Five Must Ask Questions Before You Buy

If you are in the market for shared ownership real estate, you’ll likely compare several fractional residences. You’ll quickly notice that, beyond location and price of course, these clubs can begin to look very similar. In fact, a luxury developer is likely to rattle off a list of amenities that have become virtually standard among fractional residences. On-site concierge? Check. Granite counters in the kitchen? Got that too. And is there a project out there that doesn’t tout its willingness to stock your refrigerator before you arrive?

While all projects strive for a certain standard when it comes to finishes and amenities, there are a host of ways that buyers can compare offerings and get to the bottom of what differentiates one fractional from the equally fabulous one going up across the road. Of course there's plenty that a developer may not readily offer up in their sales pitch, so come to the table armed with these five questions.

Can I use the home during the prime season?

If you are a beach-lover buying a fractional in Cabo San Lucas, the good news is that most of the year is prime time for sun lovers. Of course if you have a summer home in New England, your intention may be to go to Mexico only in the winter and spring. The question is, will you be able to land one of those prime weeks? The answer will vary greatly, but don’t expect to secure, say, President’s Day weekend every year. Most fractional projects have booking policies that rotate sought after weeks among owners. Ask the development when they expect their peak owner traffic, and insure that your ideal vacation timeframes are a good match.

For pre-construction projects, how is my deposit secured?

Many fractional developments start sales well before those granite countertops are put in. If you are set on a development such as Capella Pedregal or Olamar, which are not yet fully constructed, ensure that you know how your deposit is secured, under what terms may it be refunded to you and if there's a way to get that deposit fully refunded if the project faces construction delays that you deem too lengthy. Remember, that initial contract is negotiable.

How much are annual dues?

Annual dues for fractionals can easily top $10,000. In fact, owners of one-eighth shares of three-bedroom fractions at Capella Pedregal are slated to pay $12,000 a year in dues for a guaranteed five weeks of use. That works out to $2,400 a week. Before you shell out those fees, understand what they cover. Typically these annual dues, just like homeowners’ association dues at a condominium development, cover insurance on the common areas and general maintenance of the grounds. For a fractional project, they may also cover utilities and housekeeping services. But what about those extras? Who pays for the hall carpet if it needs to be replaced? Also understand under what circumstances dues can be raised, and if there are any limitations on when and how much they can go up.

What do I need to know about buying real estate in Mexico?

Americans who have looked for whole ownership property in Mexico know that foreigners can’t own land within 50 kilometers, or about 31 miles, of the Mexican coastline. Buyers of both whole and fractional properties need to complete the real estate purchase through a bank-held trust in Mexico, and you’ll need an attorney in Mexico who has experience with such transactions. The good news is that Americans have flocked to second home ownership in Mexico in recent years, so developers, realtors and many attorneys are well-versed in catering to such buyers.

Is there any investment upside?

Perhaps, but any fractional developer shouldn’t sell you on a potential return. In fact, fractional residence resales are, for the most part, unproven, so consider this a lifestyle purchase above all. Of course, there are those instances where the price of a fractional project has appreciated greatly in the pre-construction sales phases, but with a slew of new units hitting the Cabo market, getting that upside is no guarantee. For projects that have wrapped up construction and are hosting owners, be sure to take a look at the resale market. Any search for a fractional should include a look at what is available for resale.

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