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Vacation Home Investment: What You Should Know Before Buying a Vacation Home

Considering a vacation home for you and your family to enjoy and create amazing memories for years to come? Perhaps you want to invest in a second residence solely as a source of rental income? Or, like many others, your intent may be to use your vacation home personally and also make it available for rental use?

Regardless of your intentions, if you have your eye on a vacation home, there are a plethora of options and associated risks to consider, particularly in the luxury home market. This guide will be a valuable resource in every step of the investment process.

Is Now The Time To Buy A Second Home?

The COVID -19 pandemic halted travel and investment for a short time, but second home markets roared back with surprising speed. Vacation home sales skyrocketed since July of 2020 once the economy started what the Wall Street Journal calls the “K-shaped recovery”.

Instead of using their vacation homes as an escape from city life for a few days each year, owners are now occupying their vacation homes for months at a time in a phenomenon experts have dubbed “co-primary living.” Regardless of how you intend to use a vacation home, the market has become a battleground, with many homes selling significantly above the asking price.

In short, the novel coronavirus had the opposite effect that many had anticipated. Instead of crashing the housing market and creating an abundance of underpriced homes for qualified buyers, only those who are totally price insensitive or savvy investors capable of uncovering the rare bargain are actively in the market.

The Current Housing Market

Because the COVID-19 pandemic has turned vacation homes into the hottest commodity of 2020, experts are predicting an inventory shortage for 2021.

September 2020 marked the fourth-straight month of increased home sales, according to the NAR. Not only that, but construction also hit its highest mark since 2006, with 342,000 new units underway at the end of July.

Many experts predicted that the 2020 pandemic would lead to a housing crash worse than the great depression, but even though housing demand is statistically low, the housing market as a whole experienced a boom that almost nobody saw coming. At least for buyers and investors, the good news came in the form of a flattening of prices that remained stable throughout the year.

The Risks Of Buying A Vacation Home

The traditional risks that affect potential home buyers do not usually affect more affluent investors, but there are a couple of things to consider before investing in a second home.

Risk 1: A Weak Leisure Economy in Some Markets

We can assume that people reading this guide will be in a financial position to buy a luxury vacation home. However, if your plan is to invest in a rental property, you should consider the current state of the leisure travel industry, specifically: the willingness of people to travel and rent a home for vacation, and how long the COVID effect will last.

As previously mentioned, the current market is being driven by people who are buying and living in their “vacation home” for an extended period of time. Only a year ago these homes would have been owner-occupied for only a few weeks of the year. People are now reconsidering the way they divide their home, work, and vacation times, blending them together more than ever before.

We are seeing a very strong demand for short-term occupancy from investors and renters for our vacation homes in the domestic markets and the Caribbean. Affluent individuals are ready to travel and shake off the pandemic fatigue. We are seeing a weak demand for some of our international markets. This lack of demand is partially driven by how the local authorities are handling the pandemic and partially by travel restrictions for international travelers.

Risk 2: Time, Hassle, and Cost Vs. Rental Income and Personal Use

How much time and money do you spend each year on the upkeep of your primary residence? Vacation homes don’t automatically double the time/money commitment but there are challenges and risks associated with absentee ownership. An undiscovered problem in your house, especially water-related, can increase the severity of the damage and the cost of repairs.

A vacation home that is unoccupied a significant part of the year is much more prone to vandalism and burglary. Consequently, it requires a more expensive security system and/or insurance policy — perhaps even someone who regularly checks on the property.

While these factors make a second home more maintenance-intensive, they do not mean the expense and the time commitment are not worth the benefits. The point of mentioning these risks is to make it clear that you have to think about this property much differently than you do a regular house.

Is A Vacation Home A Good Investment?

The National Association of Realtors reports that vacation home buyers and rental property investors represent 12% and 19%, respectively, of all residential sales in the United States. Although the number of each type of buyer is similar, their expectations and motivations differ.

Many buyers purchase a vacation home for personal enjoyment but plan for it to become their primary residence after retirement. On the other hand, investors almost exclusively buy homes with a greater consideration given to potential appreciation and/or high rental demand.

