Maybe that Vacation home IS possible

Fractional Financing....What is it? My friend Ken Miyamoto at Allegiance Mortgage sent me some great information this morning....

Fractional Financing
“The chance to own your dream home in your dream vacation spot for a fraction of the cost”

Fractional financing has been around for over 15 years. It has been the #1 mortgage choice in the luxurious ski resorts in the Colorado mountain resorts where the common adage is, “the billionaires have moved the millionaires out of the market”.

Simply put, fractional financing is a way to own your dream home for a fraction of the cost. You may purchase a share of an $800,000 dream second home for as little as $200,000 or less….a fraction of the cost. And you don’t have to pay one dime for it when you don’t use it! When you make your monthly mortgage payment you never have to ask yourself, “I haven’t been there in months; what am I doing paying for this when I don’t use it?”

This mortgage has no similarities to a time-share because fractional mortgages provide you the normal tax benefits of home ownership, separate titled or deeded ownership of your share, opportunity to rent that time you don’t use it and you get your share of the appreciation; none of these benefits can be associated with a time-share.

A management agreement and outside management service (like a homeowners association agreement) controls the maintenance and management of the property when you are not there. All you do is show up to enjoy your dream home.

Here are the numbers to purchase an $800,000 dream home:

$200,000 Share = 13 weeks of use (more than most people can actually get away….but if you can get away more than that, buy two shares!)

$180,000 mortgage = PITI payment of $1,486 or $17,832 per year

Rental income 6 weeks = $15,000 per year

Net cost $2,832 per year or $236 per month (Depreciation, tax benefits vary by person)

You may be able to own your $800,000 dream vacation home
for as little as $236 per month!!

And be able to use it more weeks than you can actually get away and
never have to pay a dime for the time you don’t use it.


BUT WAIT IT GETS EVEN BETTER!!
Why don’t you use your IRA funds for the down payment?? You can legally partner with yourself and realize some gains in your IRA which are tax-free, of course, until retirement.

Discuss this with a real IRA expert such as Mr. Todd Grill, President of Entrust Midwest, LLC. Todd will explain why a combination of fractional mortgages and leveraging your retirement funds with real estate just might make the most sense to build wealth and live in your dream vacation home! Give him a call at 763-559-5363.

FAQ

Q. Why don’t I just buy a time-share?

A. That is certainly a possibility but usually you only get to use it a week or two a year (is that enough?). You don’t get the appreciation and you might not get a tax benefit. And unlike fractional financing, with a time-share you might have 26 other users rather than 2-8. Regardless of how they are structured most time-shares are closer to renting than owning. Fractional mortgages are real, deeded, titled home ownership.


Q. Is this some new mortgage scheme or idea that might not work as planned?

A. Fractional Financing has been in existence for many years. It began in the ski resorts of Colorado but has spread to California and other vacation spots. It is financing that is provided by a very large federally chartered bank using their own money. It definitely is not a new or trial mortgage. Of course, once you have your title in your hand, it will be easier to believe. You will own the dream home of your life for a fraction of the cost!


Q. Is it really conceivable that I could buy my dream home and only have it cost me only a few hundred dollars a month?

A. It is possible. With some tax benefit or write-off of interest, some possible appreciation, some possible rental income when you are not there, you could very well own a million dollar dream home for a few hundred dollars a month. Now every case is different and we are not financial planners or accountants or attorneys so you do need to sit down with your financial team and work out the numbers for yourself. But what is certain is you will own that dream home for a fraction of the cost and be able to use it more time than you will probably be able to get away.


Q. What happens if one shareholder defaults on their loan?

A. Nothing happens; the lender owns that share and will sell it; just like any other mortgage. With the current mortgage on your primary home, if your next door neighbor defaults on his loan, it doesn’t impact you or your loan. The same is true of fractional financing; each loan is separate and has its own separate title or deed and one has nothing to do with the other.


Q. Can I sell my share when I want and for what price I want?

A. Of course; a fractional mortgage is exactly the same as any normal mortgage; it is your property to sell or keep.

Q. Who decides when I can use it?

A. The association or management agreement spells that of which you are a part. Most commonly, use is evenly distributed by seasons and special holidays are rotated. The use is equal and fairly distributed throughout the calendar year. In fact there is a standard formula that is used.


Q. How many shares are permitted?

A. We will permit up to 13 shares but the most common numbers are 3-8 shares but each developer or owner can determine the number of fractions they wish to have and that number is usually based on the market. However, if you offer eight shares and that is not enough time for one particular person, they can purchase two shares to increase their use.

Q. Can I share time with other shareholders?

A. Certainly you can contact the others to see if they want to switch times with you or rent some of your time to them or others.


Q. What about maintenance issues or needs in the future?

A. Maintenance is handled by the management agreement or home owners agreement. Most often the shareholders will provide some fund for future needs as do other or normal homeowner associations.


Q. What if one of the other shareholders wants to change the décor or fixtures?

A. Individual shareholders can’t make those decisions; those are all made by the management company according to the management agreement.


Q, What is the loan procedure to get a fractional mortgage?

A. Just like any other mortgage. Contact Ken Miyamoto at Allegiance Mortgage of MN for an application; it is just as simple and straightforward as any residential mortgage….it might even be more simple and straightforward.


Q. I write-off a lot of my income. Can I get a stated income fractional Mortgage?
A. Absolutely you can get a stated income loan.


Q. How about an interest-only payment? Is that possible, too?

A. It certainly is and is quite common.

Q. If I want to sell my single family home on the lake but would like to keep use of it for a little part of the year, could I put it into four fractional pieces and sell only three of them and keep one for myself?

A. Of course. That’s another beauty of fractional mortgages; you can sell to get out some of the equity but you don’t have to give up total use of it. Fractional mortgages can be the best of both worlds for the buyer and the seller.


Q. I’m a developer and own just the kind of place that is perfect for fractional financing. But I got financing to build it and my current lender will not permit partial releases of the title on each property. Do I have to wait until I have all shares sold?

A. You may choose to wait to get all the buyers for the shares or we can provide you the financing (called a Conversion loan) to pay your construction lender off so you can sell shares one at a time and get each buyer their own title as each loan closes.

For more info on Fractional Financing and other great mortgage programs contact Ken Miyamoto at kmiyamoto@allegiancemn.com