How does Fractional Real Estate compare financially to Whole Ownership?
There are many emotional reasons for wanting to buy a lake cottage. These reasons may or may not apply to everyone.
Financial reasons are much more of a reality, less subjective and help define why Fractional Real Estate makes sense. To understand these reasons, it helps to look at what it really costs to own a cottage and to compare the ownership models.
In this comparison, we will look at what it costs to own a truly grand cottage. A cottage you will love to take your family to year after year. A cottage you can relax at. A cottage on a great lake with access to great amenities. Of course you could always compare a grand cottage owned as Fractional Real Estate to something less desirable, but our summary will show you why this doesn’t make sense
For the analysis here, a whole ownership cottage that is priced at $650,000 is compared to a 20% Fractional Real Estate ownership priced at $145,000.
First, consider the Initial Costs:
If each cottage is financed with 20% down, the Fractional Real Estate ownership model saves you $101,000 in downpayment expenses alone.
Second, consider the Mortgage Costs:
When the remaining 80% is financed, based upon a 6%, 30 year fully amortizing loan, comparing the cumulative mortgages is important. The annual mortgage for whole ownership is $37,412 per year and the 20% ownership is $8,346 per year- saving you $29,066 per year. When you look at the mortgage interest only for thirty years, the Fractional Real Estate ownership model saves you $467,987 in interest.
Third, consider the Carrying Costs:
When you buy a cottage, you will also need to budget for taxes, utilities, insurance, and annual upkeep. Assuming the same level of upkeep for both types of ownership, the Fractional Real Estate model saves you approximately 4 times the carrying costs because you are only responsible for the amount of cottage that you own.
Finally, consider the Usage:
According to a survey done by the National Association of Realtors, the average vacation homeowner typically spends only 39 nights in their vacation home and at most averages around 55 nights per year*.
If you used your cottage 55 nights a year and did not include Carrying Costs, the whole ownership cottage costs you $3549 per night the first year and $959 every night thereafter. The Fractional Real Estate ownership costs you $958 per night the first year and $214 per night every year thereafter.
Of course there are many other factors to consider such as tax savings due to interest expense, market appreciation, market depreciation, tax reductions if the Fractional Real Estate is rented – but the savings and reduced risk associated with Fractional Real Estate is undeniable.