payment in a fractional home ownership deal? and more...
What is "home sharing" or "fractional ownership"?
Fractional ownership is when more than one person or persons come together to purchase a property together, meaning they may not necessarily be a husband and wife or a family relation, or a blood relative. What this does is it empowers the buyer to buy twice as much home. It's a growing trend for a host of reasons, one of which is that the cost of living seems to go higher every year, along with the home values of any individuals given local area. So, in other words what you have is two partners on a home, sharing the home, sharing the value, sharing the tax breaks, and I think this trend is going to continue with us for quite some time.
What are the benefits of fractional home ownership?
With regards to home sharing, there are several benefits to fractional ownership, but right at the top of the list would be buying power. Your buying power with fractional ownership is doubled, if not tripled, by the bringing of partners. Another great benefit of fractional ownership is that you may end up in an area that may have originally been thought outside your price zone, and now you're able to afford that area. This area may have better schools, services and better valuation trends in the future.
What are the risks of fractional home ownership?
I think the risks of fractional ownership are those that would be associated with any sort of partnership. In other words, you are entering into the best of intention with a partner or partners, and it is hoped that you are pairing yourself with somebody that you know well, can perform, and that your personality conflicts will not become an issue because this is a huge commitment for the long term.
How difficult is it to finance a fractional home ownership situation?
With regards to home sharing, providing that all partners have great credit, it's not difficult to finance a fractional home ownership at all. If anything, buyers, lenders, and underwriters look for buyers that have increased buying power with additional credit. If someone is bringing to the table additional savings or even a great income, this is all very positive in the eyes of underwriters.
How do "tenancy-in-common" and "joint tenancy" differ?
With regards to home sharing, the difference between a joint tenancy and a tenancy-in-common comes down to your percentage of ownership. For example, in a joint tenancy, you would have a 5/5 percent interest in a property if there were two partners. Otherwise it could be a renegotiated 51/49, 7/3, however you see fit.
Why is an exit strategy important in a fractional ownership agreement?
I think having a detailed exit strategy on a fractional ownership arrangement would be a very, very good idea for the same reason that people draw up prenuptial agreements. In other words, you're entering with the best of intentions but in the unlikely event that the two parties or all the partners decide to dissolve the arrangement, it would be probably the path of least resistance to have a blueprint for the exit and the dissolution.
Are fractional ownership situations subject to local government approval?
When it comes to home sharing, at this time in my local municipality, I am not aware of any fractional ownership situations being subject to local government approval. However, I would strongly suggest any buyer in their local area certainly checking with the powers that be.