- Have you ever dreamed of owning a vacation property?
- What if your vacation property could provide you a passive income flow? Not only that, but the positive income return is much, much higher than fixed deposits in banks, or mutual funds?
- Maybe you don’t feel like going to your vacation property this year but you wish to holiday somewhere else. Would you like to use the income accumulated from your vacation property to pay for the air tickets, accommodation and spending cash in Thailand?
Are you thinking …
that you can’t afford to do this?
that you probably would not be using the vacation home often enough to justify the expense.
Let’s step back a minute and suppose.
What if all that is possible?
What if – instead of forking out a huge amount by yourself – you need only invest a fraction of the cost? That is, for a “fraction” of the huge total bill, you still gain ownership rights to a high-grade premium property.
The solution is equity ownership.
In equity sharing, each co-owner pays only a fraction of the costs and ongoing expenses of vacation home ownership, and share the risks of unforeseen maintenance problems and value depreciation together with others. In exchange for spreading the costs and risks, the co-owner in turn, gives up some of the usage rights and freedoms of whole ownership. What you get is your share of a quality, private residence that belongs to you. This is very different from dodgy timeshare schemes.
What is the difference between Equity Ownership, Timeshares or Vacation Clubs?
EQUITY OWNERSHIP. In real estate terminology, the term “equity” means ownership. In equity ownership arrangements, the co-owners own and use the shared property, whereas in non-equity arrangements, like timeshares, they are only allowed to use it. Each co-owner actually owns a share of property similar to owning stocks in a company. If the property value goes up, the co-owner’s share of the property also becomes more valuable. If the property declines in value, the co-owner can sell the asset and write off the capital loss. If it increases, the co-owner can sell their share and receive capital gains. The shared portion of the property belongs to a co-owner for as long as they keep the equity. Properties that are equity owned may range from a single home, to multiple homes, or even a multi-unit resort.
Co-ownership may be represented in several ways:
- by being named on legal title or deed to the shared property,
- owning shares in a property holding company or similar entity that holds title to the shared property.
In general, equity arrangements are:
- less risky,
- provide tax advantages,
- and are more likely to maintain value or appreciate over time.
Inadequate or improperly prepared fractional ownership documents (or worse, no documents at all) cause much more significant and expensive problems in deeded ownership than in non-deeded ownership. Deeded arrangements also have more cumbersome financing and resale procedures, and higher liability risks. If the shared property is not within the U.S., U.K. or other country with a quick, inexpensive and efficient system for transferring ownership and a well-developed non-judicial enforcement system, deeded ownership should be avoided.
TIMESHARE. The common legal definition of a timeshare means any arrangement where usage of a property is shared, based on time. It also bears noting that there is no reliable distinction between properties marketed as timeshares and those marketed as private residence clubs or vacation clubs. Also, the bad reputation of timeshares notwithstanding, many major branded resort developers like the Ritz Carlton, Hyatt and Marriot, offer successful timeshares where most consumers are satisfied with their purchases as surveys have shown.
You may exchange your timeshares or accommodations by joining a timeshare exchange company. However, there are costs incurred such as membership fees of around $125 a year. On top of this, you will need to pay additional exchange charges of $100 to $200 per week each time a trade is transacted.
References & further reading:
- Resort Share SM. Estimated Costs of Owning a Timeshare
- Debt.org. Timeshares: Are They a Good Investment?
- Sandpiper Real Estate. The difference between fractional ownerships and timeshares
- Sirkin & Associates. Fractionals Versus Timeshares
- SirkinLaw APC. Fractional Ownership FAQs
- SirkinLaw APC. Comparing and Choosing Among Fractional Ownership Options
However, the above are generalisations only and there are attenuating factors based on individual circumstances and market forces which ultimately dictate the final results.