So, some years ago, I met this real estate agent in Depot Bay, Oregon. Mike was his name, and he had a client, and the client was very frustrated with his second home ownership, because as he described it, there was a terrible imbalance of the monthly operating costs, mortgage, insurance, taxes, that kind of thing, versus the amount of use that it got throughout the year. But Mike says that he had an idea, which was to sell shares. And so he figured he could sell shares and divvy up all of the operating costs throughout the month and throughout the year, and coordinate the usage among the co-owners. And Mike says to me, “Is that even possible? I mean, how would you even do that?”

Welcome!

Come on in – we’re just getting started. My name is Mark Chesney. I’m the host of the Indy-Co Videocast, and when I say we’re just getting started, I really mean that because this is our pilot episode. We’re here to talk about independent co-ownership of private, second home real estate.

I want you to know that in this videocast we’re not about monetization – we’re educators. Do we want you to subscribe? Of course we want you to subscribe, but we think that more importantly, we want to provide some enlightenment and training on some concepts that we proved several years ago.

We’ve kind of kept it on the down low among family members and some other friends. We think that now’s the time that we can help others undertake and achieve what we proved several years ago. So, we’re so glad you’re here.

What is Independent Co-Ownership?

You know, when I say independent co-ownership, some people say, “What is that?” And of course, that is what Indy-Co is short for. We talk about independence in second home ownership, which means that we’re not here to talk about residence clubs when we talk about shared ownership, co-ownership. We’re talking about the independence that, quite frankly, residence clubs do not allow.

It means also that we’re not here to talk about timeshares. You know, maybe in another, another episode, we’ll take a few minutes to talk about the legal definition of timeshare. If we don’t get around to it today, this is not timeshare.

Second Home Ownership in the US

Just a couple of days ago, I was reading a, a brand new report that was released by the National Association of Home Builders. They released a report referencing second home ownership as of 2022. I think 2022 is probably the most, the most recent statistics that they have. They reported that there are, I get this, a little less than 6.5 million second homes in the United States. It’s more like six and a half million the Home Builders Association provides. To me, that was interesting because I just happened to know that in, in, uh, two years ago reporting on the year 2020, there were 7.15 million second homes in the US.

Now, everybody in the real estate industry understands that the inventory of homes generally is off. That’s certainly true with respect to second home ownership. Advisor Smith says it’s more like 5 million, but, you get the idea. Second home ownership is somewhere between five and six and a half million.

Getaway Locations and Vacation Homes

Where do you think these second homes are located? Are they in your neighborhood where you have your primary residence residents? Probably not. They’re probably not in my neighborhood either.

What are these? These are raised beach houses in the coastal areas of this country. They are mountain properties, ski properties, lake properties. I suppose that there’s a certain amount of second homes that exist in traditional residential neighborhoods. But, principally, these are getaway locations. These are vacation homes. They might be in recreational markets, condominiums, maybe townhomes.

Second Home Investments

Clearly, they’re used for vacationing, but they’re also used for investments. Investors know that, there’s some tax advantages to second home ownership such as rental income depreciation, et cetera. We will talk about that in these videocasts.

I’ve owned some of them. I’ve lived in several states. I’ve owned income properties; I’ve owned investment properties. So, in subsequent episodes, we’ll get into the nuts and bolts of why people own these things. But you know, what I think probably is more important than the number of second homes that exists, is who wants to own one?

Who wants to own a second home?

Inman.com published an independent survey, which found that 55.7% of Americans who don’t own a second home say they now want one compared to 46.4%, who expressed a desire for a second home prior to the pandemic. Wow, that is, that is a huge number! 55% of the Americans who do not own a second home say they now want one.

When you think about that, you have to ask this question, “Why don’t they own a second home?” Well, the same survey says that there are basically two reasons why people who want to own a second home do not own a second home. You’ve probably figured this out already – cost. The cost of buying a second home, but particularly the cost of it as compared to the practicality of using it. You cannot forget, we’re talking about a second home, which has very little use throughout the year, relatively speaking. I get it. A second homeowner pays all this money to keep it going every month, and then relatively speaking, they, rarely use it throughout the month.

