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Author:
Bob Waun, MSF

The A.A.D.D. (Adult Attention Deficit Disorder) Effect - Applied to Housing

This author believes that baby boomers will not want to settle on just one retirement residences and will be willing to get creative to try and afford multiple residences, even if this means sharing or renting some portion of their second or third residence. The timeshare industry pioneered this concept, the fractional jet and yacht industries are perfecting it. Savvy people have learned that the saying "why buy a whole pie, if you only want a piece" works for automobile leases, in that you only pay for the first 2 years on a new car. Many industry skeptics in the early 1980's, when 79% of all new cars were purchased and only 21% were leased, predicted that auto leasing could not expand to the general public. And who would have believed that so many people would find value in a 1/16 share of ski condo?

The A.A.D.D. Effect (coined by this author) says that today's consumer doesn't want to be limited to just one place if they can afford to own more. Further, they can afford to own multiple residences if they buy only the piece of the property they need. Condo Hotel, Fractional Ownership, Private Residence Clubs, and Multiple-Timeshare are just the first wave of innovations in achieving a treatment for the A.A.D.D inflicted consumer. (Admission: This author has AADD, he's cheap and wants more for less money)

New Options to Make Multiple Residences Affordable. Timeshares: When you only want what you want In recent years annual timeshare sales have topped $5.5 billion, according to the American Resort Development Association, or ARDA. "People typically buy one or two weeks," says Ed Kinney, a vice president at Marriott Vacation Club International. "The time can be used at your home resort, or traded back to Marriott for reward points, or exchanged for time at any of 2,000 locations around the world with which Marriott has an exchange program." The average buy-in cost of a Marriott timeshare is $23,000 a week. Industrywide, the average buy-in cost is $14,500, according to an ARDA spokesman, with annual maintenance fees and taxes of $385.

Fractionals: A Piece of Ownership is Plenty

Fractional ownership of vacation homes, is a relatively new concept that allows you to enjoy up to three months of home ownership privileges but at a fraction of the cost of whole ownership. This type of real estate arrangement is ideal if you want the benefits of owning an impressive second home complete and located in an exclusive community but can't justify the investment because of limited use. Part of the appeal of fractionals is that they are more hassle free than a whole ownership second home. To date there have been very few fractional resort developments. You pay a one-time purchase price and then a yearly upkeep that covers all of the expenses associated with property ownership and its use and services. Fractional ownership costs more than time share to purchase, but on per square foot (or other such matrices) resembles traditional real estate more than timeshare. Fractionals are considered more exclusive and may include more luxury amenities and services than timeshares. They tend to be larger homes, usually three to five bedrooms. Timeshares are typically for one to two weeks per year. Fractionals offer from two to 13 weeks, with potentially more freedom of use. Financing a timeshare with a bank or mortgage company loan is difficult. Rates are higher, regardless of how good your credit, fractional financing is also more rare than "whole ownership" loans but since there is a real estate value that can be more easily securitized, fractional interest rates are considerably less than timeshare. With fractionals, more of the buyer's dollar goes to high quality finishes and "bricks and mortar" vs. sales commissions which can be as high as 40%-50% with timeshares. Furthermore, industry experts say timeshare resale values have historically been poor because of the large number of timeshare resales on the market and a continuous stream of new developments. At the same time, the secondary market for timeshares has been slow to take off. Conversely, there are a limited number of fractionals on the market. Most likely, that number will stay small because of the emphasis placed on building in only the best, and highly desirable locations. Condominium-Hotels: Condo Hotels/Resorts First a short history. Hotel condo is a century old, wealthy families owned suites in hotels like The Plaza in NYC and Paris around the turn of the century. Sinatra owned his room(s) in Palm Springs and famous people throughout the ages have opted for the pampered living of an inn over the hassles of single family ownership when they could afford to do so. Condotels (condo motels) on the contrary sprung up most recently in the early 1990s as a creative way to sell off under performing motels to the general public as an easy way to circumvent the timeshare securities rules. The latest trend of Condo Hotels, coined by this author as Condo Resorts, is something completely new. Yes, these are real estate sales/purchases, but there is a lifestyle component (services, location, panache) more than square footage being purchased by today's buyers. Pride of ownership, and an "ownership experience" is part of the package. Strip away the ADR, and occupancy rate because one of the more important features of a Condo Resort purchase is the "feeling of being an owner" of "my own resort". The owner doesn't want bragging rights to owning at the Motel 6, so boutiques and hotels with historical significance have broad appeal. In this latest wave, the common areas matter as much as the fit and finish. Along with ownership comes privileges and freedom of use. A restrictive schedule of when you can use your condo, would not appeal to the buyer of these properties. Unlike timeshare and fractional buyers, condo hotel buyers acquire full ownership of a residence. Condo hotels are usually more comfortable than hotels, they're maintained for you and they offer an equity stake -- with a mortgage-interest deduction.

