I get approached by people selling all kinds of different investments all the time, mostly hoping I will publicize it to blog and/or newsletter readers. Some deals are attractive, some are not. Most I simply don't have the time or expertise to evaluate properly. Many are quite clearly what I call “Doctor Deals,” i.e. deals that can only be sold to doctors, because they're the only ones with the money and the lack of financial sense to buy them. One of these is a company called Equity Estates that emailed me a few months back. I asked a few follow-up questions and asked for some more information. As (some of it) came back, it became pretty clear to me that this a fairly classic “Doctor Deal.” I'm not going to pretend I've done anywhere near all the due diligence an “investment” like this requires, but I've certainly done enough to know I'm not interested!
How It Works
This particular investment was for the Equity Estates Luxury Residence Fund II. It was pitched as a smart alternative for international vacations that also provides a sound investment. Yes, that's right, a luxury time share program.
“Of course, ownership in Equity Estates has its privileges – everything is taken care of for you. And this is a major selling point for investors who want to own, but not worry about the hassle and upkeep that comes with vacation home ownership. Property management and maintenance are included, and accommodations are luxurious with five-star concierge services.”
Not only do you get to enjoy 70+, $2-4M properties located in 30 countries, but after a period of 9 years or so, the properties are liquidated and you get to profit. The brochures are full of beautiful pictures of beautiful places you get to go to as an owner. What's not to like? Well, for one I don't like “combination” products, such as combining insurance and investing. But if mixing insurance and investing gives you the worst of both worlds, imagine what combining investing and vacation gives you?
The Downsides
Well, as you might imagine, it didn't take much digging to find the downsides. For example, the $217,500 minimum investment. Now, I'm a fairly well-paid physician and based on the surveys I've seen, I have an income and net worth well above the average physician. But this represents the equivalent of a year's gross income for the average physician. Even for a physician with a large portfolio of $1-2M, $218K represents 10-20% of it. You've got to have a really large portfolio to be able to diversify this sort of a minimum investment.
Another downside is the fees. For example, at the standard “membership level” (30 nights) you pay $19,500 a year. Yes, that's right. You own the place by virtue of paying $217,500 to get in, but then you pay ANOTHER $19,500 each year (at best $650 a night) in order to use your place. Now, I don't know about you, but for $650 a night I can have a heck of a hotel room, and if I decide I only want to use the hotel room for 24 days, I get to save four grand rather than being committed to the entire $19,500 a year. Now, maybe that is a heck of a deal to rent these primo properties, I don't know, but I kind of doubt it. We rented a very nice home on a golf course in Vegas a couple of years ago with a pool that rivaled any hotel pool for $1500 for 5 days or so. And we didn't even have to invest a couple hundred grand. But wait, that's not the only fee. There is also a 1% asset management fee. It was unclear to me whether that was assessed on your equity (so $2,175 more) or on the entire value of the properties (if so, multiply that by 3 or 4.) Oh, and the managers will keep 20% of the appreciation (but don't expect them to eat 20% of the losses.)
Yet another downside is the returns on this “investment.” I asked for the company to provide some past returns. They did not provide any, probably because they don't actually have any to provide. This investment is their second fund, but the first one doesn't liquidate until 2021, so as near as I can tell, this company has never gone full circle on a real estate investment. While past returns are no indication of future returns, some kind of past return seems worth seeing prior to investing, no? They do give some rather hilarious projected returns, however. They compare taking $2.1M and using it to either buy a second home (seriously, a $2.1M second home,) paying for luxury vacation rentals each year ($52,500) and investing the rest in stocks, or investing $395K in the fund, and $1.7M in the stock market. Then they show how their investment comes out on top with a 5.4% return AFTER paying for all your fancy vacations. Seriously, $52K a year on “luxury vacations.” Maybe there is someone out there who can afford this stuff, but those people probably don't need much of a return on their money. At any rate, who projects returns for their investment by combining them with another investment? And did I mention that they are assuming the appreciation on these properties will be equal to the return of the stock market?
