Answer to Question #97927 in Management for Jelizaveta

Question

The businessman was offered a well-kept summer cottage in a good location for a low fee. To benefit from the purchase, he and his family must work at the land for 15-20 hours a week in the spring and summer period. Specify the conditions under which he should agree to this deal?

Answer 1

Alternative ways to property ownership

Introduction

A summer cottage is, in most cases, a small vacation house, which means that when used as a rental, peak seasons are always during summer and spring. The buyer, in this case, is a businessman, which implies that he is investing in the summer cottage to get returns. For the buyer to benefit from this deal, he needs to put in, together with his family, 15-20 hours per week on that farm during spring and summer. For the businessman to agree to this deal, he needs conditions that are going to reduce the number of hours of his input and lower potential risks should the investment not pay off. The most logical solution then is to push for fractional ownership. This should be the buyer’s condition for purchasing the summer cottage.

With fractional ownership, the operation costs, such as insurance, maintenance, and property tax, will be shared between the businessman and the seller (Lowies et al., 2018). Fractional ownership gives the businessman an advantage compared to when he is the sole owner where he is obligated to settle all the maintenance costs on his own. With fractional ownership, the businessman enjoys proprietary rights. Having proprietary rights means that he has a deed that points out the percentage share of the cottage he owns, and he has the power to rent out the cabin and enjoy the profits as an investment property. Also, the buyer can even sell his shares and make a profit or bestow it to his children (Hollander et al., 2017).

With fractional ownership, the buyer will be in a position to reduce the number of hours needed for him and his family to be at the farm or eliminate the need entirely and still benefit from the deal. The businessman also profits from being shielded from potential losses. For these reasons, his condition to the seller is a settlement on fractional ownership.

References

Hollander, S., Hollander, R., & Fry, D. S. (2017). Saving the Family Cottage: A Guide to Succession Planning for Your Cottage, Cabin, Camp Or Vacation Home. Nolo.

Lowies, B., Whait, R. B., Viljoen, C., & McGreal, S. (2018). Fractional ownership–an alternative residential property investment vehicle. Journal of Property Investment & Finance, 36(6), 513-522.