Profit Opportunities in Luxury Fractionals - A Summary

Profit Opportunities in Luxury Fractionals – A Summary

By David M. Disick and Brenda Wild

A number of readers of our current Papers published by Fractional Life have suggested that we distill a summary of the profit opportunities in luxury fractionals for investors, developers, real estate brokers and homeowners. Hence, this Paper.

11 Fundamental Facts

1. Since the average use of second homes in the United States is approximately four weeks annually, luxury fractionals have burgeoned; purchasers ask "why pay 100% of the cost of a vacation home used only a fraction of the year?"

2. A luxury fractional purchase is therefore an economically sound investment, especially in the current climate.

3. Buyers' basic desires to own a second home will not change.

4. The growth of the luxury fractional market since its advent by DMD in the mid 90s (Franz Klammer Lodge) has been enormous, reaching $2 billion in 2007 sales and even $1.5 billion in '08 sales. This contrasts quite favorably with reverse trends in the whole ownership market, especially in the current climate.

5. Contrary to past recessions, there is an unprecedented amount of capital sitting on the sidelines; a respectable portion of this capital will inevitably return to the luxury real estate market.

6. Given the enormous influx of government funds to the private sector, inflation is a likely outcome. Accordingly, a flight to hard assets can be expected, benefiting the tangible nature of luxury real estate.

7. Revenues from luxury fractional sales exceed those from sale of a whole ownership. From experience, the "fractional multiplier" is from 1 1/2 to 2 times the cost of acquiring the whole ownership. Thus, for example, assuming a $5 million whole ownership acquisition cost; 10 fractionals per residence and a conservative 1.5 multiplier, that results in $7.5 million in revenues, a 50% increase over acquisition costs.

8. Fractional sales broaden the market of prospective purchasers because of the fractional purchase price.

9. There is an oversupply of current whole ownership inventory by reason of the current climate.

10. Fractionals are widely recognized as becoming the dominant form of resort real estate and the first to rebound from the current climate.

11. The 75,000,000 baby boomers are still out there.

Profit Opportunities for Investors

"Economics 101" counsels one to "buy low and sell high." The current oversupply in whole ownership, together with the fractional multiplier, enables investors to do so.

Moreover, the fractional industry is in its incipiency, with enormous expansion projected.

Profit Opportunities for Developers

In addition to the fundamental fact of fractional salability versus whole ownership, the fractional multiplier creates significant increased profits and fractionals enable the developer to access a broader market.

Profit Opportunities for Real Estate Brokers

In addition to the fundamental luxury fractional salability:

• Brokers can earn greater commissions because of the higher revenues.
• Brokers can have "two bites of the apple" in selling whole ownerships to companies like ours who fractionalize homes and thereafter selling the fractionals
• When the market rebounds and whole ownership sales revive, the broker's fractional owner today is the broker's whole owner client tomorrow

Profit Opportunities for Homeowners

Homeowners can sell their homes to companies like ours who will fractionalize them. Moreover, homeowners can participate in a co venture with our company on negotiated terms which allow the homeowners to share in the profits from the fractional multiplier. Furthermore, homeowners can retain one or several fractions and continue to enjoy their resort lifestyle.

The Evolving Definition of Luxury and its Positive Impact on the Luxury Fractional Market

This phenomenon itself creates additional profit opportunities. These will be the subject of our November Paper on the Fractional Life website.

22/10/09
 

Articles

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An Introduction to Fractionals

Art:
Fractional art donations prove charity starts at home

Handbags:
25 questions to ask about fractional handbag clubs

Boats & Yachts:
25 questions to ask a fractional boat operator
Fractional Boats in New Zealand
Pushing the (fractional) boat out
Boats & yachts- what's on offer?
Fractionalize This

Classic Cars:
25 questions to ask a fractional car club
Why opt for a 'fractional' classic car?
Classic Car Club Feature
Getting the most out of your fractional ownership experience
Why Not Rent?
You've Always Loved Cars?
Fractional Life hits Le Mans

Destination Clubs:
Lifestyle Asset Group: the best of both worlds
Relationship Selling to Todays Affluent Fractional Clientele
Mixed Use: Avoiding a mix up
Focus on the Registry Collection
DCs- Variety is the spice of (fractional) life
Fractional Property Glossary
Aspirational vs. Inspirational Media
Member Strategies For Lean Times
Brand Maintenance During An Implosion
What Goes Up Must Come Down...
Savings through Foreign Exchange
Fractional Finance Solutions
Destination Clubs- an alternative?
Fractional Ownership Heads to Europe
Private Residence Club Perspective Part 1
Quintess
Ultimate Resort
Calistoga Ranch
The Weybridge Collection
The Villas at The Grand del Mar
The Solstice Collection
Vacation Visions: Exceptional Exterior and Interior Designs of Residence and Destination Clubs 
Why the Boomers will change second home ownership in the US
Middle East Leisure Real Estate Market Booming
Bear Mountain Resort - A View from Paradise
New Association For Fractional Ownership
The New Vacation: A Time to Retune Re-Connect

Consultancy:
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Exchange:
The Golden Rules of Fractionals

Racehorses:
A Horse by The Name of Fractional Life
Running Down a Dream

Corporate Hospitality:
So Long to the Suite Life

Aircraft & Jets:
25 questions to ask a fractional jet operator
Top tips for fractional jet travel
Jet Republic pilot applications reach new heights
Focus on Fractional Jet Europe
A closer look at fractional aviation
CoGoJets introduces jetpooling
Joining the jet set
Fly for a fraction of the cost
Flying without Wings
Can't afford that jet? Rent it
How Private Aviation Works

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Fractional ownership: is it timeshare in disguise?

Private Clubs:
A tale of two cities - Private residence clubs in San Francisco and London
The Italian Job: interview with Byrne Murphy of Palazzo Tornabuoni
Mixed Use: Avoiding a mix up
PRCs with added benefits
Northstars 'stay and play ' option
Private Residence Club Perspective
Fractional Property Glossary
What are the ingredients for the ideal Private Residence Club?
Savings through Foreign Exchange
Fractional Finance Solutions

Real estate:
Fractional Life in Ireland: For peat's sake!
Fractional Summit USA 2010- Speaker biographies
25 questions to ask about fractional property ownership
Fractional Summit Speaker Biographies
Fractional Property - The New Normal
Gay Community Embraces Fractional Property
Fractional Real Estate Investment Or Lifestyle Purchase?
Fractional Sales: Square Pegs In Round Holes?
Fractional Real Estate Commissions
Urban Fractionals
European Mixed-Use Resort Development in 2009
Mixed Use: Avoiding a mix up
Property- the legal issues
Fractional Holiday Getaways
Fractionals-Recession beaters?
State of fractionals
Fractional Property Glossary
Savings through Foreign Exchange
Fractional Finance Solutions
Fractional Property- the legal issues
Fractional Property Regulation
Fractional Ownership? We'll have a piece
Keep The Door Open
Why Fractional Property?
The Benefits of Fractional Ownership in Private Residence Clubs
Middle East Leisure Real Estate Market Booming
New Association For Fractional Ownership
Saving Homes, Homeowners and Banks Through Fractional Ownership?

Lifestyle:
Savings through Foreign Exchange
Convergence in the Fractional marketplace
The stock market for songwriters

Supercars:
25+ questions to ask a fractional car club
Live The High Life In A Fractional Supercar
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Focus on Marque II
Eco-road-warriors- How will the supercar club line-up of the future change?
Fresh metal- What's new on the supercar front?
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Luxury Motorhomes:
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Wine & Spirits:
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