This was originally posted in response to a request on the members forum at www.reachtogether.co.uk. It gives some initial points to consider when considering a fractional scheme:
If you are considering selling via fractional ownership I would suggest some background research as follows:
www.andysirkin.com – read through some of the articles on this site related to fractional ownership. It is American but has some general points of interest.
www.luxuryfractionalguide.com – Again an American website with some general points about fractionals – tends to focus rather too much on the American-style private residence club to be of a lot of use.
www.yours2share.com – A website based in the UK with adverts for people setting up/selling fractionals. A lot of useful information.
Returning to the specifics, you have a lot of things to consider!
1) What type of fractional scheme are you thinking of setting up, i.e. what sort of services are you going to provide? At minimum you will need to have a cleaning service contract for changeover days and a means of allocating use between the fraction owners (this could be given over to the fraction owners but I think you will find it easier to market if it is all setup)
2) The legal structure. In this instance I would suggest a separate UK (presuming that you will be marketing mainly to UK buyers) limited company to own each property. This does incur running costs but is simple to setup and is a structure that is well understood by everyone. I would also include a winding-up clause in this company (after say 5 years) to give investors an exit route. The UK-base of the owning entity means that any disputes (over the shared ownership part) can be handled in UK law.
3) What size of fractions are you considering selling? There’s no right answer here, more fractions expands your total market but makes for more hassle. Somewhere between 4 and 13 would be normal.
4) You will need to consider a premium to be put onto the price that you would have sold the properties for (to cover extra legal/administrative effort). Not sure what you had in mind but I would say at least 15% Some sources will suggest 50-100% but this is going to cut down your potential market.
There are lots of other detail things but I hope this gives you some things to think about. Let me know if you have any further queries. Your more than welcome to keep posting questions here, but if you feel you need more help than I can offer a no-sale no-fee consultancy service.
