A Guide to the Newest
Summer-Home Options

August 02, 2004 -- Buying a summer home used to be as simple as paying a few thousand dollars and getting a cabin near a lily pond.

Now, however, as more Americans own vacation homes -- the number of recreational second homes has risen roughly 25% since 1989, to 5.1 million, according to the National Association of Realtors -- an array of new options is gaining popularity. Developers are increasingly targeting buyers who want the convenience of a full-featured second home, without the hassle of actually owning it.

The new offerings are a far cry from traditional rustic getaways. In one popular approach, resort and hotel developers including Ritz-Carlton Hotel Co. and Four Seasons Hotels Inc. are selling "shares" of family-sized dwellings at fancy beach and ski destinations. For a hefty one-time payment starting at a few hundred thousand dollars, plus annual maintenance fees, buyers of these so-called fractional-ownership programs get to spend several weeks a year in an upscale residence in the Virgin Islands, Aspen or Mexico. Already about 100 of these high-end resorts exist, a sizeable jump from the six or seven available as recently as a decade ago.

An Exclusive Resorts property near Puerta Vallarta, Mexico

Exclusive Resorts LLC, a company that sells memberships in "vacation clubs" -- a rival approach to the fractional-ownership model -- is adding almost 100 members a month at $375,000 a clip. Membership will top 1,000 total by the fall, according to the company, which is partly owned by America Online co-founder Steve Case. Abercrombie & Kent Inc., a smaller rival, offers two clubs.

For consumers, the emerging ownership models are changing the rules of the game, requiring new tradeoffs. For instance, outright ownership of a second home lets the owner benefit from rising real-estate values, whereas a vacation club generally doesn't. And reservation rules can vary, which may make it tough to book the times you want.

Of course, outright ownership has its downsides -- such as property-tax bills and the hassle of dealing with repairs from hundreds of miles away. Here's a look at the pros and cons of the different methods.

Fractionals

Fractional ownership essentially lowers the cost of access: Why buy a mountainside villa in Aspen for $3 million that you use a few weeks a year, when for $500,000 or so you can own a piece of similar property?

Fractionals are relatives of the timeshare industry, which has a fairly sordid reputation since buyers have sometimes faced big losses when selling. By contrast, fractional resale prices so far have tracked local real-estate prices more closely. That's partly because they are located in sought-after communities where demand remains high and it can cost millions of dollars to buy a similar property outright.

Who's buying: People who want the cachet of a second home in a specific place, but don't want the expense and hassle of full ownership.

What you get: Essentially, you own a slice of a particular piece of real estate, giving access to a home for anywhere from one month to 13 weeks annually. The properties tend to be two- and three-bedroom condos, though the Ritz-Carlton Club in Jupiter, Fla., includes four-bedroom homes. (Some offer studios.) Like timeshares, fractionals often let owners book time at another property, although availability may be severely limited.

Locations: Mostly high-rent U.S. markets such as Aspen, Colo; St. Thomas, Virgin Islands; and Jackson Hole, Wyo.

Price: Ranges from $58,500 for a studio at the Marriott Grand Residence in Lake Tahoe, Nevada, to more than $1.5 million at a new development Starwood Hotels & Resorts Worldwide Inc. is building in Aspen. Most are in the $300,000 to $500,000 range. Owners pay annual fees ranging from $450 to nearly $14,000.

Resale: The resale market is nascent. Because these fractionals are more like upscale real estate than timeshares, their value tends to move with local real estate. A survey by Ragatz Associates, a resort-industry consulting firm, suggests that resales are getting 10% to 30% more than the original price. That kind of appreciation may take a hit, however, as the number of properties increases.

Vacation Clubs

With vacation clubs, users buy a membership for a few hundred thousand dollars and pay annual maintenance fees up to $25,000. In return they get to spend several weeks a year in fancy houses or apartments in any of a couple of dozen properties around the world. The advantages of vacation clubs is a wider choice of properties. However, unlike fractional owners, who can resell their shares for a profit, club members generally don't make a profit.

Who's buying: People who travel often and want regular access to beach, ski, and city destinations. Also people who might be able to afford a second home like the million-dollar-plus properties available to club members -- but who cannot stomach spending that much.

The Rocks, a fractional development in Scottsdale, Ariz.

What you get: Generally, you're buying the right to stay for a certain number of weeks in a property of your choosing.

Location: Exclusive Resorts has 123 properties available in 27 locations including Beaver Creek, Colo.; Tuscany; Naples, Fla.; New York City; and Los Cabos, Mexico. Abercrombie & Kent, its next biggest competitor, is in 30 locations including Belize, North Carolina's Outer Banks, and Rome.

Solstice, a new entrant at the ultra high-end, plans to have a 94-foot yacht sailing around the Caribbean, the Bahamas and New England.

Price: Solstice tops the list at $525,000 for its top plan, plus $21,000 in annual dues. Exclusive Resorts charges $375,000, plus dues ranging from $15,000 to $25,000 depending on the number of desired days. Abercrombie & Kent's two clubs have an entry fee of $275,000 or $475,000 and dues of $9,500 or $13,500.

Resale: Clubs return your original investment (but not the dues). Exclusive Resorts and another player called Portofino Club keep 20% of your original membership fee and refund the rest. Abercrombie & Kent and Private Escapes give back all of the initial fee.

Solstice and a new entrant, Havens, plan to refund 80% of the current entry fee -- meaning members share the gains if entry fees rise after they join.

Second Homes

Who's buying: Lots of middle-income baby boomers who want to spend frequent weekends or all summer with their families in a particular spot. The average buyer is 47 years old with annual income of about $80,000.

Demand for second homes is booming after an economy-induced slowdown during recent years. Buyers last year snapped up an estimated 445,000 second homes, far eclipsing the previous high of 377,000 in 1999, according to the National Association of Realtors.

What you get: Full ownership of a home, and all the inherent perks and hassles: You don't have to share your property and you can go anytime you want, but you do have to deal with all the leaks and tax bills.

Locations: On average, a second home used for vacation tends to be about 185 miles from an owner's primary residence.

Price: Average prices for a second home are estimated at between $190,000 and $200,000, according to the National Association of Realtors. The hottest markets are pricier, of course. Median prices in Aspen and Palm Beach, Fla., are north of $1 million according to EscapeHomes.com. In Kiawah Island, S.C., prices are nearly $800,000.

Resale: Because demand is strong and supply constrained, second-home prices have been moving up faster than prices for primary residences, particularly in traditional vacation markets. North Carolina and South Carolina both still offer a few good values, as does coastal Oregon.

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