All Forum Posts by: Lou Smith

Has anyone had any success (or horror stories) with fractional ownership of a second or vacation home as a rental?

My understanding is that fractional ownership is different from a timeshare as the buyer owns a portion of the actual home (generally from 1/2 to 1/8), not just a right to use it. So, property value appreciation accrues to the owner and can be realized upon a sale--plus any income associated with the rental of their share. Generally, these are implemented as a special purpose LLC with owners buying and selling out of the LLC--with all owners sharing costs such as property tax, insurance, maintenance, utilities, etc.

Do you think this is good approach to limit the size of an investment, or do the risks of the other owners outweigh any potential benefit?

If you're new to STRs or are considering an STR in an unfamiliar town, you should carefully evaluate all of the local policies regarding the rentals of STRs before you purchase. If there are existing laws and written policies, that's good--then the impact of STRs has already been discussed by the community and any limitations have been codified. If there is nothing on the books, then you need to be careful. Towns often push back against STRs and those changes can be quite unfriendly to STR owners--in terms of revenue generating potential.

Regardless, it's best to reach out the state, town and HOA to see what's permitted, what's not, and if any policies are either in development or simmering.

To make a vacation home come close to cash-flowing, you need to avoid the property management companies. They are convenient, but they often take 15 to 25%, depending upon their services. Being close and managing the property yourself is the key.

If we're leasing a property for $50 sf/year, what discount might be reasonable for a municipality (with tax-supported revenue) and a stellar (AAA) bond rating to request? 1%, 5%, 10% or more?

All great feedback. Thank you. What I’m hearing: what matters more than any change in land value is the ongoing revenue stream that can be generated by the business in that location. And the ability to realize that revenue stream is dependent upon community acceptance and the willingness of the town to support a zoning change. Importantly, what the town SAYS they will support could be quite different than what they will actually ALLOW via a real zoning change. Thanks again for everyone's feedback and ideas. Much appreciated.

Eric, you hit it dead on. The property is the first residential lot adjacent to a commercial sector. And the community is supportive--with the town indicating they would accept a zoning change. My question is how much value do I create with the zoning change? The plan is to use the increased value to help with the financing of the building. The price of the residential lot is $200K, what might the value of the lot be after the rezoning to commercial--but before any building is constructed? Any range or SWAG would be appreciated.

Does anyone have any heuristics or rules of thumb regarding the price premium (or discount) associated with changing a residential, undeveloped lot to a commercial lot--assuming you can get the zoning change? I'm sure it depends upon what type of commercial entity goes on the property, so let's say the SFH residential lot can be converted to support a small deli or restaurant serving the community. All thoughts and experiences are welcomed.