Assessing the investment merits of a vacation home depends entirely on owner expectations. If you are mostly interested in the leisure and sentimental rewards of a vacation home while renting to defray annual costs, then you should focus on a property in an area that you and your family enjoy.

For investors, rental income and appreciation potential are the purchase determinants.

3 Scenarios For A Vacation Home Investment

Scenario 1 – Buying A Family Vacation For Fun, Not For Renting

Buying a vacation home exclusively for family enjoyment is relatively simple since things like appreciation potential and rental income are not considerations. Choosing wisely is more dependent on local attractions, size of the home, ease of access, and the type of vacation you and your family want to enjoy for years to come.

However, it is important to remember that buying a vacation home only for personal use may cause you to feel chained to that home for every vacation and that you are wasting money if you go elsewhere. This situation is very common for vacation homeowners.

Scenario 2 – Investing In A Vacation Home For Personal Use And Rental Income

If you invest in a vacation property and treat it solely as a vacation rental, you are essentially managing a business. This gives you the freedom to choose where you want to spend your own vacation time. But, if you decide to use your vacation home a few weeks each year and make it available for rental, you have to be comfortable sharing all your home, its contents, and more with all sorts of people.

It is also important to remember that renting your vacation home does not exempt you from taxes or automatically allow you to write off other expenses. Be sure to check with a tax professional before assuming you can deduct items that may create tax issues in the future.

Scenario 3 – Investing In A Luxury Vacation Home Overseas

Overseas vacation homes can be a good choice for both vacation home users and investors if they can evaluate their investment based on experience and/or business savvy. If properly managed, a well-chosen vacation property can generate a nice profit each year and serve as a home-away-from-home when you use it personally.

The best approach to overseas real estate is to date before getting married. You should spend sufficient time in the desired location to see if you’re compatible with the region and the way of life before committing to it. Still, this means that you must be able and willing to travel overseas to the same destination each time you want to vacation.

We blogged about our lessons buying vacation investment homes in Italy and Costa Rica so you can learn from our experience how to approach buying homes in foreign countries.

Why Buy A Vacation Home?

It’s worth mentioning that a vacation home is one of the few investments that offers both personal and financial rewards.

Another benefit is that you are diversifying your income (if you rent it), build your wealth, have an alternative for retirement, eliminate a big chunk of your vacation expenses, and increase your real estate portfolio. It is a step forward in many aspects of your life.

However, there are several questions you should answer before you move ahead with a second home purchase:

You Want Your Own Place In A Beautiful Destination, But How Often Will You Really Visit?

The notion of owning a “piece of paradise” can be very alluring, but how often are you willing/able to visit? Studies have shown that a typical second home (or vacation home) is used 30 days per year on average.

Have you considered all the work involved?

Whether it’s for personal use or as a rental, as the owner of a second home you should make sure that you have enough time for maintenance and meeting with your property manager, even during your vacation time. Owning a second home entails the same responsibilities, or even more, as your main home, even when you use it only a fraction of the time.

One of our investors called her vacation condo ownership a “part-time job”. This is especially true if you plan to rent out the home. Renters exact a lot of wear and tear on the home and its furniture, but expect it to look flawless. This means a lot of ongoing maintenance is required to maintain high standards of cleanliness.

Are You Willing To Settle For A Single Destination Instead Of Travelling Wherever You Want?

Even if you do manage to visit your vacation home more than most people, you are still locked to a single location each time, even if you feel like visiting other places. To justify purchase and maintenance costs, most owners feel obligated to visit their second home even if they want to travel elsewhere.

On the investment side, owning a second home means that you are stuck with little geographic diversification. Avoiding excessive investment concentration in a single place is a good way to reduce portfolio risk.

Do you know everything that you need about maintaining a home or rental in a foreign country?

Foreign housing and zoning laws are rarely the same as in the US, and it can sometimes take a whole legal team to make sense of them. Acquiring and keeping a second home abroad is complex enough, but short-term vacation rentals are always in flux in many locations.

