Vacation Destinations

 
Investment Themes March 15, 2019

Vacation Destinations

Family vacations can be made more enjoyable with a great location and in a fabulous home. Whether the destination is the beach or mountains, domestic or international, there are many different ways to secure access to a great location. Options range from full ownership to timeshare models. Here are some attributes of a few different options.

Direct ownership of a second home: By directly purchasing a second home, the owner has unlimited access to enjoy the location. The owner also benefits from 100% of the upside (or suffers 100% of the downside) of the value of the investment in the property. However, full ownership also comes with the responsibilities of maintenance and property taxes. Furthermore, the entry price point can be prohibitive when buying an entire property. Unless an owner is able to spend significant time in the second home, the cost per usage day can be very high, and owners are essentially tied to the location of their second home.

Buying a Timeshare: Usage rights for a timeshare can be defined in many different ways: fixed week, floating, right-to-use, and even points-related usage. The biggest benefit to a timeshare is the relatively low price point, since you are only paying for the time you use. A timeshare can provide access to a single home or to a group of vacation properties. The annual maintenance fees are generally a fraction of the cost relative to direct ownership. However, access to timeshare properties is limited by the outlined usage rights and liquidity is often poor, as the resale value can be dramatically lower than the entry price. If you are considering a timeshare, consider it a lifestyle expense rather than an investment.

Fractional Ownership (aka Private Residence Clubs): With this option, owners buy a fraction of a specific luxury property. Their usage opportunity is proportional to their ownership percentage. Owners share the costs of maintenance and upkeep, and pay a manager to administer usage. There is frequently an emphasis on privacy and exclusivity, as fractional ownership can include access to private golf courses, beaches and ski runs. However, resale value and liquidity are top concerns, particularly with aging properties.

Luxury Residence Fund: With a luxury residence fund, owners buy an interest in a real estate partnership that owns multiple luxury properties. The owner’s ability to utilize the properties is defined by the capital contribution plus an annual fee that is used for maintenance and upkeep. The annual usage fees are slightly lower compared to renting a similar property on a nightly basis, and the owner can benefit from any increased value of the property portfolio. Similar to private residence clubs, there is an emphasis is on privacy and exclusivity, but with luxury residence funds, owners have access to the entire range of the fund’s properties at multiple locations. The ability to sell an ownership stake is limited, but many funds have a terminal point that provides a liquidity event for the fund’s owners. These options range from a true investment to a lifestyle expense, and there is not a one-size-fits-all solution. Please reach out to us to discuss these options further, or to find out which option would fit best for you. Regardless of the option that fits best, we encourage clients to spend more time away from work and with family.

 

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Roberts Investment Advisors, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.

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