Will fractional ownerhsip become the mainstream in second home ownership?
Co-Founder & CEO
I recently watched a small video clip where Jason Calacanis posted an old video of Bill Gates hosted by David Letterman back in 1995. It was the early days of the Internet and Letterman seemed to not get its value compared to the Media available at that time (Gates couldn’t do a great job explaining that, either, but that’s another story).
Back then, everything about the Internet didn’t make sense to most people because they were seeing the world through the lens of their own certainties. It’s easy to laugh at Letterman but what he was doing was expressing the consensus view at the time. The best use cases that someone could come up with (even as smart as Gates) back in 1995, were things you could already do with radios, TV, and tape recorders. Very few could envision how the Internet would rapidly improve and eventually unlock the internet-native experiences that we enjoy today.
This is the point where I’m making the bridge with Flyway and the model of fractional ownership we envision at our startup. The current “world view” about our second homes (the places we spend time when we regularly visit a city for business for example or the place we travel with friends and families for vacation) is split into two categories:
1. Buy a second home at full price, then spend 10%-20% of your time in this home. 2. Rent a second home, so spend money that seems like a “small” expense in the short term, which compounds to a huge waste of money over the long term.
Both of these scenarios are a really bad deal – a terrible deal, actually. But everyone has to live with them because that’s the best you can get.
Let’s take for example an individual who travels in the same city repeatedly for work or pleasure. This could be for example a European business traveler, traveling often to London. This person could spare around €200,000 (under a mortgage or not) for a second home. In today’s London market, €200,000 is (sadly) a budget that does not give you access to the market. In the highly hypothetical case, this person is extremely lucky and finds a bargain, that would be a property that the modern consumer would find mediocre at best, and definitely not ideal for himself/herself and their family to spend their time. Definitely not a great location and probably a very old or very small property.
But most consumers won’t take that deal and prefer to rent (sometimes in different locations each time) considering this a much smaller cost than buying a full house. But is this a decision that makes sense in the long run?
Let’s say that our example consumer instead, prefers to rent a great second home – one they will really enjoy. And let’s assume that they want to spend their regular business trips or vacation time on a second home that costs, for example, €1.5 million. Since they can’t own it, at least they can enjoy such a great home by paying rent. A house rent like this would be priced, at a minimum north of 500£ up to the £1,000s per night, depending on the location in London and the rental characteristics. These are re-occurring expenses that could otherwise be invested for a return, especially in such a booming real estate market like London.
It’s a bummer. These scenarios are sub-optimal but yet considered normal because the “Internet era” of second homes has not arrived yet.
Second-home co-ownership isn’t something new. Many people and families have tried it in the past exactly because it makes sense: we pay a small fraction of the home’s value (so we own real estate) and share access to the home and maintenance costs. It’s fair and efficient. But the model never worked because it lacked some fundamental rules for such a complex relationship between co-owners before disagreements ensue.
But complexity is where software thrives! It takes the most complex problems and turns them into beautiful solutions that make our world a better place, effortlessly. Flyway takes the complex relationship of co-ownership and combines it with 2 fundamental principles:
1. Third-party property management where co-owners won’t have to agree on how the house will be managed and retained. 2. With the help of technology, a fair and equitable scheduling system where owners get access to the home based on rules that are clearly fair for everyone.
It’s worth noting here how technology, although not dominant in the Flyway model, is playing the most critical role; one that was missing so far and its absence was making the co-ownership model dysfunctional.
Under this complex but simple in its use model, co-owners keep for themselves a) the joy of an amazing second home which they could only dream of, and b) the “real” real estate ownership of that home, where they can re-sell their property piece at market prices, earning any appreciation. If market prices go up, they win. If they go down, they lose – or don’t sell.
In the end, the Flyway system relies on setting and applying rules that are “carved in stone” which co-owners must obey. It may sound strange that the “owners” of a home must obey rules set by someone who doesn’t own the property, but this is the beauty of a model that is incredibly effective and efficient that makes everyone happy. By making sure that the property is managed properly, Flyway ensures that its value can only go up; a well-maintained home is always attractive, no matter how many years will pass.
It is in Flyway’s and the owners’ best interest to keep the home in top condition and increase its value over time. And that’s why, I believe, the Flyway properties’ shares will be in high demand as soon as the market realizes the power of this model. Not only when Flyway originates these shares sales, but also when the owners decide they want liquidity and sell their shares in the market as well.
In other words, at this point in time, the “Internet Era” of second homes will have become abundant.
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