When Fractional becomes Functional

Creative Baby boomers have found the best way to have a luxurious vacation retreat on land or sea, is to share.

By Michael Aumock

Fractional sales of luxury homes have become a very attractive solution for HNWI (high net worth individuals) and baby boomers who want access to a beautiful vacation home, without having to foot the bill for the whole thing.

As luxurious resorts such as Aspen or Maui grew in popularity, the cost of homes in those areas went from expensive, ($150-$400/sq. ft.) to extremely exclusive ($1500-$2000/sq. ft.), causing people who didn’t want to spend $4Million on a 3-bedroom condo to reconsider their options.

While some of those potential buyers went to different resort towns, many looked for creative ways to have a home in the place they wanted at a more reasonable cost. Thus, the fractional market boomed along with the rest of the housing market for most of the next two decades. And despite a few fits and starts, it is quickly regaining momentum.

As the media looked at the wealthy of America with an increasingly jaundiced eye, the HNW individuals began to keep a lower profile, feeling that they were being demonized for having money...so they stopped spending so lavishly. However, one very important thing happened to many of them, especially Baby Boomers: they came to grips with the fact that it was no longer a deal-breaker to not be able to get exactly WHAT they want, exactly WHEN they wanted it. So, with that re-alignment of the financial planets, and a little taste of bourgeois crow....

They collectively gained some patience.

I don’t think we are going to hear anyone say “Whatever it takes....Money is no object!” anytime soon.

Now however, our HNW boomer might say something more like: “ Hmmmm, I COULD afford that, but $4M is an awful lot of money for something that I use 5 weeks a year. Hell, the kids won’t come up with me, and Bethany (my doting and fictitious wife) doesn’t even ski anymore since the ACL thing.” The end result is a HNWI who wouldn’t have dreamed of sharing any of his sandbox with anyone 5 years ago, is now happy to pay for only what he uses, and forego the headaches involved with whole ownership.

There is no denying the fact that the numbers work out in his favor, despite the fact the fractional company has to get their taste, and the property might not be available every single time he wants it. Just by opening himself up to the possibility of fractional, he has already accepted these trade-offs, in exchange for the extra cash in his pocket. A 1/8th share of a $4M house will cost him (approximately) $550K and maybe $30K in maintenance and that’s it. All he has to do is schedule his trips, and write checks. With a whole ownership scenario, he would be out the entire $4M, plus about $350K/year in maintenance , insurance, housekeeping, etc...PLUS the pain in the ass of having to deal with all of it.

When you consider the pros and cons, it is easy to understand why a little change in the social acceptability of spending big dollars, combined with HNWI’s newfound willingness to share their toys, would morph into the perception that fractional was a completely acceptable if not preferred method of second home ownership. (For simplicity’s sake, I am leaving out the obvious value of write-offs and potential appreciation, and made the argument simply about raw dollars spent.)

What about depreciating assets like jets and yachts?

Fractional is a fine solution for assets that (in theory) appreciate. There is a certain comfort in the knowledge that if everything goes to hell in a hand-basket, that you can get most or some of their money back in a property liquidation.

But what about yachts and jets?

Jets are in a unique position. They are under such intense federal regulations, that a 30-year old airframe that is FAA certified will be worth almost as much as a brand new jet with similar specs. Additionally, jets are a tool. Even if you can afford your own, you want to spend as little time as possible on it.

Yachts are different. Yachts are fun. Yachts whisper things on the ocean air that jets scream from the filthy tarmac. If a Jet is a hot blond in a convertible sports car, a yacht is a European Contessa in Jodhpurs surveying her estate on horseback...and like any EU Contessa, yachts cost money. Crazy money.

First there is the cost of a respectable yacht (let’s go with $4M again). So, $4M gets you an ‘06 Sunseeker 82’ yacht that you aren’t embarrassed to park at the yacht club (depending on the club, of course) now, grab your check book and life-jacket...this is gonna hurt.

First, you have the $4M...let’s write that out $4,000,000.00
Now, every year you have the following:
Captain
Mate
Mooring
Insurance
Maintenance
Fuel
Provisions, etc
So, with the typical rules of thumb on yacht ownership, (10-15% annually) you can plan on between $400-$600K PER YEAR to keep your yacht (The Bethany, naturally,) afloat.
One boat, one location and every single cent that she spends comes out of one pocket, yours (its like forgetting that you left your credit card in Paris Hilton’s purse)....and by the way, if you are typical, you use it 3-6 weeks per year.

Now, consider a revolutionary idea...the yachting country club, as offered by ViaMari.

ViaMari redefined the industry by buying the yachts, and parking them around the globe, starting with the West coast and then selling 30 membership weeks per yacht. You decide how many weeks per year you want to use a yacht. (Let’s be conservative for argument’s sake and say 3). Membership works just like a country club, with a fee upfront, and annual dues and maintenance. So...3 weeks would cost you:
$210,000 upfront (that is $80k/week with a discount for a 3 week plan)
$28,500 in annual dues ($9500/membership week x 3)
$28,500 in Product enhancement fee (PEF) to keep the inventory freshly turned.
So, for less than $60K a year, you get access to a dozen or so yachts that you DON’T have to take care of year round, in the port that you want it. And most often, at the time that you want it. (Availability is like fractional... a little flexibility goes a long way).

Now...I’m no Wall Street banker...but that makes a helluva lot of sense to me.

So, moving forward with the lessons we have learned through the last couple of years, I think we should embrace the concept of shared ownership in all it’s forms, be it fractional homes, or jet cards or yacht country clubs. Let’s make good use of what we have, teach our children to appreciate it, and demand that service match the cost of goods in our life.

Michael Aumock is a Luxe Business Consultant and VP of ViaMari (www.viamari.com) located in Carlsbad, CA. He can be reached at mjaumock@gmail.com.

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