What In The World Is Fractional Ownership? – Toronto Realty Blog
“My parents have a condo in Florida,” said my first girlfriend, circa 2002.
I didn’t know much about Florida back then. Still don’t. But I asked the natural question that just about anybody in my position would ask: “Where in Florida?”
She said, “It depends.”
And then I got really, really confused…
I had never heard of a “timeshare” before. I think I’d heard the reference in a sitcom, maybe Growing Pains or perhaps Who’s The Boss, but I’d heard it in a cynical way. Something like, “Next thing you know, he’ll be trying to sell you a timeshare in Arizona,” which would be followed by a classic sitcom laugh-track.
My girlfriend explained that her parents “owned” a condo, but that condo could be anywhere in a series of Floridian cities, in any number of hotels.
How do you own a hotel, I wondered.
She tried her best to explain it, but I wasn’t really grasping the concept.
Finally, her father explained, “We own two weeks per year in a chain of hotels,” and flipped a glossy booklet onto the coffee table.
This made sense.
They didn’t own a condo. They didn’t own a hotel room. They didn’t really own anything, but rather they had the right to use a condo or a hotel for two weeks per year, subject to restrictions and regulations, and it was available through one company that owned a slew of properties.
We went to Florida in the summer of 2003, which was an odd time to leave a warm-weather location to travel to another warm-weather destination, but such is life. I actually wrote about this back in………….oh, wow, I just looked it up; 2008! It was a two-part blog series where I explained one of my biggest regrets in young adulthood was not standing up to the aggressive salespeople who locked us in a room and tried to sell us a timeshare.
April 17, 2008: “Time To Buy A TIME-SHARE!”April 18, 2008: “Time To Buy A TIME-SHARE (conclusion)”
Geez, Louise, was that really thirteen years ago? Time flies!
Also, did I really just say “Geez, Louise?” I don’t know if it’s the thirteen years that’s aged me as much as my choice in vernacular these days…
So what is a timeshare?
Here’s how www.investopedia.com explains it:
What Is A Timeshare?
A timeshare is a shared ownership model of vacation real estate in which multiple purchasers own allotments of usage, typically in one-week increments, in the same property. The timeshare model can be applied to many different types of properties, such as vacation resorts, condominiums, apartments, and campgrounds.
Time-sharing is a form of fractional ownership, where buyers purchase the right to occupy a unit of real estate over specified periods. For example, purchasing one week of a timeshare means the buyer owns 1/52 of the unit. Buying one month equates to one-twelfth ownership. Time-sharing is popular within vacation locales. Property types include homes, condominiums and resorts. The model can also apply to recreational vehicles and private jets.
Key Takeaways:
A timeshare is a shared ownership model of vacation property whereby multiple owners have exclusive use of a property for a period of time.
Timeshares are available for various types of vacation properties such as resorts, condominiums, and apartments.
Timeshares are available for a fixed week–a buyer has a set week each year, or a floating week–use of the property is limited to a season.
Timeshare benefits include vacationing in a professionally managed resort in a predictable setting.
Timeshare drawbacks include a lack of flexibility in making changes, annual maintenance fees, and difficulty reselling one.
There’s a lot more if you’re interested in reading further, but I think you get the picture. Not only that, some of your family or friends might own a timeshare, and some of you might even own one too! I feel as though they were more common in the 1980’s and 1990’s, but that’s my gut talking.
There are other common forms of fractional ownership.
Buying into a “Co-Op” comes to mind. As opposed to a condominium, where you purchase your unit (ie. legal title to that real property, plus potentially a locker and/or parking space on a separate deed), a co-op involves you purchasing shares in the building, and living in a particular unit.
I’ve written about this before a few times:
November 15th, 2010: “Condominiums vs. Co-Operatives”
November 5th, 2014: “What’s The Deal With Condo Co-Ops?”
Now, what about “Co-Ownership?”
Eek. I’ve talked so much about this in the past that just the mere thought of co-owning makes my skin crawl.
I aggressively tackled this topic (to the ground…) a few years ago:
January 30th, 2017: “Co-Ownership Of Your Primary Residence: What Could Possibly Go Wrong?”
If that wasn’t aggressive enough, I left it all on the table with this blog last year about co-purchasing after the Ontario government put out a “guide” and even seemed to recommend it:
January 31st, 2020: “The Friday Rant: This Is A Terrible Idea”
If you want to read this invitation for disaster, the pieces of which would be picked up for by our tax-dollars, here it is:
“Ontario’s Housing Supply Action Plan: Co-Owning A Home”
So after the preceding, do you believe it’s possible to come up with some sort of platform or vehicle for fractional ownership?
SUre, why not?
On a long enough time horizon, it’ll happen. And depending on why you’re looking to buy, it might have already taken place…
There are two companies in Canada that offer “fractional ownership” of real estate, that I know of.
One is called Addy and you can check them out by clicking that hyperlink.
According to their website, this is their basic pitch:
Step 1:
Addy identifies a real estate opportunity.
Investment decisions are made collectively by our real estate acquisitions team, our investment committee and our Board of Directors which has a track record of investing in and managing real estate. All opportunities go through our very rigorous due diligence process.
Step 2:
Addy divides the investment opportunity into equal parts.
The real estate investment opportunity is broken out into increments valued at $1. For example, a $500,000 opportunity would be divided up into 500,000 units
Step 3:
Addy sells units for $1.
Units in the investment are listed for sale on our platform. You can decide how much you want to invest ranging from $1 to $1,500 per property.
Sounds easy enough, right?
This platform seems to be aimed at investors, and doesn’t really address a problem in the market but rather a need.