Like most syndicated real estate deals, there is very limited liquidity. You are allowed to sell after 12 months, but you have to find a buyer yourself (good luck finding someone with $217,500 sitting around who makes as bad of investment decisions as you do).
I don't want to bash on this investment too much. For all I know, the properties really will appreciate at 7.5% and you'll get your 5% returns after taking 40 really expensive vacations. But I thought this was a particularly clear example of the classic “Doctor Deal” purchased by those without much financial savvy who are more interested in prestige than returns. Experienced real estate investors know that the return they can count on is the income from the property, not the appreciation, and especially not at rates like 7.5% a year. Yet this sort of investment has no income. In fact, the income is NEGATIVE since you are basically paying it each year. When a person with money meets a person with experience, the person with the experience gets the money and the person with the money gets the experience.
What do you think? Do you own a timeshare? Have you owned a “luxury residency fund” like this one? How has it turned out for you? What's the most bizarre “Doctor Deal” you have been pitched? Comment below!
I only ever knew 2 people with a time share. Initially They thought it was great, as he said they would be vacationing in that location each year any ways and this way he would get a much bigger place and you can trade out to a different location if needed. The problem was that you locked in and it’s no always easy to switch dates / location and when they fell on hard times it was difficult to eat the maintenance fee and near impossible to sell it
Yea, time shares are pretty unattractive to anyone who really understands how they work. I keep imagining there is someone out there for whom they worked out okay but I haven’t met that person yet.
Yeah you could spend 20K a year plus the initial investment, OR you could probably get as many nights at places easily as awesome throughout the world for a fraction of the cost with something like Airbnb.
Wow. People in the year 2016 are still ignorant enough to buy timeshares? With all the free and readily available information regarding these scams, I can’t believe this nonsense is still being successfully sold.
Just have to say that I LOVE this quote:
“they’re the only ones with the money and the lack of financial sense to buy them.”
I have always thought that someone could make a fortune if they targeted doctors but gave them very good financial advice. Is there anyone you know that’s doing that? Maybe you?
I know lots of people trying to do it, like these guys: https://www.whitecoatinvestor.com/financial-advisors/
We were approached by time share salespeople in Hawaii a few years ago, but they wouldn’t even LET us attend the seminar because we weren’t married yet. Dodged that bullet…
Dodged the bullet of marriage or the time share? Both can be very costly investments 😉
Hahaha, that was funny.
I’ve sat through one “ninety minute” timeshare presentation. It was 3 hours and ended with a high pressure “buy it now or lose it forever” sales pitch. We walked, but not everyone in the room was so smart (assuming the buyers in the room were actual buyers and not company stooges).
I looked up the company’s timeshares (Bluegreen) the next day on eBay. The packages were reselling for about 10% of the prior day’s asking price. I guess the salesman was right when he said we’d never have another opportunity to lock in that price.
This “deal” sounds much worse. The most you could lose with Bluegreen was a low 4-figure sum. This deal could cost 6-figures over the long haul, particularly when you factor in the exorbitant annual fees.
Best,
-PoF
“I don’t want to bash on this investment too much.”
I didn’t thing you bashed on them, I was kind of waiting for that part!
“When a person with money meets a person with experience, the person with the experience gets the money and the person with the money gets the experience.”
Did you come you come with this yourself? I like the satire.
That’s a very common saying. Not sure who said it first, but it wasn’t me.
So many quotables in this relatively serious post!
I randomly came across your post as I was looking for some other information on Equity Estates and as an Equity Estates Fund II investor/member, I feel compelled to reply. I am not a member of the management at Equity Estates, nor was I asked to respond by them. I’m also not a doctor. I’m a Wharton MBA with a major in finance who is now the founder/CEO of a tech startup, so I am well versed at analyzing deals + investments.
