Your Slice of Paradise – LCM 43 Spring 2016

A quick guide to fractional ownership

By Carol S. Billups

 

Sharing isn’t just for Facebook: Groups of friends and family have been sharing vacation properties in Los Cabos for years. About a decade ago, developers got into the act and began selling fractions of homes as well.

 

Fractional ownership just makes good sense: Since the home won’t be used full time by any one of the investors, others can enjoy it, too. And, by splitting costs, the investors can afford more than they could as individuals. Any property can become a fractional offering. Because we’ve been at it for so long, we’ve learned the advantages…and the pitfalls.

 

Surprisingly, the fractional partnerships set up among perfect strangers are often the most successful. When developers started selling portions of condominiums, they recognized the need to set rules. Each partner in the condo knows the rules and agrees to abide by them via a formal contract at the time of purchase. More informal shared ownership, even those between family members, often causes friction when one partner feels the other is taking advantage. In the case of the luxurious beachfront condos at Villa La Estancia, developers solved this by dividing the year into three seasons. Each of the four partners in the quarter-share condo gets to pick one month in each season during which the home will be theirs. Each year, one partner picks first, then the others each take a turn. They also alternate getting first pick so that by the end of four years everyone has had the same opportunities. Even if you and a sibling are buying a home to share, it is strongly recommended that you set rules in advance and put your agreement in writing. Holiday usage is a particular bone of contention: Be sure your written agreement specifies who will have the use of the property for each of the important holidays. A limit on the number of days or weeks each partner may use the property each year also reduces the number of squabbles and resulting hard feelings that often crop up when two or more people share ownership.

 

It is important to put the cost of upkeep into the contract, as well as the cost of any repairs or improvements that may be needed in the future. The most successful partnerships call for a contingency fund to be established with each partner paying a small monthly amount into the account to be used for repairs or replacement due to normal wear and tear. If the property will be used for vacation rentals, it is critical upi specify in your contract how the profits will be allocated and who will be responsible for marketing and administering the rentals.

 

Last, your contract should specify what will happen if one of the parties decides to sell his share of the property. It is best to discuss this with the attorney who will be handling the closing. Your contract should discuss under what terms one party can buy out the other and what procedure should be followed to conform to Mexican law. The closing attorney can help draft paperwork that will be acceptable to the bank holding the trust and the notario público who will preside over any future transactions.

 

There is one more very important caveat left to consider. The time-share industry also uses the term “fractional” to describe some of its high-end products. It is critical that you educate yourself about the differences between the two offerings and choose the one that is right for you and your circumstances. Consulting with an independent real estate agent should be done before you begin searching properties.

 

Fractional or shared ownership is a great option for those who can’t be in Los Cabos for long periods of time and can make owning a luxury vacation more than just a dream—it can become an affordable reality.
Carol Billups is broker-owner of Cabo Realty Pros in Cabo San Lucas and has been helping clients find the perfect Los Cabos property for more than 15 years. She can be reached at carolbillups@hotmail.com, cell 044-624-147-7541, or at www.caborealtypros.com.

 

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