|> Interval Ownership|
Don & Sylvia Leutz Realtor Brokers
CRS/ABR/GRI/RSPS/SFR e-Pro Certified
HAWAII REALTOR BROKERS
REALTOR-BROKERS, Also Licensed in Nevada and California
CALIFORNIA REALTOR BROKERS
NEVADA BROKER & Broker Salesperson #B.0143356/BS.0143357
Accredited Buyer Representatives
Don is a Certified Residential Specialist
GRI - Graduates of the REALTOR® InstituteResort & Second Home Marketing Specialists E-Pro Certified SFR Certified Members, Institute for Luxury Home Marketing Century 21 All Islands P.O. Box 223700 5-4280 Kuhio Highway Princeville, HI 96722 Office: (808) 240-2413 Cell: (808) 652-9402 Email: Leutz@Inreach.com
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Have you searched the MLS, found the luxury home of your dreams and wondered how the price could be only $250,000?
You might be disappointed when you call and find out that you are looking at a Shared Ownership offering of only two or three months each year!
It won't work if you are looking to relocate or retire... but you might want to consider the possibilities if you are interested in vacation home ownership. Here is some of the information you will want to know in order to see if this type of purchase might be right for you.
What is a Fractional Ownership? Fractional Ownership and Interval Ownership are the same thing. A fraction means a part of something, such as 1/2, 1/3, 1/4 or 1/6. In Hawaii, Shared Ownership properties are typically divided into six shares of approximately 60 days each. Each fraction gets the use of the property for their assigned interval each year, reserving some days for routine maintenance and repair.
How is this type of ownership different from normal ownership? Fractional owners share all expenses and uses according to how big their usage is. For example, a 1/6 owner usually gets to use the property 1/6th of the days of the year and pays 1/6 of the taxes, insurance, repairs and remodeling of the property. Fractional owners share the management and decision-making power for the property, so there is usually a committee of six owners that talks at least once a year to decide on how to manage the property.
What are the annual maintenance fees per interval? The regular annual fees will be anywhere from $1,000 to $10,000 per interval per year. However, with an extremely high end vacation estate, you could actually be looking at an annual fee of up to $40,000 or more. The amount may change when there are changes in the actual costs of the property. As an owner, you will be part of the process for determining costs for future years or appointing someone to do this for you. The types of expenses and expected expenses for the first and expected future years are all listed on the "Fees Schedule" for each Project. This will be part of the sales package you receive for any project you purchase. The only additional charges you may see are for things that are not now known, including increases for increased taxes, insurance premiums, condominium maintenance fees, damages not covered by insurance and similar expenses. These are the same types of expenses you would incur in any type of property ownership.
What do the fees pay for? The estimated fee pays for monthly condo maintenance fees (if it is a condo), and for all projects, shared costs for grounds maintenance, utilities, project management, real property taxes, group insurance, building maintenance, common utilities, cable TV, and reserve accounts created to pay for future furniture and building replacement.
Are there any other member fees? Not usually, but when units are occupied by members or owners or guests in a resort rental program, there may be a modest check-in fee, a one-time key fee and periodic or end of occupancy cleaning service charge. There may also be automobile and/or boat ownership expenses.
What Financing is available to buy an interval? Each project is different. Some lenders allow the developer to sell intervals with promissory notes and mortgages. Usually you must put 20% or more down with approved credit. Not very many lenders are currently in the fractional lending market, so the project lender may be the best option for you.
How are the property taxes paid? All taxes are collected annually from the interval owners and paid by the Plan Manager or through the Fractional Ownership Plan. Each owner will receive a copy of tax bill showing the total and the calculation for the individual interval's share.
Above answers courtesy of Homeshare Hawaii LLC 2006, Steven R. Lee, Attorney, 4334 Rice Street, Suite 204C, Lihue, HI 96766 (808) 246-1101. www.homesharehawaii.com
Does an Interval Ownership qualify for a 1031 exchange? The answer is yes, as long as the primary purpose of the fractional ownership is for investment purposes rather than for personal use and enjoyment, the investments should qualify for tax deferral under Section 1031. There are two authorities that support this proposition (10) the 1081PLR allowed 1031treatement of a vacation home where the taxpayer intended to acquire property for personal enjoyment and as an investment. The IRS held that minor personal use should not render property ineligible for Section 1031 if the relinquished and replacement property are essentially investment property. (2) The Treasury Regulations define qualified property as follows: Unproductive real estate held by one other than a dealer for future use or future realization of the increment in value is "held for investment" and not primarily for sale. All investors should consult with their tax advisor when considering use of fractional ownership interests as part of a Section 1031 tax deferred exchange.
Answer submitted by Old Republic Exchange Facilitator company. For additional info check their website at: www.orexco1031.com.
Fractional ownership is becoming an increasingly popular form of property ownership in Hawaii where resort living is in high demand and the cost of property continues to rise. You could view this property as either an investment or a second home. The Tax rules for each are different. You should consult with your tax professional on your personal situation prior to the purchase of a Fractional Ownership Property.