The Differences between Traditional Condominiums and Hotel Condos

If you plan to "live in" your second home for extended periods of time, i.e. months on end, traditional condos have an advantage in cost and often size. But if renting your unit in your absence is important, and hassle-free living, service and amenities are more important that raw square footage, then a condo hotel will prove superior. Price of Condos vs. Condo Hotels Typically condo hotel units include furniture, fixture and equipment selected by professional designers, which are included in the price of your unit. In a traditional condo/second home, you will need to hire a decorator or purchase all these items on your own. For this reason, most condo hotel units are more expensive on the surface than a traditional condo. Condo hotels/resorts also cost a premium because they include many features such as spas, room services, maid services and communal areas that most traditional condo projects could only dream about. Lastly, condo hotels by their nature, should be in the best locations. They are professionally furnished and fitted with commercial grade fixtures. For both these reason, condo hotels cost more per square foot of condo space. Rental Income Potential in Condos vs. Condo Hotels Hassle-free rental income is the key to the higher cost of a condo hotel vs a traditional condo. If you must hire a management company for your traditional condo, and are limited to weekly rentals (which should generate less on a per night use than nightly rentals) your net rental income should be higher for a condo hotel, with less hassle on your part. Your time and money invested has a value that should be used in your determination of the value of your purchase. www.vacation-finance.com

About the author:

bwaun@vacation-finance.com

Bob Waun is CEO of Vacation Finance, America's First Second-Home Lender. As a VP at Paramount Bank, and while at Wells Fargo, Bob innovated lending for Condo Hotel projects. He holds a Master's degree in finance/economics and BBA in finance from Walsh College and a MI Real Estate Broker's License. He has personally lent over $600+ million in residential loans, and over seen operations lending $1+billion. He has been a

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A Quick Note From The Publisher... If you like the article above, you may be interested in the following article which is also related to Timeshares... Real Estate Timeshare-Investment Or Pain In The Timeshares are a large part of the vacation travel industry. Travellers who cannot afford to own a home abroad, or who don't want the worries associated with exclusive ownership, often see timeshare as an affordable alternative. However, unscrupulous salespeople, poorly maintained properties and unexpected hidden costs have brought a lot of bad publicity to the industry. A well-informed consumer can avoid the common pitfalls. It is always risky to buy property sight unseen, but many people do this when they purchase timeshares. If you purchase in an area where you wish to vacation, you may be unpleasantly surprised when you arrive at your destination. However, many timeshares are purchased with the intent of trading them for others in different locations, and in this case the location of the property is a bargaining chip, not the actual physical property. Timeshares in prime locations such as Hawaii are easier to trade than others. Recently, big corporations such as Disney, Hilton, Marriott and Hyatt have entered the timeshare market, and their properties are of a uniform standard around the world. First, you should know that if you buy a new unit directly from a timeshare company, it may cost up to 60% more than if you purchased from the resale market. Buying from a time-share company is more expensive primarily because of the company's marketing costs, which include free trips, meals and vacation activities for prospective buyers. Most customers of these timeshare companies buy on impulse, without any intent to purchase when they first walked into the timeshare seminar. Hard-sell tactics and "Buy-it-NOW-one-time-only-offers!!!" are the rule, and to avoid being pressured into a bad deal, the best tactic is to avoid these sales...