Even if you do manage to navigate this legal maze, you must be aware that many vacation rentals lose money after property management fees, mortgage interest, taxes, the ever-present HOA fees, insurance, repair costs, etc. In today’s volatile housing market, it might be a good idea to reconsider buying that “piece of paradise” abroad.

Other Things To Consider About A Vacation Home Investment

Insurance

To insure a vacation retreat, you have to purchase an independent home insurance policy as you would with any other property. The premiums will be priced based on the same factors as regular properties, including the replacement cost value, the deductible, and applicable risks.

What you must remember in this situation is that insurance on a second home costs more than on your regular one, and this only goes up if said home is overseas. The reason is that overseas vacation homes are almost always luxury properties and are in remote areas, increasing the risks for your insurer.

A substantial amount of vacation homes are also beach properties, which are subject to storm damages or destruction, or simply more wear-and-tear damage as tenants use it through the year. All of these things are more difficult to manage when a property is outside of the US, and you should keep them in mind before investing.

Some companies even have different surcharges depending on specific secondary home circumstances, such as differentiating the risks for them based on whether they also insure your primary residence or not, if a full-time housekeeper lives in the home, or if a maintenance company checks on the house on a regular basis.

Location of your secondary residence

The old real estate adage of “location, location, location” rings truer than ever for those who want to rent their vacation home. If you buy a home with an intention to rent it out, the ideal location for it is an area that offers many seasons of rental use throughout the year, not a single high-traffic season and a long off-season for the rest of the year.

The following questions can help you determine if a particular home is located in an area that will be good for business.

  • Can a guest take a train or subway?
  • Is a guest forced to use a car to go anywhere?
  • How close is the closest settlement to the house?
  • Does your rental offer private parking?
  • If not, where should guests park?
  • Is there a car rental service nearby?
  • Does the area offer any activities for the guests?
  • Is the surrounding area active year round or only on special occasions?

Local Laws And Regulations

It may sound obvious, but you should intimately familiarize yourself with the laws and regulations of the land where you intend to buy your new vacation home. In some countries, like Mexico, you can only legally own property near the coast through a fideicomiso made with a bank. If the property sits within the jurisdiction of a homeowners association (HOA) analogue, you should abide by their rules as well.

Countries like Costa Rica or cities like New York have land leases. If you buy a home or a condominium on leased land, prepare for potential surprises in the future like higher monthly lease payments or even a possibility of buying land from the owner (which can set you back hundreds of thousands of dollars).

Knowing the local laws and regulations will save you a ton of time and money, not to mention legal trouble, especially if you plan on renting the property or leave it vacant for an extended period of time.

If You’re Renting Your Home Out…

From the very beginning of this guide, we have referred to vacation property investors as a separate entity from simple vacation homeowners. That is because owning a second home for personal use is much simpler than making it turn a profit.

The following are the main factors you should consider and plan for before you take a dive into vacation property investments.

Seasonal Factors

Something we have mentioned before but is worth repeating. Remember that potential tenants are looking for a vacation beyond the four walls that you offer them. Many of them want access to local dining, recreation, shopping, closeness to nature, and more.

How much the seasons affect demand for rental properties depends on how variable the weather is in the region your property sits. The most common trend is that in places like Florida, the cold months like December and January are in low demand, while the trend jumpstarts in March and continues through the summer before peaking in August.

Mountain properties have the opposite trend – December through March are the hottest months for rentals, and therefore revenue, while April and May are completely dead months. Even restaurants and some hotels close for slow months in places like Tahoe and Vail, leaving tourists with few dining and entertainment options.

You, of course, can adjust your prices accordingly, especially if you know the local traditions will attract large groups of people who want to be close to the action, such as a local festival or a summer vacation hotspot.

Setting Up Marketing Strategies

You may have heard that a good house sells itself, but that is rarely the case in the hotly competitive vacation rental market. These types of rentals have accumulated an impressive amount of market share over the past decade thanks to travel enthusiasts, entrepreneurs, investors, wealthy travelers, and the like.

