Hawaii Says Aloha to Fractional Home Ownership

By: Kevin Bilberry

Hawaii has been known for its creative home ownership solutions throughout the years. They were the first state to have condominiums in the 70's. Timeshares were next to follow, but they had their problems. Prices and risks were high, with a lot of fly-by-night companies just trying to make a quick buck. Owners were paying big dollars for usage that only amounted to a week or two per year.

The ability to secure an affordable piece of Hawaiian real estate became almost non-existent. Properties with any sort of ocean view or beach front were worth tens of millions of dollars. That's a pretty hefty price for a vacation home.

In 2004-2005 the immersion of fractional ownership gained in popularity. It provided the convenience of timeshare at a lower price, provided a more secure investment and allowed for higher available property usage for the owner. It contained the same maintenance agreements, included resort-quality facilities and the option of utilizing property management for additional rental income.

How does it work?

Basically, two to six individuals obtain a fractional ownership of the real estate or condominium unit. Time intervals are allotted to each person designating when they have the right to use the property or rent it out. All maintenance fees, taxes and expenses are shared amongst all the owners, and paid for in advance at the beginning of each year. All of the owners vote on decisions regarding maintenance, the hiring of property management and other administrative details.

Everyone is responsible for keeping the property in the same condition as they found it. If an owner or one of their tenants defaces the property in any way, that owner is responsible for the repairs.

Generally the time allotments are fixed each year unless the owners decide otherwise, and the option of exchanging amongst themselves is also available. In order to comply with Hawaii law, each owner must be responsible for at least sixty days of use.

Some interval ownerships qualify as a second home and would be eligible for the mortgage interest tax deduction. Owners should consult with their tax adviser to find out if the expenses can be deducted either as a second home or rental property.

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