Davids’ Big Island Mauna Lani Real Estate

March 15, 2008

Fractional(e) Rationale

Filed under: Updates — David C. Swanson @ 12:02 pm

I want to thank Mike and Rick for giving me the rationale for writing this post. Their comments bring up some interesting points. Fractional ownership is a shared ownership situation that is delineated by a time period or season of the year. A typical fractional ownership would be for a two month block of time. The price is determined by the time of year. For instance, the Christmas season anywhere or ski season in Vail would command a premium price.

I’ll start by answering Mike’s question. No, at this time, there is nothing in the resort documents that prevents fractional ownership. Time-share – fractional’s kissin’ cousin – is, however, forbidden. Vacation clubs are also permitted in the resort but individual communities within the resort are free to permit or forbid their presence and they have. More on this later.

Rick is correct to bring up the Advantage Program because it is pertinent when discussing fractional ownership. First of all, Advantage Program participation is limited to owners that have at least a one third interest in a property. So, three equal owners of a property could all participate in the Advantage Program. You must produce a deed to prove your percentage of ownership and thus qualify for participation in the program. Now, here is where it gets tricky. Each of the three “owners” above could be a partnership – partnerships, businesses, trusts and individuals can all be owners – and each qualified ownership interest can have five individuals participating in the Advantage Program. It is therefore conceivable that as many as 15 people could qualify for participation in the program from ownership interest in one property. Please note that this precludes members in a vacation club because the ownership isn’t structured that way.

I’m pretty sure that Mauna Lani Resort does not limit the number of owners for a property. For instance, twelve entities could be on a deed with one entity having a one third interest and the other eleven having each having approximately a six percent interest. All would be owners but only one could participate (five individuals max) in the Advantage Program. This is probably a big deal to a fractional owner. As I understand it, unlike the usual multiple ownership where all parties and their percentages of interest appear on one deed, fractional ownership involves multiple deeds. Each of these deeds is transferrable so one fractional owner can sell his interest without consultation with or permission of the other owners. So let’s pretend that we have a situation where six families have each purchased a two month interest in a property. Each family would have a one sixth interest and none would qualify for the Advantage Program. Please note that, in this example, even if all of the owners were on one deed none of them would be able to participate because none would have the required one third interest. Now, suppose that two of the families, each with two children, decide to combine their ownership in a way that would give them a one third interest and thus qualify them for participation in the program, three of the family members would be left out because only five persons from each ownership entity can participate.

I have some other thoughts on fractional ownership but those will have to wait for another day. I’ll close by encouraging you to consult the Advantage Program administrators before structuring your ownership. Then, go out and enjoy this fabulous resort!

Robert D. “Bob” Hudspeth R(S)
Coldwell Banker Maryl Realty at The Shops at Mauna Lani
(808) 989-1958 Cell
r.hudspeth@yahoo.com

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