A Contractor’s Perspective on Fractional Real Estate Investments

Terry Chester, an LFG client and owner of two spectacular fractional homes on Fripp Island in South Carolina (La Coeur de Terre and L’Ange de Mer) wrote the following article sharing his perspective on why fractional ownership is a great investment even in a shaky economy:

Fractional Real Estate: A Great Investment in Any Economy

A recent article from Kristy Eppley Rupon of the McClatchy-Tribune News Service headlined: “Investors put money into homes rather than stocks”, recycling the old adage that real estate – particularly luxury homes – is the only sure way not to go wrong in investments. When so many investors have lost large percentages of their paper wealth in the recent stock market debacle, the benefits of a tangible asset versus a stock portfolio snapshot is brought painfully home.

Not that real estate investment has been painless in the real economy. As a contractor, I have felt the borders of my stable little island receding inward as the tide rises higher and higher. Keeping my feet dry has been altered to keeping my head above water, snorkel in hand. However, losses in real estate are generally not catastrophic even in the face of foreclosures. There always remains reasonable value even in an undervalued market. I recently sold a speculative home that had been sitting empty for more than two years – a beautiful home that I would rather have moved into than lost – and even though I took a financial bath, the loss was not a back breaker and was due to interest on construction money and not depreciated value. Indeed, even in this economy, the home was appraised five percent higher than it had been prior to construction.

So where is the best place to park that formerly secure stock market cache? Some people might consider hiding their money in the mattress to shield it from potential future volatility; whereas others might keep their stocks on the hope that the market will rebound to its original level. My father-in-law researches the stock market tirelessly – weighing which companies will profit from the multi-stimulus packages being rolled out weekly, upcoming energy policy, and infrastructure needs – while keeping all of his money safely tucked away in his credit union earning a neat two and a half percent. The idea of investing your assets in real estate is still a very good and proven option.

Vacation property – especially oceanfront property on the southeast coast of the United States – offers extraordinary appreciation gains while enhancing the real world benefit for the family; but maintenance burdens and carrying costs can easily outstrip the benefits. Leaving a home empty for months on end (especially oceanfront property) is not good for the house or for your periodic visits, where you will no doubt spend much of your time playing Bob Vila. While the family lounges on the sand, the only tan you will be getting is under the fluorescent lights of the Home Depot looking over a wide selection of wood grain toilet seats.

Studies have shown that most upper middle class and affluent Americans vacation an average of twenty-eight days per year. Maintenance costs are generally a fraction of the cost of renting comparable property. Oceanfront property is in such short supply and high demand that it is very difficult to predict the upper end of the market appreciation for this commodity.

Fractional Ownership in a private home or a Private Residence Club may just be the most efficient and cost effective way to own an oceanfront vacation home. Although the concept of dividing the cost and usage of property is as old as taxation, it has not yet become the standard format for second home ownership on the east coast as it has in many of the Western ski resorts.

One reason people shy away from a divided interest in vacation property is the similarity to time shares, which have well deserved reputations for poor returns on investment. Like a new car, the depreciation begins at the moment of purchase. However, Fractional property and Private Residence Clubs have no such issue. They generally involve very high end luxury vacation property, such as multi-million dollar beach front homes for instance, which are unaffordable to most and the upkeep makes them unappealing to those who might otherwise easily make such an investment. The potential for a healthy ROI in Fractional Ownership appears to be not only plausible, but a good recommendation.

About TLC Construction

Terry Chester owns and operates TLC Construction, LLC, a design-build residential construction company based in Beaufort, SC, with interior designer, Leigh Hill Chester. Together, they have more than 30 years of experience in new construction and remodeling and have completed custom projects for a select clientele in the Bahamas, Miami’s exclusive Indian Creek Island, West Palm Beach, and Beaufort, SC.

To learn more about their newest fractional projects on Fripp Island, South Carolina, visit the property websites or contact them at (843) 524-1102:

“Le Coeur de Terre” (The Heart of The Earth)
Website address: www.vipfripp.com

“L’Ange de Mer” (The Angel of The Sea)
Website address: http://www.vipfripp444.com