Luxury vacation opportunities
Not all luxury vacation models are equal, some are an expense while others are an investment. Let’s look at an example on the expense side of the spectrum and compare it to Equity Residences.
A luxury destination club Inspirato offers several different membership options, starting at $10,000 and going up to $30,000 for initiation. Below we will describe the differences in business models between a destination club and a luxury private equity real estate fund.
Destination club business model
Back in 2014, Inspirato raised nearly $50 million in funding from DAG Ventures, Millennium Technology Value Partners, Kleiner Perkins, Access Venture Partners and Crunchfund and has partnered with American Express (AXP).
These private equity investors reap returns from members paying $10,000 to $30,000 in initiation fees, plus annual dues, currently set at $3,400. According to this model, members have the right to rent any of their vacation properties scattered around the world. Inspirato’s cash flow benefits from a policy that requires members to pay for a rental in full, as soon as they make a reservation.
Inspirato leases its properties, rather than owns them. This is a lot of money just for the right to pay still more money on nightly fees, but Inspirato says its members end up saving money in the long run because its nightly rates are less than members would pay on the open market.
Luxury destination club cost-benefit analysis
If you are an accredited investor, you are used to calculating costs and benefits of your decisions. Let’s do the vacation math. Say, you purchase an Executive membership option at Inspirato and you decide to stay with the club for at least 10 years. This membership level affords you the same privileges and perks you would receive as an Equity Residences Platinum Fund investor.
You spend $30,000 upfront in initiation fees. Even with the current promotion that includes your first annual dues of $3,400 you pay $60,600 before spending a night at a property. On top of all of these expenses, Inspirato still requires you to pay rent. Let’s say, you spend at least $12,000 per year in rent for two weeks use over the same time period. Assuming you receive your first two (off-season) trips for free, but take vacations at various destinations and during various time periods, you will have spent $108,000 by the end of 10 years.
You’re not buying properties in the Inspirato portfolio, so you don’t build equity. After 10 years of belonging to Inspirato, you will have invested $168,600 in vacation accommodations.
Inspirato leases its properties, rather than owns them. Market conditions in 2011, when the club was launched, made it possible to rent at depressed rates. Because the overall vacation property market was down; many owners preferred a long-term lease to an empty house. However, given a market recovery, Inspirato was not able to renew the long-term leases at the same low rates.
We will say that these are gorgeous high end properties, and most people seem to join because membership eliminates the hassle of vetting vacation options from afar. All the properties have similar amenities, and all meet high standards.
There are no set pre-qualifications to being a destination club member. As long as you have the money to pay for your membership and subsequent stays at chosen vacation spots, you are in.
Luxury equity investing
Now compare that to an Equity Residences model. Equity Residences provides the benefits of owning a vacation home without the hassles. Partners do not have to pay large rental fees or annual dues. This is made possible because the properties are rented out when not being used by Partners. The rental income is used to offset operating fees.
Let’s do the math: over the same 10 year period, you invest $200,000, a slightly larger amount than you would spend with Inspirato. Your money is then used to buy hard assets in the form of luxury high-end vacation homes.
You enjoy free vacation use for the same two weeks each year in proprieties that rent for $10,000 to $15,000 for two weeks use. That adds up to between $100,000 and $150,000 in value received over 10 years in the form of vacation use.
And here’s the real kicker. With Equity Residences, your investment has a residual value. We’re acquiring these properties with immediate investment returns. Because we purchase real estate below current market prices and implement strategic upgrades, (adding bedrooms, bonus rooms, etc), our Partners see an immediate bump in their equity.
The properties are held as they appreciate through the real estate cycle with a planned liquidation within ten years. In the end, you could receive nearly $300,000 back, plus vacation values of $100,000 – $150,000 for a $200,000 investment.
Our equity appreciation benefits are not going to the big private equity funds. Those profits are going to our Partners, who share in the equity appreciation of a diversified and upgraded real estate portfolio.
Importantly, Equity Residences Platinum Fund properties are also among the best in class relative to our direct competitors, meeting high standards. Partners have the option to stay in the properties for free, derive dividends from the investment or trade the property access to stay at luxury vacation accommodations around the world through Elite Alliance and Third Home.
We find that this pragmatic approach is more compelling to a savvy and affluent investor. Expensive time share models aren’t providing the value and anticipated ROI that investors are seeking.
Equity Residences Platinum Fund
With an investment in the Equity Residences Platinum Fund, affluent vacationers are finding a value proposition that makes sense with many destination choices around the world.
Assuming a Partner travels 2-6 weeks annually, they’ll spend far less through their Equity Residences investment than if they owned and maintained a nice second home. Research shows that few people use their vacation properties as often as they’d initially anticipated unless it’s within a short flight or drive from their main residence.
We encourage you to take a closer look at the Equity Residences model. Luxury real estate private equity. Done the right way.