Luxury Home Magazine

while many see it as the next big thing for real estate, some still have questions and concerns on what are the risks and benefits of fractional ownership and how to finance these deals. According to Deanna Spooner, one of The Big Island’s leading mortgage and finance expert on fractionals, “A second home in Hawaii is the ultimate discretionary purchase, something that many people desire. People who do own a Hawaiian get-away often express frustration at not being able to spend more time there. It hardly makes sense to have the expense of a mortgage, upkeep, insurance and taxes for a place you don’t use more than a couple weeks or even months a year.” To deal with that situation, in the past family members and friends often have joined forces to buy a place. “It cuts down on the cost and everyone gets to enjoy a place that’s more than just a hotel room. In Hawaii, this is referred to as a Hui,” explains Spooner. “A Hui has all of the benefits of fractional ownership but can have negatives as well. One member’s negative credit or inability to pay ongoing operating costs can affect all owners.” With fractional ownership, individuals now have the opportunity to buy partial ownership of a really nice place in a resort area. The arrangements may be divided into up to six shares in Hawaii with each owner having a prearranged number of days a year to use the unit. The owners buy their shares from a management company, which handles maintenance and scheduling everyone’s time. If this sounds a lot like a time share, that’s because there are similarities. Both can be bought as deeded properties and can be rented out, shared with family and friends, sold or left to someone in a will. The big differences between time shares and fractional ownership properties are prices, financing and fees. While time shares can be had for a few thousand dollars, fractional ownerships can run into the millions. With that kind of price tag, buyers aren’t subjected to the “you have to make a decision today” aggressive sales pitch that is still the prevailing strategy in the time share industry. Many developers offer their own financing for time shares with the terms similar to a personal loan and with rates that can be in the teens. That’s not the case with fractional financing buyers. Buyers should expect terms that are similar to those paid by real estate investors. So what’s the catch? The problem is finding a bank willing to do the deal. Spooner says lenders are gun-shy about “A second home in Hawaii is the ultimate discretionary purchase, something that many people desire…” Special Section: Fractionals