The vacation rental market no longer leans on the “mom and pop” vibes and luxury vacation rentals are now at the forefront of the hospitality industry, becoming the most daring and technologically-savvy sector.

As such, you have much to learn and do if you want a piece of the action. Familiarizing yourself with the most effective marketing strategies is no longer enough; you will probably need an expert to help you set up a significant online presence if you want to see a real income.

Maintenance

Another factor that has been mentioned in this article but is worth repeating. Maintenance costs should never be underestimated, especially if your rental sees many different short-term visitors (who are less likely to take good care of your home than long-term tenants) or if the regular wear-and-tear is accelerated by environmental conditions, such as in properties near the coast.

Hiring outside help to check the property on a regular basis for damage will prevent these from expanding completely unchecked and messing with other parts of your house, creating a domino effect, such as gas or water leaks, bug infestations, mold, and others.

Know your local short-term rental rules and regulations

Due to their exponential growth within the hospitality industry, short-term rentals have become subject to many objections and regulations imposed (or lobbied) by big industry players and annoyed neighbors. If you plan on turning your second home into a short-term rental, it is exceedingly important to familiarize yourself with these regulations.

First of all, know that the very definition of “short-term” rental varies greatly from one place to another. While some states and municipalities may consider a single shared room as a rental, others might require a minimum number of rooms in the property to be considered short-term rentals.

Length of stay is another issue. While some places limit rental time to a length of 30 days, others will not allow a day less than that. Finally, since you are essentially running a business, you will be required to have either a general business license or a more specific short-term rental license, and pay all the local taxes associated with said business in your area.

The Cons And Pros of Renting Out Your Vacation Residence 

Cons

  • Con #1 – Insuring a second home that is not your primary residence, especially if it’s a vacation home, is much more expensive. This cost only goes up when you add factors such as location and rental use.
  • Con #2 – Unmonitored damages to your vacation home cost far more money to fix because of the extent of the damages. The upkeep is also more expensive, as tenants hold rental properties to very high levels of scrutiny.
  • Con #3 – If you plan to use it as a personal vacation home, you are limiting yourself to a single location through the years, and your time might also be limited if you also rent the place during the high season.
  • Con #4 – Unforeseen expenses such as security services, problems with tenants, and more can prove annoying in the long run. However, the most common expenses are the following.
  • Con #5 – You will have to hire property managers and cleaners to maintain the home and manage rentals, if you so choose. Therefore, you will have to manage these people like any other independent contractors or employees. This can get very time-consuming, especially if you have to deal with checking their work from hundreds of miles away. You will have to find people you trust with your property, which can be a time consuming task.

Pros

  • Pro #1 – Renting out a vacation home is a great way to create another source of income.
  • Pro #2 – A luxury second house in a desirable area has a much greater potential for appreciation.
  • Pro #3 – Mortgage interest and property taxes are the major tax benefits of a second home.
  • Pro #4 – Since you own the place either way, you can reserve for your personal use any time you want for vacation at no extra cost to you.
  • Pro #5 – Many people see a second home, even if it’s used as a rental, as a viable retirement option, whether by selling it, using the rental income to pay for living expenses, or as a home to move into.

Associated Taxes

In order for a property to be considered a secondary residence, you need to occupy it for at least 14 days of the year or 10% of the days that it’s rented out to tenants. Otherwise, the IRS will consider it an investment property regardless of whether you originally bought it for that purpose or not. For tax purposes, this is something you should consider from the start.

You also have to pay property taxes on your residence. It can be painful to pay $45,000 a year in local taxes on a $3M residence in California, especially if you don’t spend enough time at the residence to directly benefit from your expenses.

Hawaii’s taxes can be steep as well. International destinations vary. Vacation residences in international high-end resorts can carry property taxes that are comparable to the US destinations.

