Destination Clubs

Questions to Ask Before Becoming a Member

Destination clubs, also called vacation clubs, have suddenly become the talk of the vacation industry. The concept is simple: much like a traditional country club, members pay a membership deposit and annual dues to join and access the club's properties. But rather than access to a single golf course as with a country club, members of vacation clubs enjoy the use of a portfolio of high-end homes in resort destinations. They are ideal for the individual who loves variety and enjoys the thrill of visiting different locations.

The portfolio of homes in a destination club are the creme-de-la-creme both from a value standpoint and location. The homes in the lesser-priced clubs average a minimum of one million each and go up to $10 million homes in the higher-priced clubs. They are situated around the world in the finest locations money can buy. Destination clubs also often make available to their members cars, jets and yachts.

There are two types of Destination Clubs - equity and non-equity. In the first type, you receive a deed to a percentage of the entire real estate portfolio. In the other type, you receive a right to use.

As destination clubs gain popularity and approach the anticipated sales plateau of $2 billion per year, consumers will have a wider selection of product offerings to choose from.

Industry leaders, Abercrombie and Kent and Exclusive Resorts established the market by targeting the super-affluent, providing this elite group a portfolio of multi-million dollar homes in exciting resort destinations for a membership deposit ranging from $275,000 to over $500,000.

Signature Destinations offers membership based on a regional model, which grants access to a collection of homes within driving distance of their primary residence in addition to a national portfolio of homes averaging $750,000 in value for a membership deposit of $125,000.

The latest surveys of existing residence club members show a 96% satisfaction rating, and waiting lists are commonplace among the leading operators. Every club is structured a little differently, so take the time to ask the following questions to make sure you have the information you need in order to make the right decision for you:

1. Is a destination club right for you?
While they provide upscale service and flexible access to dozens of homes in exciting destinations, they do have limitations. Most clubs provide up to 8 weeks of use per year, but limit the time you can stay in a single property to 2 or 3 weeks. If you see yourself as a snowbird -- summering in the north and wintering in the south -- then odds are a second home is more appropriate for you.

2. How much do you want to spend?
If you decide that destination clubs fit your lifestyle, you must then decide how much to spend. All clubs charge a one-time, refundable membership deposit ranging from $75,000 to over $500,000 (depending on the value of the homes in the portfolio). As a general rule, a $75,000 deposit will get you access to homes around half a million dollars while a $500,000 deposit will enable you to use properties in excess of three million dollars.

3. What portion of your membership deposit is refundable?
Most clubs charge a "transfer" fee of approximately 20%, meaning your membership deposit is only 80% refundable. This transfer fee is used to cover new member acquisition costs as well as a portion of the club's overhead. A few clubs offer a 100% refundable membership fee.

4. How do I know my deposit is secure?
This is a very important question. Make sure the club you are considering keeps enough assets on hand to refund your deposit should you decide to exit the club.

Exclusive Resorts, for example, promises members that they will keep 80% of their deposit (the refundable portion of a member's deposit) in either cash or hard assets. Make sure you are comfortable with the debt-to-asset ratio of the club you are considering joining. Industry averages range from 20% to 50%.

5. How available are the properties?
Destination clubs promote anytime, anywhere availability. While property availability in destination clubs far surpasses that of timeshares due to a lower member-to-resident ratio (typically 6:1 in destination clubs vs. 48:1 in timeshares), the fact is that you are still sharing homes with other members. Be sure to ask how the time in the homes is allocated to (or divided between) the members.

With the recent success of destination clubs, several new companies have entered the market with lower membership deposits but higher member ratios (some as high as 12:1). While this decreases the overall cost of membership, the net effect is reduced availability.

6. How does the club handle peak holiday periods?
Christmas, spring break, and the 4th of July are examples of holidays in peak demand. In an effort to evenly allocate usage on such holidays, residence clubs either charge a premium or initiate a "lottery system" in an attempt to make this process fair and equitable. Find out exactly how the system works.

If the destination club sells certain holidays times at a premium, they may limit your ability to use the property during that holiday. Also, consider the membership ratio once again as an indication of how many people are vying for reservations during these peak demand periods.

7. What is the total cost of membership on an annual basis?
Destination clubs charge annual dues to cover property expenses such as maintenance, utilities, real-estate taxes, etc. A portion of these dues is also used to cover expenses related to the high-end travel services, such as travel planning and in-residence services. Some clubs charge nightly fees in addition to annual dues to help cover these expenses.

Make sure you know what the total cost of membership will be on an annual basis by adding the total nightly fees you anticipate incurring on your vacations to the annual dues.

8. Is there a cap on the annual increase to my dues?
As a destination club's expenses increase due to increasing property taxes, utilities and other expenses, it will have to increase your annual dues. Make sure there is a limit, based on CPI (the consumer price index) to how much the club can increase your annual dues from year to year. The industry standard is roughly 2% over CPI.

9. How will transportation costs affect my annual budget?
While transportation costs are certainly not covered by the destination club, it is a good idea to factor them in as a part of the total cost. If the majority of a residence club's portfolio of homes requires air travel, it clearly impacts the total cost of ownership.

A destination club that effectively addresses this issue is Signature Destinations. Because the average second home is 186 miles from the primary residence, this club has employed a regional hub model with national scope.

Their regional model targets specific markets and provides members within these markets access to numerous vacation homes within driving distance. Yet like typical residence clubs, their members also enjoy a national portfolio of vacation homes.

Destination clubs are a breath of fresh air in the vacation industry. The concept combines flexibility and increased availability with high-end services.

If your travel preferences match a destination club lifestyle, then pick a club, pack your bags and enjoy the newest way to vacation. Where will you go first?

Check out the destination clubs we are presently featuring.

Or contact us for more information at info@CondoHotelCenter.com, 305-944-3090.