ARDA Examines the Growing Variety of Vacation Home Options

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. October 14, 2008

WASHINGTON, DC, October 11, 2006. With today's evolving vacation home market, consumers are faced with an increasingly diverse marketplace and options in leisure travel, according to the American Resort Development Association (ARDA). To select the vacation home best suited to meet their lifestyle needs and vacation dreams, consumers must educate themselves of the market terminology, ownership options, and assess their vacation preferences, travel goals and budget.

"Terms such as deeded, fractional ownership residences, destination clubs and timeshares are frequently heard because of a surging interest in vacation properties that move beyond the traditional vacation accommodations or second home," said Howard Nusbaum, president and chief executive officer of ARDA. "Sorting through exactly what these products offer and for whom they are best-suited can puzzle even the most sophisticated consumer."

Four out of every 10 purchases are a second home - either being used for an investment or vacation property, according to the National Association of Realtors, and this trend is expected to grow as baby boomers enter their peak earning years. The growing variety of vacation home options is redefining leisure travel, with the following product categories:

Timeshare / Vacation Ownership

Overview: Vacation ownership may be purchased through deeded property ownership, right-to-use or a points-based program. Owners purchase a vacation villa for one or more weeks within a fixed or "floating time" system, which allows scheduling each year's vacation during the most convenient week within a specified season. With timeshare, consumers have the opportunity to purchase time at resorts offering a wide range of amenities at different destinations. While many vacation ownership villas have two bedrooms and two baths, floor plans range from studios to three or more bedrooms.

Pricing: With vacation ownership, consumers buy in increments of one week. It is a one-time purchase, and owners also pay an annual maintenance fee, depending on the unit size, location and amenities of the resort. Timeshare is not intended to be an investment opportunity, rather an alternative to traditional vacation accommodations and seen as hedging on "vacation inflation." According to a recently released Ernst & Young study, the weighted average price of a timeshare interval, or week, sold during 2005 was $17,797.

Fractional Ownership / Private Residence Clubs

Overview: Fractional ownership buyers typically have a recorded deed and title. Fractional ownership has the benefits of second home ownership, but for a fraction of the cost and without the maintenance responsibilities. Considering the average vacation home buyer uses the property just three to four weeks a year, fractional ownership tends to be commensurate with actual use of a vacation home. Additionally, fractional properties are generally affiliated with high-end hotel companies or high-end boutique operators, where owners have the benefits of personalized services and amenities.

Pricing: According to 2006 Fractional Interests Leisure Real Estate Market Report, fractional pricing ranges from $60,750 to $649,564 per interest based on floor plan, location and size of fraction. In addition to the purchase price, there are annual maintenance fees, which in 2005 averaged $5,575.

Destination Clubs

Overview: Members of a destination club are not buying a specific property/real estate, but rather the right to use any of a portfolio of homes owned or operated by the club company. With few exceptions, they offer a non-equity based membership emphasizing a broad selection in vacation home experiences. Most destination clubs also offer members concierge services.

Pricing: The Fractional Interests study also states the average length of stay at destination clubs ranges from one to nine weeks and costs include a one-time fee of $20,000 to $1.5 million, which is typically between 80 and 100 percent refundable should they choose to exit the program. Annual dues range from $1,500 to $30,000. The club may also charge a nightly fee while guests are in residence.

Condo Hotels

Overview: Condo hotels offer a portion of their hotel room inventory for sale to the public. The owner may use it for vacation or corporate housing needs, or place in a rental program typically managed by the hotel. Owners then receive proceeds from the rentals. Buyers enjoy the benefits of owning real estate in a desirable location coupled with hotel amenities and services. Annual dues also apply.

Pricing: Condo hotel pricing varies by real estate market trends.

Traditional Second Home Ownership

Overview: Viewed as a lucrative financial investment, traditional second home ownership appeals to those seeking a vacation setting to share with family and friends and/or use for business whenever they choose. Owners have full responsibility of maintaining the property, or the owner must hire a management company. Homes purchased in popular tourist regions can generate revenue for the owner because of the willingness of tourists to pay high rental rates.

Vacation Assessment Questionnaire

"There are several key factors to consider when evaluating vacation home options," explained Nusbaum. "ARDA recommends the following vacation assessment questions to help consumers match the best vacation home to meet their lifestyle needs and budget."

1. How much time will we be using the vacation home?

2. Is the destination choice difficult to purchase in or seem over-valued due to location popularity?

3. Are we looking at this second home as an investment and/or family legacy, or perhaps primarily as an annual 'go to' vacation spot?

4. How much time and money are we willing to invest in home maintenance or decor?

5. Is it important to be in the same vacation home every time we visit the area, or do we prefer variety?

6. What level of luxury are we seeking, and are we realistically able to achieve it in a second home?

7. Is it important for the vacation home to be deeded?

8. What is our annual vacation budget?

The American Resort Development Association is the Washington D.C.-based professional association representing the vacation ownership and resort development industries.