HOA fees

For some areas, HOA fees are almost as inevitable as taxes. A HOA fee is a recurring payment that you make to a homeowners association if your property is within their jurisdiction, where other specific regulations and rules may apply. When buying a house controlled by a homeowner’s association (HOA), you can expect to pay these fees and adhere to their stipulations, which might include limits to rentals, among other things.

Expect to pay north of $25,000 a year in HOA for Hawaii’s high-end resort homes and close to $30,000 for California high-end resort homes. International locations may not have any HOA fees for comparable quality and size homes. You have to run your numbers on the case-by-case basis to determine financial feasibility of your investment, considering these charges.

Furnishing and utilities

As both a vacation homeowner and a vacation property investor, you will be expected to pay for all the furniture, utilities, and amenities that go along with a vacation home. It can be much more expensive for the latter as the need to replace furniture and restock on amenities grows with the traffic of tenants.

If You Decide To Buy A Vacation Home, Know This

Budgets Are Not Incompatible With Luxury Properties

You are probably looking for a luxury vacation home and are ready to invest $1M+ into it. This is a big advantage in a market like luxury real estate because prices tend to be more stable in the $1M-$4M price range, and offers are less finicky than regular sellers offering mid-range houses. A small advantage that can go a long way in convenience for you.

Know Where You Want To Go

If you are going to limit your vacations for the foreseeable future to a single location, make sure that you will at least enjoy the place each time. Look not only for pretty vistas, but for signs of a good economy, a stable local government (in case of an overseas home), family-friendly environments, and more. Remember to always say no to “fixer-upper” areas.

Make Sure The Home Fits Your Lifestyle

Pretty self-explanatory. You want a house that fits the way you live, not one that you have to fit your lifestyle around. Love to party? Make sure your home has ample grounds, is near a vibrant nightlife, or at least has like-minded neighbors. Looking for a family friendly place away from the hustle and bustle of city-life? Find a place surrounded by nature and little in the way of neighbors.

Consider Renting The Home

If you are planning to buy a vacation home for personal use, you want to give the rental option some serious consideration. Investing in a vacation rental home certainly won’t guarantee that you’ll multiply your income tenfold, but it can be a lucrative source of passive income that can, at the very least, offset the cost of property taxes.

Rental Restrictions

We can’t stress enough the importance of familiarizing yourself with state and local regulations and restrictions when it comes to short-term vacation rentals. While some areas will not give you too much hassle about it, others have outright banned rentals. Even massive tourist and urban hubs like Santa Monica and New York cracked down on short-term rentals and only allow long-term rentals of 30 days and longer.
You should also check that you have the right license and up-to-date permits to avoid problems with your short-term rentals, and of course, never forget to pay your taxes! If you ever feel in doubt, speak to an attorney immediately so they can help you further clarify.

Non-conforming Use

An important term to familiarize yourself with. “Non-conforming use” refers to a legal rental property that does not conform to current zoning restrictions but does meet other legal requirements. This generally happens when a home or building is in an area that has its zoning laws changed.
To give you an idea of what non-conforming use looks like, imagine a building with legal rental units. This building is in a neighborhood where the zoning changes to allow for fewer rental units per property than the building has. Now the building doesn’t meet the current zoning, but it was there before the rules changed, so it’s now marked simply as non-conforming.

Be Realistic About Rental Income

Always consider the location, amenities, and size of a house before you evaluate its rental performance. Vacation rentals can be lucrative, but you must remain in a realistic state of mind about what you can make, and follow the real (not wishful) numbers.
A six-bedroom in Kissimmee, FL doesn’t have to pull in over $100K to be successful. Considering the area, around $40K-$45K is still enough to cover all costs and earn a nice profit on top. You can expect to make more than $200,000 a year for a high-end vacation rental in Hawaii, but you will have to deal with a myriad of local regulations, occupancy taxes, HOA fees, and local labor that can be hard to manage from the mainland.

Long – term vs short – term rentals

When dealing with vacation rentals, you usually never hear the term “long-term rental”, since this is usually reserved for people interested in a fixed place to live. However, you might see some benefit from a long-term rental agreement if you don’t plan to use your vacation home for at least 2+ years, or if your area is suffering from low mobility due to coronavirus restrictions. Otherwise, steer clear of them, as it defeats the purpose (and higher profitability) of short-term vacation rentals.

