About a month ago there was a great article in the Daily Mail discussing fractional ownership and private syndicates. Two yours2share members who share more than one major asset were interviewed: Graham Price shares a property and boat in France; and Bill Hosie shares a boat and an aircraft.
This created a great deal of interest in yours2share and I’ve spent a fair amount of time since then answering questions. Many people who are trying to sell a holiday home abroad wondered if sharing was the way forward.
There are broadly three ways in which you can share an asset: joint or fractional ownership, fractional rental and timeshare. The principles below apply just as well to boats, planes, motorhomes, cars and any major asset.
Two or more people own the property: either they find each other first and buy together; or the existing owner of a property sells shares.
In the latter case, if the property was worth £100,000, the owner might think four shares was ideal and look for partners to buy quarter shares. As it takes time to find people to agree the deal, often they will sell one share at a time. This could mean selling a £25,000 share to each buyer.
However it is important that all the partners are like-minded. So the vendor often sells half to the first partner on board for £50,000. Then both owners look for the next partner. The third partner then buys a third share for £33,333 and the first two partners split this between them. If, and when, a fourth partner joins them, their payment of £25,000 is then split between the three owners.
One or more people rent the property for several non-continuous weeks a year. The owner often doesn’t want to holiday let, but wants to generate some income and to ensure the property is kept in use.
Some numbers help to illustrate how this might work. For example a £100,000 property might let for £200/week in the low season, £300 in the mid season and £400/week in the high season. The owner looks for a partner that is looking for a holiday home for 12 weeks a year, split between the three seasons. If this was a straightforward holiday let, this would cost £3600 per year.
Most owner/holiday lettings company give a good discounts for this many bookings, but between £2000 and £3000 a year is reasonable for the 12 weeks. Usually this kind of arrangement is agreed annually, with all or most of the payment up front. Generally the weeks are not fixed (although the number in each season should be defined in the contract), but agreed once a year for the following year.
One or more people rent the property for one or more weeks a year and pay for the right to do this for several years in advance. This is similar to fractional rental, except all the rent is paid in advance.
Taking the example above, instead of (say) paying £3000 per year, they may pay £10,000 in advance for the right to use the property for 12 weeks a year for 5 years, or maybe £30,000 for the right to use it for 25 years.
Commercial timeshares are generally sold for periods of one to three weeks a year, and there are usually annual management/maintenance fees. There are strict laws on selling timeshare in many countries because, amongst other issues, the timeshare purchaser has to know that the property will be available and properly maintained for the contract duration. In general, I would advise private holiday home owners to avoid the timeshare model: this is why I rarely mention timeshare. However last week I had several questions about possible sharing arrangements which were effectively timeshare. There are many well run commercial timeshare schemes; I just don’t think it works for private holiday homes.
Sharing a holiday home is a great solution if you can’t justify the cost of full ownership and don’t want to holiday let. Finding like-minded partners, discussing and agreeing everything, getting advice, writing the contracts and dealing with the purchases, can easily take a year, or two, or more. If the property is a long term investment, this is fine for many people; they are looking for long term partners. But if holiday home owners need to raise capital fast or are struggling to pay a mortgage, sharing is less likely to be the solution.
I should make it clear that I am not a professional legal, financial, tax or property advisor. The laws on ownership, finance, tax and property vary enormously from country to country and if you are considering sharing property or any other major asset, you must get independent professional legal, financial, tax and property advice. And I mean “must”. Even within any one country there will be several entirely different ways of setting up an arrangement each with advantages and disadvantages. The best solution will depend upon all the partners’ particular personal circumstances. Sharing is very cost effective, but you do need to invest time and money into ensuring that the arrangement is properly set up.