There is an economic analyst in Eugene, Oregon, Ragatz Associates, run by a fellow by the name of Dick Ragatz. I’m not going to tell you that I’m an acquaintance with Dick, but I have spoken to Dick. He is a leader in researching, analyzing second home ownership, and particularly second home use throughout the year. Ragatz Associates say that, on average, second homes are used by their owners only several weekends throughout the year.

Meet Mark

I know something about this, both from the perspective of an investor and from a research perspective. Do you mind if I tell you just a little bit about, myself? I said earlier that I owned income properties about 17 years ago. I became fascinated with the idea of owning, not necessarily investment properties, but owning second homes. I literally traveled throughout the United States; East Coast, West Coast, Rocky Mountain states, Appalachian Mountains; on a quest to understand more about the mentality and the psychology and the practical investment advantage of owning a second home. It was kind of a passion project for me, but I began asking a lot of questions about how does this come together? I found over time some solutions as to how to make it happen. As I did, I realized that I was beginning to crack the code.

Understanding Indy-Co

Here are the questions. How does a person buy a $2 million second home with the help of others, such that the entry cost for owning it is $250,000? Ponder that for a minute. After you’re successful in buying it, how do you take title? If you had cooperation, coming together with others to buy this second home, how do you proceed after the closing in a way that is agreeable? In a way that people get along with each other, that everybody understands what’s expected of one another? Because obviously, if you’re going to buy a $2 million second home for $250,000, there must be some tradeoffs.

These were the questions that I had some years ago. If you think about it, you might like to buy an $800,000 beach house for a hundred thousand bucks, but if you’re successful at doing it, then there’s going to be others involved. There’s going to be some tradeoffs. So, eventually, I really did crack the code.

Now, in the, in the early part of this videocast, I said that there’s some concepts that we proved and we kind of kept it on the down low. That’s what this videocast is all about. We’re going to help people understand much better how they can successfully do this and do it in a way that’s agreeable. Do it in a way that’s friendly and really brings a lot of satisfaction.

Finding Co-Owners

I mentioned that I traveled the country. I did, and I kept notes. I made records of all my observations. I made records of people that I interviewed. I made records of the things that I learned. I compiled all those things, and I let some friends read it before I published it in the form of a book. A couple of my friends said, “You know, Mark, this is pretty interesting, but it seems to me that maybe what somebody needs in order to pull this off is a couple of siblings, and then they need two or three cousins so they can all join together to buy it.”

I was told a lot of people just do not have that. Over the years when I began figuring out how to do this, we helped people come together as “partners” that did not even know each other. And how did they make that work?  They made it work because of the strength of a well-considered operating agreement that they had among themselves.

The reply to that was, “Okay, but they still have to find each other if they didn’t know each other previously.” And that, my friends, is the motivation for the creation of divieight.com.

If you’re a seller and, and you think that maybe you might like to dramatically reduce your operating costs each month on taxes, utilities, insurance, yard care, HOA fees…and it goes on and on…you can reduce that by selling shares. We will help you find the buyers to make that happen.

And, if you’re a buyer prospectively and you think you might like to venture into the, opportunity to buy an awesome second home at a small percentage of the cost, we will help you find the partners to make that happen. We will help you find the property of your dreams that you’re looking for. So we want you to be sure to go to divieight.com.

A Guide for Vacationers & Investors

I mentioned my book–I don’t make a, a lot of, a lot of noise about my book. If you want to buy the book, you’re welcome to. You can go to divieight.com and you can purchase that. It’s in paperback form or you can get an eBook. We’d love for you to have it.

Have a Question?

One of the things that we want to accomplish is to answer your questions. When you go to divieight.com and you head on over to the videocast area of the website, you have an opportunity to ask us questions that we’ll take up in these videocasts. It is true that often people have the same question, and that’s understandable. We want to hear your questions, and as a matter of fact, let’s take a few of them right now.

Question #1: Fred, Myrtle Beach

Fred from Myrtle Beach, wants to know, “Is there a legal difference between independent co-ownership and timeshare? Is there a practical difference?”

I’ve got to tell you, Fred, that’s a great question. Not everybody in the country knows that timeshare is defined in state law in all 50 states. A timeshare is defined as having a single right. I’m not a lawyer, but lawyers tell us that fee simple title is the entire bundle of rights of ownership. Timeshare defined legally as a single right – it is the right to use.

Now, people have said to me, “I bought a timeshare not terribly long ago, and they gave me a deed.”