Rental platforms and how the pandemic shaped expectations from short-term renters

It’s no secret the COVID-19 pandemic dealt initially a major blow to platforms for short-term rentals such as Airbnb, and most of that blow was absorbed by the hosts themselves. In the post-coronavirus world, it’s important to remember that tenants’ expectations in regards to accommodations are higher than ever before, and any platform where you might advertise your rental will make you adhere to a strict code of hygiene and upkeep.

Understanding The 1031 Exchanges

You might not be acquiring your vacation home through a 1031 exchange, but it’s not entirely without value if you’re interested in real estate investing.
A 1031 exchange is a swap of one investment property for another one that will allow capital gains taxes to be deferred. It has become common parlance in the real estate industry and the people around it, but the IRS code which gives it its name has many moving parts that only professionals should handle.

Alternatives To Buying A Vacation Home

Fractional Ownership

Fractional ownership is still one of the fastest-growing segments of the real estate market. This is mostly because of the lower risk involved in paying for a fraction of the real estate while still getting most of the same benefits from being the sole owner. The “split-cost and shared-responsibility” is very attractive to investors who want to diversify their real estate holdings and expand their vacation options.

What Is Fractional Ownership?

Fractional ownership is an investment model. The cost of an asset is split between individual shareholders who also split the benefits of said asset. Things like income sharing, reduced rates, and usage rates all come into play with fractional ownership, and it’s common in purchasing expensive assets like vacation homes, luxury cars, boats, and more.

How Fractional Ownership Works

In simple terms, fractional ownership gives you a share of the real estate itself and you are issued a deed for the property, not a time that you can use the home as with a timeshare. This allows the cost to remain low when compared to regular vacation homeownership, but you retain access to the home if you are satisfied with your group of investors’ sharing model.

Fractional ownership is still one of the fastest-growing segments of the real estate market. This is mostly because of the lower risk involved in paying for a fraction of the real estate while still getting most of the same benefits from being the sole owner. The “split-cost and shared-responsibility” is very attractive to investors who want to diversify their real estate holdings and expand their vacation options.

 

Cons And Pros Of Fractional Ownership

Cons

  • Selling can be tedious
    Selling a fractional property is much more complicated than selling a house that you’re the sole proprietor of. You must know how the ownership is structured, what restrictions apply, and what you get if you sell your share of the deed.
  • Everything needs a consensus
    Since most cases of fractional ownership are tied to a single house, every single aspect of it is tied to a vote. Some things are more annoying than problematic, like changing the decoration, but others can prove tense, like a group of owners wanting to rent out their share while others don’t.
  • Restrictions may apply
    As with most properties, including vacation rentals, fractionally owned houses can be subjected to HOA restrictions or simply banned from the area. They could even be taxed in new ways as time goes one, depending on local politics.
  • You are tying your vacations to a single location
    Again, as with buying a vacation home on your own, you would be essentially tying down your vacation time to a single location. Regardless of how beautiful and valuable the property might be, travel enthusiasts will wince at this prospect.

Pros

  • The home will get regular attention
    Even if you rent a vacation home for six months out of the year and use it for three weeks yourself, that is 5 whole months that the property will sit empty. As you know, lack of use leads to disrepair, but with shared use a property can receive much needed attention and love.
  • Sharing the burden
    From minor inconveniences to major burdens are all shouldered together with fractional ownership. This shared accountability is great for the home and lessens the likelihood of a major disaster from happening.

Who Will Benefit The Most From It?

As we mentioned before, investors looking to expand their real estate portfolio and their potential travel destinations while working below the regular budget for a regular luxury vacation home will find fractional ownership very attractive.

It’s important to make a distinction here; it is not that fractional ownership is merely for those who can’t afford a luxury vacation home, but for affluent investors who want to diversify their holdings for a fraction of the cost.