After being introduced to the concept by the team at Equity Estates, I spent hours building a detailed financial model to analyze the investment and determine whether a positive return was likely relative to the alternative of investing the initial capital in the stock market and renting annually via VRBO/Airbnb. I used very conservative assumptions (e.g., real estate appreciation at the current inflation rate of 1-2%, 5% of vacation days unused). I analyzed the direct rental comps for each market on VRBO/Airbnb and found that rents for properties comparable to those owned by Equity Estates are in the $1,500-$2,500 range. I used the low end of the rental comps for my analysis. Ultimately, I determined that a positive return was likely even with conservative assumptions about appreciation, usage, and comparable rents.
Here’s some simplified math. We are half share owners, so we have 15 days of vacation with Equity Estates. Over the past 12 months, we have used all 15 days. Comparable rent for the properties we have stayed at based on direct comps from VRBO/Airbnb (e.g., the house next door to the one we stayed at, the unit directly above the one we stayed at) was roughly $27,500. Our share of Equity Estates maintenance + management fees was roughly $10K.
As an alternative, we could have invested $217,500 in Vanguard Total Stock Market (VTSAX) and used the proceeds to subsidize comparable vacation rentals through VRBO/Airbnb. After-tax return on Vanguard Total Stock Market (VTSAX) over the past 12 months was roughly 3.5%. If we had taken $217,500 and invested it in VTSAX instead of Equity Estates, we would have earned around $7,600 to subsidize the cost of our VRBO/Airbnb vacations. Our vacation cost with Equity Estates was $10,000 and the cost with VRBO/Airbnb subsidized by VTSAX would have been $19,900. That’s a big win for Equity Estates, even ignoring potential appreciation of the properties. Even if you use the historical after tax market return of 5-6%, Equity Estates still comes out considerably ahead.
To address some of your other concerns:
-Combination products – I don’t think there is anything inherently wrong with combination products, although I agree that there are many combination investment / insurance products that are bad at both. The most comparable non-combination product is Exclusive Resorts, which is a destination club with a non-refundable initiation fee similar in magnitude to Equity Estates’ initial capital contribution. In this case, I prefer the combination product which offers the potential return of initial capital + appreciation to the model with a non-refundable initiation fee.
-Timeshares – I don’t view Equity Estates as a timeshare in the traditional sense of the term. A timeshare is a development project in which the developer divides the developed property into weeks or points and sells those units at a substantial premium to the total value of the completed development, often using high pressure sales tactics. Equity Estates invests the initial capital contributions in real estate at fair market value, which is obvious since they are buying the properties from 3rd-parties with no interest in Equity Estates. It also passes through the actual maintenance costs without markup. You do have to pay the asset management fee, but there is obviously a cost associated with running the organization that identifies properties for investment, maintains the properties, and manages member reservations, so I don’t think that’s unreasonable.
IMO, your characterization of Equity Estates as a “Doctor Deal” is inaccurate. I have met quite a few other investors in Equity Estates, most of them are business owners or finance professionals with quite a bit of financial acumen. I have yet to actually meet a member who is a doctor, although I’m sure there are some.
You are making a short term comparison of a year. Investing in index funds is long term, 10+ years. The volatility in a year is not an accurate comparison for a number of reasons. Equity estates also has high fees and no track record of any sort. It is also not liquid. In my mind, those buying equity estates and index funds have different goals and expectations and investing should not be comingled with vacationing. Part of it as well is based on one’s net worth. If the initiation fee is 1% of your net worth or 20% plays a huge role in your expectations, risk tolerance and overall need to save for a secure, comfortable retirement.
Just my take…
A few responses to the above comments:
Alex – The one year comparison was just meant to be illustrative. The actual cash flow model I built goes out 10 years and still shows a positive return for Equity Estates. I totally agree that buying into Equity Estates is not equivalent to buying into a mutual fund. Equity Estates is a luxury vacation product with an investment component. I also agree with your point regarding net worth, if you have to take out a loan or 2nd mortgage on your house to buy into Equity Estates you might want to think carefully about whether that is the best thing to do. I’m a huge believer in low fee mutual funds (e.g., Vanguard, Fidelity Index) as the cornerstone of your investment portfolio.