Okay, great. Have a look at that deed and you’ll see that what it conveys is simply the right to use the property. Timeshare owners quite often find out that there’s complications in using the property, which is a different issue altogether.

The type of title that we talk about with respect to Indy-Co (independent co-ownership) is fee simple title. We have the experience in preparing the transaction documents and all the necessary process elements to make that happen.

Frank asks, “Is there a practical difference?”

Yeah, independent co-ownership, which is comprised of a few individuals, have absolute control. Try that with a timeshare, when you think about an annual operating budget or assessments or what have you. Residence clubs are the same.

People in independent co-ownership arrangements control their costs. We help them administer that budget if they’d like for us to. That is the practical difference.

Question #2: Keith, LaQuinta, CA

Let’s take another one. Keith in LaQuinta, California says, “I already own an awesome vacation home. I’d love to sell shares to minimize the monthly cost, but I also have a mortgage. Is it safe to convey title by shares?”

Keith, that, that is an excellent question because, once again, if you consult with a real estate attorney (I’m not one), I’m confident that any real estate attorney will tell you that if you have a mortgage on the property, just as soon as you give a deed, just as soon as you convey title, you have triggered what is referred to as the due-on-sale clause of the mortgage. What does that mean? That means that the mortgage company, is looking for you immediately to pay off the entire mortgage.

So, for second homeowners who think they might like to reduce their ownership costs by conveying shares, we have developed a system by which all of those buyers are gathered and put into place. And when the necessary commitments are made, we proceed so that it is indeed safe to give a deed at the time that the shares are given. If there’s a mortgage to be paid off, and quite often there is, then it can be done safely. It’s an excellent question.

Question #3: Barbara, Keystone, CO

Let’s do one more and then we’ll wrap this up. Barbara, in Keystone, Colorado asks, “Is there a minimum or a maximum number of co-owners to a property? Are they all considered partners?”

There’s probably not minimum or a maximum. I’ve seen co-ownership done in haves. I’ve seen co-ownership done with 12 or 13 partners. Our experience has been that 13 is entirely too many. We have found that there probably is an optimum. Eight is a good number.

Why do we say that? Well, because with eight partners, that allows each of the eight partners, six weeks use throughout all the seasons of the year. I said much earlier in this videocast that analytical experts tell us that second home ownership properties are used on average somewhere around five or six weekends a year, or something like about 37 to 39 days a year. Six weeks use creates really an optimal number in terms of handsomely reducing the entry cost of purchasing the property and then having an amount of time throughout all the seasons of the year to really have satisfying use and enjoyment.

Wrapping Things Up

In subsequent episodes of our video cast, we will talk more about our transaction documents. These set forth all of those mutual obligations that co-owners have with one another, so that everybody understands the rules, everybody understands what’s expected of one another, and that use is coordinated in a way that really is friendly.

As we continue to do these videocasts there are some things we want to accomplish. We want to help. Fortunately, we have a lot of experience in figuring out how to make it workable, how to make it satisfying, how to make it affordable, and really how to make it enjoyable.

Visit Our Website

We’ve got a website now that will allow you to tell us about yourself and tell us what you want, where do you want it, and your budget so we can help you.

We want to continue to take your questions. Please visit us at divieight.com to send us questions and we’ll address them in these videocasts.

Calling All Real Estate Agents

Here’s something else. We want to use this platform to allow real estate agents to talk about their markets. They may or they may not talk about the concepts of independent co-ownership (Indy-Co). We can talk about that – we know how to do that. But they know their markets like nobody else does – what the culture is, what the attractions are, why their market is a fantastic place to own a second home. Anyone and everyone listening to this, presentation, you have more real estate agent contacts than I do. Would you please share this presentation with them and ask them to get with us? We want to give them an opportunity to brag about their market, which is so very worthy of being bragged about.

Second home ownership is a smart investment. We can provide the accounting information that is needed and do what is required to take advantage of tax benefits. We can help you with that, and we’re excited to talk about it.

Thank you!

Hey, thanks for joining us. Check in with us in our next episode. We want to help you learn how to achieve second home ownership, because after all, I’ve got a feeling you’re among the 55% who want to own a second home. We’re going to show you how you can do it in a way that is smart, in a way that’s enjoyable, and in a way that you can have a lot of fun.

Thanks a lot! See you next time!