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Fractional Ownership FAQ's


                                   Frequently Asked Questions (FAQs)
                                    about Fractional Ownership


What is Fractional Ownership?
Fractional real estate ownership is like ownership of your primary residence. You have the protection of a deeded interest in Fee Simple (not a leasehold or timeshare). Your attorney may tell you it is an undivided Fractional interest as a tenant in common with each of the other Fractional owners, with all the benefits and rights that accompany normal property ownership.

Under Hawaii law, a Fractional owner must own at least 60 contiguous days or more per year; any less is a time share. For instance, it is possible, and likely attractive, to own 120 days (FOUR whole months of Kauai Paradise!).

How is this type of ownership different from normal ownership?
Real estate studies show that owners of second, or vacation homes, stay an average of less than two months during any year, yet they must bear the many costs of full year ownership. As a Fractional owner of 60 days, you pay one-sixth of all costs associated with the property such as taxes, homeowner’s dues, management, insurance, reserves, and incidentals.
See our Comparison Chart »

How is this different than a timeshare?
Timeshares are often the buyer’s first gentle step into owning a vacation property. They also enjoy the benefits of trading into other timeshare properties around the world. But Fractionals are the next step and better in many ways:

  1. Pride of ownership
  2. All critical decisions are made by you and the other 5 owners, not by a corporation, developer, or other entity with rules, restrictions, and agendas very different and often at odds with your goals.
  3. If you compare the cost of purchasing superior timeshares, such as Marriot properties, you will find that eight weeks (56 days), is usually much more costly and Marriott still charges you taxes, maintenance, annual fees, and more.
  4. Although nobody can predict future values of assets, timeshares do not enjoy a reputation for appreciation and are most often very difficult to divest. By contrast, selling a sixty day deeded Fractional might seem more attractive by comparison, and has, in general, followed the ups and downs of fully owned real property. In Hawaii, Fractional Ownership is fairly new, and the owners are happy, thus very few have resold. According to Old Republic Title and Escrow, those few have all sold at higher than acquisition price. Also, in general, time share resales sell at 50% of the original purchase price.
  5. Fractional time periods are usually fixed, say for instance January and February, so you can plan well ahead and save money on lower airfares and do better usage planning with friends and family.
  6. Fractionals may often be a better quality than a timeshare property that is basically used 50 times a year by 50 different sets of occupants.
  7. Fractionals are mostly high end resort condos, and occasionally luxury homes that are more spacious with quality amenities. See our Comparison Chart »
Is my real estate purchase secure?
You own a deeded fee simple property with the same security as your primary residence.

How much time do I own each year?
You must, by Hawaii law, own at least 60 contiguous days or more.

Can I purchase more than one interest?
Yes. How nice it will be to own four or more months in the American Paradise of Kauai!

Can I buy a Fractional interest with someone else or a group of individuals?
Yes. By joining with others, perhaps friends or family, you can further reduce your cost of ownership. Also, a Fraction can be purchased by a business or family trust. Much of this is described in the legal documents you are provided during escrow. They may be excellent candidates for 1031 Exchanges, a service provided by OREXCO, a division of Old Republic Title and Escrow Company. Why is that? Many 1031 owners only have a couple of hundred thousand dollars, and in Hawaii, everyone’s dream location, that is not enough to buy a condo or home or other ‘like-kind’ property. But it IS enough to buy a Fractional.

What are my annual home ownership costs? How often are they paid?
We provide clients a pro forma example of annual costs, and developers will provide property-specific estimates. Such costs are reviewed at the annual meeting of the six owners, working with their selected management company experts.

What does my annual maintenance fee cover?
Fees are discussed in detail in the legal documents. One important protection for you is the fee payment process. We follow the recommendations of our trusted and experienced Fractional attorney, Mr. Steven Lee of Kauai. The annual owner’s fees are determined by the actual costs such as insurance, homeowner’s fees, costs for management services, taxes, maintenance, reserves for future repairs and replacements, and similar expenses. The owner would receive a bill in November which is due in full by early December for the upcoming year. Failure of an owner to pay in full on time may in all likelihood, and based on the legal documents of the Fractional, be denied the use of the property until such time as they are paid in full. In an extreme case, default, the other owners, perhaps through their management company, are authorized to rent out the property and apply the net income against the default. This is strong protection for your ownership.

Who is responsible for taking care of the property itself and paying all the bills?
In the first year, the developer, usually simply the present owner of the condo, coordinates these matters. In time, the owners take over this task, usually by hiring a property management service.

Who is the property manager?
The owners usually interview and hire a reputable property management service. We can provide suggestions as to which might be considered.
Recommended Property Managers »

How are property taxes paid on the units?
The County of Kauai sends an assessment bill each year indicating the assessed value and accordant taxes. The owners are responsible for paying all such taxes, and later a good management firm will handle such accounting.

Are there any additional fees or charges above and beyond the annual maintenance fee?
There may be unanticipated, unbudgeted expenses which would be addressed by the owners with the advice of their management firm.

When I purchase a Fraction, such as at Plantation at Princeville #722, do I become a member of one or more associations?
There is a homeowners association (called an HOA or AOAO, and in the case of a Fractional, AOFO) at all condos, and a small annual fee from Princeville Homeowners Association for their services and maintenance of the luxurious common areas, parks, hiking paths, landscaping, and so on.

May I gift or rent any of my designated time? Can I exchange weeks with any of the other owners?
Yes, but check the legal documents first to determine your rights and responsibilities. You can contact the other owners and might make a trade if all parties agree, for instance.

Who are the other Fractional owners with whom I share home ownership?
They are most likely to be folks just like you who are looking for a better way to own real property without the costs of a full year ownership.

How do I sell my Fraction should I choose to do so in the future? What are the rules on resale?
Resale of your Fraction can be done by a Hawaii licensed broker and their agent, preferably Your Fractional Marketing Team. It would be handled just like the sale of any real property, with MLS listing, marketing and promotion, and so on. Often the other owners would have a right of first refusal, and we as your agents can assist you with this task.

Is Fractional financing available?
We have identified at this writing three energetic lenders on Kauai who we know and trust. In general a FICO score of 700+, 25% cash down, and superior credit is reasonably required.
See our section on Fractional financing »

Is the purchase of an individual Fraction contingent on securing buyers for the other Fractions?
In the Fractionals we recommend, the purchase of more than your own Fractional is not required. There may be occasions, however, where a property you want will require some number of escrows, maybe 2 or 3, before title passes at close of escrow.

Can my Fractional Ownership qualify as a like-kind property in a real estate exchange (1031)?
We are not allowed by law to act as 1031 advisers, but can recommend sources on Kauai who can advise you, such as the recommended OREXCO. The outlook is very positive.

Am I allowed to make any changes to the interior of my residence?
This is a possibility but you must consult the legal documents and probably the other owners for written permission.

What happens if there is damage to the property? What about smoking and pets?
Damage during your period of usage is your personal responsibility. No smoking, no pets.

Are there storage facilities available for my belongings?
Some properties have locked owner’s storage, or they are available on island for nominal cost. Even your personal car can be stored.

Does this property qualify for tax benefits?
Consult your tax advisor. The outlook is positive.

WHAT OTHER QUESTIONS SHOULD YOU ASK?
See the detailed "A Consumers Guide to Purchasing Fractionals" published by our colleagues at Old Republic Title & Escrow of Hawaii in that section of this material.
"A Consumers Guide to Purchasing Fractionals" »

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