Luxury Real Estate Investment Fund

What Is A Luxury Real Estate Investment Fund?

A luxury real estate investment fund is a real estate investment fund that operates under the private equity model. This means that investors’ money is used to acquire a variety of properties around the world that they have access to without having to worry about the responsibilities of homeownership or being tied to one location, all the while knowing that their investment is going to make a profit.

How It’s Different From Fractional And Sole Ownership

It’s easy to differentiate a luxury real estate investment fund from sole ownership since the latter is merely that; a sole owner doing as he or she pleases with their property. They can use it for themselves, rent it out, leave it vacant, etc. Differentiating fractional ownership from a real estate fund like Equity Residences requires more context, but the differences are very clear.

In essence, a luxury fund like Equity Residences takes the opposite approach to fractional ownership. Instead of concentrating their assets in a single location, their portfolios are diversified through multiple locations. Also, while fractional ownership groups might restrict rentals to non-members, a fund will rent out their residences out to non-investors and pool this income to offset the high operating costs.

Perhaps the most important distinction between fractional ownership and Equity Residences is that the latter states a clear portfolio liquidation horizon of ten years instead of holding investors to the residences indefinitely.

How Luxury Real Estate Investment Funds Work

Equity Residences allows investors to live the destination club lifestyle while they also invest in a portfolio of luxury vacation homes that will generate rental income for over 10 years.

Once this ten-year period is over, the homes are sold and investors receive their initial investment back, plus any appreciation gains. On top of that, investors and their families can vacation in any of the multiple luxury vacation homes offered by Equity Residences and their affiliates, ThirdHome and Elite Alliance.

At the end of that 10-year timeframe, the homes are sold, and investors receive their initial investment and appreciation gains. Meanwhile, investors and their families can vacation at any of the luxury homes offered by Equity Residences and their affiliates ThirdHome and Elite Alliance.

Equity Residences fund managers find sound investment opportunities even in hot real estate markets known as buyers markets. The fund managers’ and investors’ interests to grow the value of the portfolio are aligned, so soucing good deals is a priority.

How The Homes Are Selected

A private equity fund selects home based on three criteria:

Desirability

This refers to the location of the home, and how desirable it is in the real estate market. It’s common for funds like Equity Residences to survey their investors yearly in order to understand where to buy real estate, with popular destinations including the Caribbean, Europe, and Hawaii.

Potential for appreciation

Along with the desirability factor, this includes home improvement costs and the expertise of the real estate management team.

Potential rental income

Rental income essentially reduces or cancels out the high operating costs of the properties. When not in use by any of the fund’s investors, the managing team rents out the homes in their catalog, and if the profits surpass operating costs, it pays dividends to investors.

For more information on home selection, watch the webinar where we provide examples of how we grow the value of the investment portfolio from the day we acquire residences.

Who Will Benefit The Most From It?

For people who want to visit new destinations every year, but still want to come back to old favorites once in a while, investing in a private equity fund with a diversified portfolio is the right choice. Fractional ownership offers the much sought-after deed that many people want but does not give any financial upside, while a private equity fund is more predictable on the return of investment front, especially since it is a business with financial goals and investors can choose from diverse locations.

As for similarities, both fractionals and the private equity fund relieve you of upkeep and maintenance responsibilities (aside from the cost) so that investors and their families can enjoy their vacation time.

About Buying A Vacation Home…

When Is It The Best Time To Invest In A Vacation Home?

After the changes brought about by the 2020 pandemic, it’s not the best idea to enter the housing market with a traditional buyer’s mentality. A vacation home can still be a good investment if the numbers make sense, but the use you get out of it (whether personal or as a rental) can be quite different from what you might have expected a year ago.

Chances are, the bigger benefit for you would come in the form of alternatives, such as a private equity fund investment. If you want to be serious about investing in real estate while enjoying great vacations with your family, it’s good to adapt to the times.

An accredited investor is someone who earned income that exceeded $200,000 (or $300,000 if married) in each of the prior two years, and reasonably expects the same for the current year; OR has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).