How Equity Residences finds investment opportunities in the luxury vacation home markets

Published June 14th, 2021

Investing in vacation homes requires the right expertise due to multiple factors like location seasonality, rental regulations, and property appreciation potential, to name a few.

Successful investors have to build relationships with local market players in order to find good investment opportunities, especially in the luxury vacation home markets. Professional investors have to be experienced at negotiating deals that may seem obscure to beginners.

As real estate private equity fund investors, we seek out vacation homes in locations that offer long-term capital appreciation and year-around occupancy rates.

There are a variety of factors that give Equity Residences a distinct advantage when sourcing luxury vacation residences and finding investment opportunities, even in the current market environment:

  1. Understanding what locations and types of properties will provide a good rental yield and deliver a good Partner experience.
  2. Applying a data-driven approach to determine the appreciation and cash flow potential of specific properties.
  3. Developing and educating local market contacts to help identify investment opportunities as soon as they become available.
  4. Ability to move fast with all-cash offers.
  5. Experience negotiating with developers, lien holders, and private parties.
  6. Willingness and expertise to remodel and make smart property improvements.
  7. Ability to canvas multiple markets simultaneously to source the best deals.

We find luxury vacation homes in the most coveted places in the world where demand for housing is not seasonal. This way our investors can enjoy stays in multi-million dollar residences at any time of the year and get investment returns as a bonus. Our investors can enjoy lifestyle and capital appreciation benefits previously afforded to a select few.

Lush, expansive landscapes of Tuscany, snow-covered ski slopes of Lake Tahoe, and white sand beaches of Seacrest Beach are examples of excellent investment opportunities for the Equity Platinum Fund.

Below, we want to share examples of how we acquire real estate and create value for our investors.

Buying at 15-year lows in Tuscany, Italy

a grassy field with a house in the distance

The Old World remains one of the most popular destinations for American travelers and is in high demand by our investors. Few people can refuse the allure of the Italian Rivera, sipping wine at the local wineries of Tuscany, or skiing at world-class resorts in the Alps.

Buying luxury residences in Europe sounds like an enticing and romantic proposition, and the Internet is full of articles advising Americans on how to do it. But the logistics of evaluating the right investment in a foreign country can be tedious and time–consuming. Plus, investors most likely would need to find a local real estate agent and a law firm to help them through the evaluation and purchase process.

In early July 2017, we took a trip to Italy to evaluate local markets and to take advantage of the depressed real estate prices in some regions.

Our research brought us to Tuscany.

A deep contrast between lush rolling hills speckled with Medieval ruins and ancient cities of this Italian region with a stark economic reality allowed us to find and secure the most attractive real estate acquisitions in this part of Italy.

Tuscany is situated away from the bustling economic center of Milan, where local buyers prefer to invest in real estate. What Tuscany offers instead are bargain deals on centrally – located properties that are a result of bad loans issued by Monte Pashi, what Bloomberg calls the world’s oldest bank.

Combine low competition from the locals, depressed real estate prices, and the world’s most beautiful architecture, and you have a winning combination of creating value for our investors and giving them an excuse to embark on international travel.

As a result of our research, we purchased a penthouse situated in the heart of Siena – around the corner from Piazza Del Campo. What makes this home unique is its location in a UNESCO-protected building. We have remodeled the penthouse to meet our investors’ high standards of luxury and we expect high demand for this home in the future.

Closing on a home in Lake Tahoe and creating $600,000 appreciation from Day 1.

a house with a staircase

A lot of our investors like to ski and hike, and so we decided to acquire this beautiful home at the Northstar resort in Lake Tahoe. Successful real estate investing requires cultivating relationships, and in the case of Northstar, our relationships with local market movers and shakers proved invaluable.

As the first buyer for one of six Northstar homes, we acquired it for a net price of $2.95 million with extended closing terms. Before we even closed on the property, two of the six identical properties closed for as high as $3.55 million giving us $600,000 in appreciation from day one.

In addition, amongst the six properties, we negotiated an exclusive right to own under a multi-owner fund model and the ability to transfer those rights to a future buyer providing the potential for a premium on the resale.

Some of our investors had a chance to stay at Northstar and they gave it a thumbs-up.

The beauty of Lake Tahoe is that it can be enjoyed year-round. Skiers can brave the slopes in Spring and Winter, while hikers come in Summer and Fall to get in touch with nature at this Northern California resort. The location is very popular with our San Francisco investors, and we know we made the right choice being one of the first buyers at Northstar.

Opportunistic purchase and remodel in Seacrest Beach, Florida

a boardwalk with people on it

As professional real estate investors, our ability to move fast with all-cash offers and recognize opportunities for value-added improvements, paid off in the case of this home acquisition.

The Seacrest Beach residence in Florida was a situation where we stepped in for another buyer when the seller needed a quick close in order to complete a 1031 exchange. We agreed to a 9 day all-cash close in exchange for a $200,000 reduction in the price to a net price of $1.49 million.

We were able to move quickly because we had researched the market, made local market contacts, and had available cash. We subsequently spent $200,000 remodeling the property and upgrading the furnishings. A similar property four houses down has since come on the market at a much higher price which we expect will provide a favorable comp.

Seacrest Beach is a popular destination thanks to its white-sand beaches and clear waters. Our investors from the Southern part of the US enjoy vacationing there year around with their families.

Raising home values by making cost-effective property improvements

After we purchase luxury vacation homes, we evaluate them for remodeling potential and create improvements that enhance property values.

In addition to upgrading furniture, we sometimes add additional bedrooms and even change a house layout.

These improvements help us to grab the attention of potential renters and bring more rental income when our homes are not being occupied by our investors.

Our vacation home located on the Big Island of Hawaii remains one of the best investments we made in our first fund, the Equity Villa Fund. Our well-publicized remodel, filmed by HGTV, played a big role in improving the home market value. As a result, it keeps generating high rental income for the Villa Fund and brings a lot of our investors together with large extended families, creating priceless memories.

Bringing it all together

This blog article covers a fraction of our successful vacation home acquisitions through the years. Different markets evolve at different paces, and our strategies evolve with them.

Due to the Villa Fund experience, we are familiar with market conditions in the key markets in Florida, Hawaii, and Mexico, among others.

When a market provides good opportunities, even if those are not apparent to other investors, we pull a rabbit out of a hat and make the investment magic happen. A lot of times we learn about these opportunities through relationships we have been building and cultivating with local market players.

Of course, there is little magic to crunching numbers and the ability to use data to determine the most advantageous timing for acquisitions, but we will continue bringing joy and financial returns to our investors and their families.

For those who want to buy their own real estate, we wrote a helpful guide that goes over multiple aspects of buying and owning a vacation home.

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