Let me tell you about an investment strategy that very few investors think about doing with their foreclosure properties.
You purchase a luxury foreclosure property in a vacation destination such as Florida, Arizona, California, Nevada or Colorado at a foreclosure auction or from the bank directly such as a REO property. Then, you turnaround and sell fractional shares to buyers who want to use it as a second home and/or vacation property.
It’s better than a timeshare because the buyers actually own an interest in the property. This is a great niche market for anyone who has a property that he or she is having a hard time selling, too, because fractionalizing allows you to sell the property to several buyers at one time for more than one buyer alone would be willing to pay.
Here’s how it works:
You can sell your property based upon a calculated formula such as the one below:
1/4 ownership buyers get 13 weeks each out of 52 weeks total (with no unused weeks)
1/6 ownership buyers get eight weeks each out of 48 weeks total (four unused weeks)
1/7 ownership buyers get seven weeks each out of 49 weeks total (three unused weeks)
1/8 ownership buyers get six weeks each out of 48 weeks total (four unused weeks)
1/10 ownership buyers get five weeks each out of 50 weeks total (two unused weeks)
1/12 ownership buyers get four weeks each out of 48 weeks total (four unused weeks)
1/13 ownership buyers get four weeks each out of 52 weeks total (no unused weeks)
1/17 ownership buyers get three weeks each out of 51 weeks total (one unused week)
It is always a good idea to keep at least two weeks free for maintenance and repairs.
You sell each buyer an ownership interest in your property and in exchange give them an ownership deed for their proportional interest, which represents the number of weeks they receive based upon a formula you select.
All the buyers enter into an operational agreement with each other, sharing the costs of maintaining the property, including taxes, insurance and repairs and setting forth the number of weeks and which weeks each buyer gets to use the property. They can rent out their weeks if they decide not to use them. Typically, the owners also enter into a management agreement with a management company so that the owners don’t have to worry about managing the property.
Why it works?
This strategy works because any seller can convert his or her luxury property into fractional share real estate, providing the property complies with state or local laws and any governing homeowner association’s rule and regulations. It is a good idea to talk to a real estate attorney in the state in which you purchase the property first to make sure your property qualifies and is in compliance.
What are the benefits?
Keeping a portion of ownership in case you want to use the property or rent it out
- Selling a property that has been sitting on the market for awhile for more than if you sold it to one buyer
- Buyers are willing to pay more than market value because they get an appreciable resort-style property that they could not afford on their own to use as a vacation or second home, and the costs of maintaining the property are shared with the other owners.
- It’s a hassle free way to own vacation or second home property without the burden of home ownership.
Fractionalizing real estate is a win-win strategy for the seller and the buyer.
The seller gets to sell their property for more than they could if they were selling it to one buyer or investor, and they can still reserve the right to use the property or rent it out. The buyer gets to purchase a luxury property without the responsibilities of home ownership.
Right now is a perfect time to buy a foreclosure property at a discount price and fractionalize it or fractionalize a property that you already own that you have not been able to sell.
Article Source: http://www.articlesbase.com/real-estate-articles/fractionalize-your-foreclosure-property-4693414.html
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