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Is A Residence Club For You?


Buying a vacation home can be the dream of a lifetime. Yet for some, it can turn into a nightmare if owning two homes becomes a psychological and financial burden. If you find yourself fretting about how to take care of the second home, how to rent it out, how to pay for costs and upkeep, exclusive residence clubs may be your solution.

residence club

What is an exclusive residence club? At the simplest level, it is a way to have a luxury vacation in very exclusive, high-quality resort homes without the expense or hassle of owning them. Frequently residence clubs offer fully furnished properties worth between $2.5 and $5 million.

Since the vacation club industry is not yet regulated, there are a plethora of offerings and terms, such as residence clubs, destination clubs, fractionals, and timeshares. Even the term “residence club” can describe different solutions to the vacation dilemma.

One way to distinguish between clubs is whether they are deeded or not deeded. In simple terms this means, do you actually own anything physical or do you own the right to use something without any equity?

Deeded

Common examples of ‘deeded’ residence clubs are found in some of the luxury hotel complexes built near resorts. Clubs such as the Four Seasons Residence Clubs or the Ritz-Carleton clubs are very similar to “fractional ownership.”

You get all the resort-style amenities, and you engage in a deeded real estate transaction that gives you use in perpetuity. The amount of time you can use the property is proportionate to the amount of money you invest.

You own one particular property and can exchange time with other property owners in different locations in the same chain. For example, Four Seasons has clubs in San Diego, Scottsdale, Jackson Hole, and Punta Mita, Mexico. When you are not using the property it is rented to other members in the club.

There are pros and cons to deeded clubs. Because they are needed, you can obtain financing for the purchase, as if you were purchasing your own second home.

This makes the second home more affordable. At the same time, since you purchase the share, getting your money back requires that your share in the property can be sold. This may not happen as quickly and easily as you would like.

In addition to hotel-like homes, several exclusive resort clubs offer stand-alone luxury homes in resort communities.

For example, the Crescent Club members own a one-sixth deeded interest in a home and can use any homes in the network. As they explain on their web site, they use a rotating priority reservation system when the request to use the property collides among owners.

Non-Deeded

In a non-deeded exclusive residence club, you have no equity, and you own no property. Some examples of non-deeded clubs are Exclusive Resorts, Portofino and Private Retreats. As with fractionals and deeded clubs, the number of usage days you are allowed differs from club to club.

Since the price is comparable (if not a bit higher) to deeded or fractional clubs, you might wonder what the benefit is of the non-deeded club. One big benefit is the liquidity of your money.

Unlike fractionals, when you want to get out of a non-deeded residence club, the upfront investment (membership fee) is refunded up to 100% depending on the club. Many of the non-deeded clubs offer a wider range of home types and services, including boats and planes.

Comparing Clubs

When comparing clubs, first look at the depth and scope of properties. Are there are a variety of locations? In each location, are there multiple homes? For example, Exclusive Resorts has 90 residences in 22 destinations, with multiple homes in each destination. This means when you select your destination, it is more likely you will be able to find a home.

Another factor is how many club members there are. This indicates how much competition there is when planning your vacation. Find out how the club manages conflicting demands. Also, how many days per year can you use the home for the basic yearly fee?

Finally, what services do you want, and what is offered? Do you want to travel services to plan each part of your vacation, do you need sports equipment provided, etc. Make a list of all your dream needs. For the price you will be paying, every need should be attended to.

The differentiator between some of the clubs is often related to the variety of additional travel services they provide, other than a great place to sleep. Check whether your club focuses on the quality of the residence, or the quality of the service, and match it to your needs.

Here’s how some top clubs compare in pricing, based on information on their websites:

NameDeeded?Membership
Fee
Yearly
Fee
# of
days
# of
homes
# of
members
Return of
investment
Crescent ClubYes$370,000$12,500566no info onlineupon sale
Exclusive ResortsNo$375,000$19,000609050080%
Portofino ClubNo$210,000$15,00042178080%
Private Retreats
(Abercrombie/Kent)
No(no info
online)
(no info
online)
unlimited73400100%

 

 

 

 

 

 

Financial Benefits
The main benefit of residence clubs is that you can have access to the property you might not otherwise afford. For example, if the home costs $2.5 million, you need $500,000 just to get started with the 20% down payment.

Most club fees are in the $300,000 bracket. In addition, payments on a mortgage of a $2.5 million home, plus homeowners fees, maintenance, taxes, etc, could run up as high as $100,000 a year, while the yearly membership dues are typically under $20,000.

In addition, most clubs are renting villas that might commonly rent from $1000 to $3000 per night, assuming you could actually find them. Club membership offers a much less expensive nightly outlay.

Intangible Benefits

People who are devoted to residence clubs love the ability to go anywhere they choose, rather than just one vacation spot. You can choose to have ‘endless summer’ vacations by picking only summer spots or go for endless skiing, following the snow. The more locations the club has, the greater your flexibility.

In addition, all the hassles and worries of homeownership are totally gone. You have great locations, no-hassle ownership, and best of all, your dream vacation home whenever and wherever you want it. If you want luxury and variety all the time, check into residence clubs. It may be just the solution for your second home.

Warren Paine

Warren is the senior mortgage loan officer who has worked in mortgages and loan industry since 1995. He study in Harvard and major in Finance with a Bsc. Honor Degree. He possesses a Paralegal Certificate as well.

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