A variety of factors go into deciding whether to invest in a luxury real estate fund or to join a luxury travel club — from the enjoyment of having a comfortable place to travel with friends and family, diversity of destinations, and service levels to financial returns versus sunk costs. With so many options, what are the most important factors affluent households consider when making their luxury real estate investment decisions?
Equity Residences has found these four primary criteria:
- Quality of residences and customer service
- Diversity of locations and calendar access
- Cost per night
- Partner status with financial upside vs. being a “just a customer”
Quality of residences and customer service
Top quality accommodations and customer service are imperative for investors seeking luxury vacation properties. Luxury vacations spent with friends and family are meant for maximum enjoyment, relaxation and long-lasting memories. Exclusive Resorts has set the gold standard for buying properties in world-class resorts, with Equity Residence and Equity Estates buying properties in the same places. The bar is set high for the price of entry in this luxury segment, you’ll stay in breathtaking properties with top-notch customer service whether it’s with Equity Residences, the Ritz-Carlton Club or Exclusive Resorts.
Diversity of locations and calendar access
Diverse property locations and access to key travel dates are very important for luxury real estate investors. Choices between gorgeous beaches, leisure and stunning mountain destinations around the world provide the freedom to travel where you want each year. There are more choices than ever these days with firms like Elite Alliance (an Equity Residences partner) enabling exchanges between luxury resorts around the world.
However, not all options are created equal when it comes to calendar access. Many so-called vacation clubs are running near 70% or 80% member property utilization, with the most popular properties at 90%+. Some vacation clubs require preferred memberships to use the properties over holidays due to the large number of members per portfolio property. Conflicts abound for using the high-demand weeks you want.
On the other end of the luxury real estate investment spectrum, you have options such as Equity Residences’ Platinum Fund. Our fund has Partners rather than members. Our Partners are true equity owners in a luxury residence portfolio rather than just members in a club. Due to a low number of Partners per portfolio property and the highly-personal nature of our reservations process, you’ll find far fewer conflicts in getting weeks you want. Additionally, our Equity Platinum Fund offers access to our luxury properties with no black out dates, year-around, with no additional fees.
Cost per night and investment upside
This is where the options diverge significantly. We’ve already discussed why subscription models like Inspirato are becoming obsolete. Let’s discuss equity models and why they are not all created equal.
An equity model is where the luxury residences are collectively owned by the investors rather than leased or owned by a third party.
This is important because it allows the investors to participate in the properties’ appreciation over time. Unlike a club membership where much of the upfront and annual subscription fees are typically used for marketing to recruit more members, our model creates a residual value.
However, as we’ve said before, not all equity models are created equal. Let’s compare two equity models, Equity Residences Platinum Fund and Equity Estates Fund II. According the Equity Estates own website, “. . .20% of capital contributions are held in an operating account to fund sales, marketing, legal and other syndication-related expenses.” Basically they are taking 20% of your money right from the start and hoping that the properties appreciate enough to return your money down the road.
The Equity Residences Platinum Fund differs significantly. Our management team has demonstrated a proven track record of acquiring exceptional values with our Equity Villa Fund, where asset values are up 35%. The effective combination of a low 6% syndication fee and smart asset purchases mean you can expect to have investment upside from day one of your investment in the Equity Platinum Fund.
Let’s look at cost per night. According to the Sherpa Report, Equity Estates Executive membership annual dues per night are $650. This is much less than what you’d pay to rent a comparable property, but far from our best-in-class Equity Residences Platinum Fund’s dues which are $381 per night. Imagine staying in $2 M -$3 M luxury residences that can easily rent for $2,000+ per night and only paying $381? This doesn’t factor in our Funds’ unlimited usage benefits when our properties have “space available.”*
Better yet, with the Equity Platinum Fund, you can have your cake and eat it, too. By foregoing a portion of your usage, you eliminate your annual operating fee while retaining a week of peak usage. This effectively brings your cost per night to $0. That’s right. ZERO.
Taken together, the Equity Platinum Fund is best-in-class by providing an unrivaled combination of quality, service, diversity and value. Before investing in luxury real estate, be sure to evaluate all of these factors to ensure you are making the best decision for you and your family.