There are companies (and I’ll explain in a subsequent blog post this week or next) who’s goal is to help people get into the market who can’t do through the traditional model. But Addy is really offering people an opportunity to purchase real estate as an investment, more like a Real Estate Investment Trust than a “rent-to-own” or similar structure.
It seems like it was only a matter of time before Addy or a company like it came along, wouldn’t you agree?
Now, is this really the best way to invest in real estate? Is it legit? What type of investor is it targetting?
Their “simple steps” speaks volumes to me. Check it out:
Step 1: Become An Addy Member:
Join us as a Charter or Believer member! A membership gives you an all-access pass to everything that addy offers. Plus, we offer a moneyback guarantee, no questions asked! Our core value is “win-win or no deal” and we mean it 🤝. Be ready with a piece of government ID so that you can complete your profile.
Step 2: Fund Your Wallet:
Our Addys sell out quickly! Connect your bank account and fund your wallet so that you’re ready for when a property drops. Take advantage of our Instant Funds feature to get instant access to your money.
Step 3: Choose A Property:
Take a peek at our available investment opportunities. You’ll be able to review due diligence documents on the property as well as the Offering Memorandum.
Step 4: Sign And Invest
After you’ve reviewed the due diligence documents you can invest up to $1,500 into that property. You simply move funds over and sign on the dotted line! That’s it, you’re a real estate investor 🤘.
It looks gimmicky to me.
They’re selling memberships, first of all. And when I see “all-access pass,” I feel like I’m lining up to buy a timeshare.
Moneyback guarantee, “no questions asked,” and the “win-win or no deal” don’t make me feel warm and fuzzy like they’re supposed to.
“You’ll be able to review due diligence documents on the property” makes me laugh, since nobody buying $1 shares in a condo knows how to review due diligence documents.
“That’s it, you’re a real estate investor,” followed by that hang-ten hand emoji is the icing on a really suspect cake.
This is real estate crowdfunding, and while I can see some younger folks having fun with this and learning about real estate in the process, I don’t know that this is the way to real estate riches.
Buyers of these shares can make money through the appreciation on the sale of the property or through positive cash flow on the rent, but not mentioned in that space is that properties can go down in value too.
The other fractional real estate platform that I know of is called BuyProperly.
Their model is different since investments don’t start at $1, but rather they start at $2,500:
BuyProperly lets you invest in real estate to grow and diversify your wealth without traditional upfront costs. Starting at $2,500, our AI-powered platform helps you achieve above-human performance earning monthly rental income, as well as capital appreciation.
I don’t love the sound of “achieve above-human performance” and what that means, but I’m a cynic who’s watched I, Robot with Will Smith way too many times.
As with Addy, BuyProperly makes it sound easy. I mean, what’s easier than using Artificial Intelligence to achieve above-human performances?
Under their “What Is BuyProperly” page, they explain further:
BuyProperly is an online exchange for fractional investments in real estate which allows investors to invest with limited money and get hassle-free property ownership. Through our online platform, investors can own a slice of a property by investing as low as $2,500. These are high-growth buy-to-let properties, which are sourced and managed through BuyProperly. This makes the investment process hassle-free for investors and they can earn potential monthly rental dividends and potential capital appreciation on exit. Investing in real estate has a reasonably long lock-in period for generating good returns. Our platform solves this by providing a secondary marketplace to our customers to enable them to re-sell their shares in the property.
We are backed by well-known Canadian investors such as the Ryerson Futures, High Park Angels and several experienced angel investors, and an advisor group of renowned experts in real estate, finance, and data science. We are also accredited by Better Business Bureau and have Fasken as our legal advisor.
Despite the use of “hassle-free” twice, I will credit them for noting that “investing in real estate has a reasonably long lock-in period,” since there’s potential for people to feel they can day-trade shares of real property, and I don’t know that this would be any easier than throwing darts at a list of the Dow Jones equities and trying to beat the market.
Noting that they are backed by the BBB and detailing who their lawyer is, I find a little odd. But that’s just me.
When you click on their “View Properties” page, it provides you with a link to “Book A Meeting.” There are only two active properties, since most are marked “Sold Out” like this opportunity:
They’re not the best at “selling” these spaces.
Here’s their specs:
Gorgeous, large & bright 1 bed condo suite in a desirable building in a great area.
Large living-dining room with walk out to balcony. Spacious bedroom, upgraded bathroom. Has strip laminate floor throughout, modern kitchen with granite counter, and stainless steel appliances.
Extras included are a stainless steel fridge, stove, built-in microwave, dishwasher, washer-dryer and all light fixtures. Also includes venetian blinds window covering.
Size of 500-599 sq ft and a spacious balcony of 84 sq ft.
Includes 1 parking and 1 locker in a upgraded building with all modern facilities such as gym, sauna, swimming pool, movie theatre, party room.
I mean, “size of 500-599” is like trying to price a share of stock while saying, “P/E Ratio between 8.5 – 19.5.”
But marketing isn’t their forte, I get that.
They’re experts at reinventing the wheel, which is essentially what these two forms of fractional real estate ownership are.
Like I said, it was only a matter of time before somebody tried this, and if these two websites are any indication, this isn’t a beta-project, but rather these investment vehicles are active.
Would you invest in something like this?
Why? Or why not?
More to the point, if somebody didn’t want to buy ‘shares’ in a condo as an investment, but rather wanted to buy shares, pieces, or fractions of a condo and be able to live in the unit, would that be possible?
I’ll come back to this next week, but for now, I encourage the finance guys (you know who you are…) to weigh in on Addy and BuyProperly…
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