What to Know About Shared Ownership – Your options range from solid to sketchy

Occasionally buyers and sellers ask about shared ownership.  How does it work, what is a share worth, are there any available?  
It’s a complex question and every share situation is different.  Sharing a property can work well for some, not so well for others and the difference is in details of the share set-up.
Often the owners are a group of friends that go together to buy a property and share the use.  It’s pretty loose.  Often they don’t bother with a written partnership agreement or maybe even a calendar of use.  They are all friends, after all, and have owned the place forever and there’s never been a problem.  Then one of them wants to sell his share.partnership-cut-650w
What do we do now? How do we decide what price to ask?  Do the others get a chance to buy it first?  How do we decide who to let into the partnership?  If none of this is written down anywhere or hasn’t even been thought about, new owners are walking into an unknown situation.
Other times the owners have covered all of this in a written agreement, maybe even formed an LLC to run the property.  These partners generally have a set calendar of use, a budget, rules and an exit strategy.  This kind of shared ownership has more value and is saleable because new owners can understand what they are buying into.
The most organized situation is a Quarter Fee Association or some other arms-length management entity.  It administers the unit, sets and enforces the rules, collects dues and maintains the property.  These shares are freely transferable and pretty easy to buy and sell.
Any shared interest will be hard to finance and shares generally sell for cash.  Sometimes another partner or the seller will finance for the new owner.  Sometimes, one partner got the loan and sold shares without telling the lender so the lender thinks there is one owner.  You can imagine the risk in this.
The best financing strategy is for the buyer to use a line of credit from another property for the cash to buy the share.
Generally, quarter ownership is the smallest fraction that maintains its value.  There are fifth shares, tenth shares and timeshare weeks but anything less than a quarter is generally hard to sell for what you bought for.
As to time shares, you only need to know that they are not real estate and not an investment.  The real money for timeshare operators isn’t from selling all the weeks.  It’s the ongoing dues from 52 owners for each unit.  You can always rent a week or two just like at a hotel without buying into the “opportunity” to trade weeks.  Just say no to time share.
If you are part of a small share partnership and want to sell, your easiest exit is if another partner buys you out.  If many of the partners want to sell, selling the whole property will bring the partners the most return.
No matter what kind of shared interest you have or want, be sure there’s a written agreement that outlines all of the rights and responsibilities of the owners.  
Otherwise you are a test pilot.

Speak Your Mind

*

Meet Your Professional

Tel:

,

The Real Estate Insider