JC/Matt – Regarding cost, it is important to note that $27,500 is what we would have paid for accommodations through Airbnb/VRBO. We actually paid $10,000 out of pocket for 15 days, which works out to $667/night. We are a family of 6, so we exceed the occupancy limits at most hotels and would require two hotel rooms. Taking into account taxes, resort fees, etc., $667/night is roughly what it would cost for two rooms at a Westin caliber hotel in most destinations. Equity Estates has great 3-5BR properties which are much nicer than two rooms at a Westin. We just got back from the Turks & Caicos property and it was absolutely gorgeous.
I’m not saying that Equity Estates is the right option for everyone. However, the tone of the original post was essentially hey, look at this sucker bet, it doesn’t even require any analysis to see that only an idiot would spend money on this. My point in sharing the above numbers was to show that when you actually take the time to analyze the product, there are situations in which Equity Estates does make sense and produces a positive return relative to other vacation / investment options.
I’m really intrigued at the possibility of getting regular updates from you on how this is going. I’d love to be shown I’m wrong to dismiss this out of hand (although I did so for two reasons- # 1 the price is way too high for the typical doc and # 2 I think it’s a fancied up time share with inflated projections).
I think readers would also be interested in your opinion on what percentage of your net worth and income the down payment on this product should be less than.
I’d be happy to check back in occasionally and provide updates. Equity Estates provides audited financials annually with the actual purchase price and appraised value of the real estate investments. I have my own spreadsheet where I am tracking the savings on vacation relative to the lost earnings from investing the initial capital in the market.
I think this is something to think twice about if the initial capital contribution would constitute more than 5-10% of your net worth. Your core investment portfolio should be comprised of low fee mutual funds through Vanguard or another similar entity.
I love equity estates. Been a member for over 1 year now. If you are use to spending $1000/night at hotels when on vacation, this is a great option.
Thanks for sharing your experience.
Wharton MBA, impressive. $27500 for 15 days, roughly $1800 a day in Airbnb rentals. I’d be interested in knowing how many of the readers of this blog spend that kind of money on a single day vacation rental.
I am going to guess that it’s now 1, it was zero before this post! And he appears to be just talking about the rental cost at 1800 a day, what about travel to a from these fancy places, food, transportation, experiences while there. It sounds like this guy is dropping 50K on 15 days of vacation. I wouldn’t do that out of principle, it’s bad enough that I lose money by not working when I’m on vacation, but I am certainly not going to take a 75K swing for 15 days off.
JS,
I agree with Matt, JC , Alex and ESI. I make an above average income for a physician and I ‘ve never even spent $400 a night for a vacation rental. I’m more like ESI’s $120 per night
Perhaps you are a great business person and in a totally different income bracket (eg 2 million+ ) from most doctors/dentists. Couldn’t you find a better use for your money? I am a “philanthropic” Angel invester so I do encounter many start up CEO/founders. None of my start up founders have 15 days available in 12 months to even go on vacation. Maybe you are the CEO/ founder of Equity Estates! That would explain a lot.
RUN DOCTORS!!! Go straight to Vanguard and Fidelity index funds or your OWN business!
Hi RocDoc,
As I said, it’s not a product that works for everyone. It really depends on what your expectations are for vacation accommodations and how much you want to spend per night. We like luxury vacation accommodations and we have four kids, so we need a lot of space. The Equity Estates model works for us and is less expensive than the alternatives I evaluated.
Regarding how I use my money, I think that’s totally up to me. Personally, I value vacation experiences. They are a great bonding time for the family and a great time to decompress and recharge. I don’t think vacation and philanthropy are mutually exclusive, I’ve raised $10s of thousands of dollars for charitable causes as well. I’d rather spend money on vacations with my family than on material things.
Not a single founder from a company you have backed is able to take two weeks of vacation a year? I totally understand that if they are all very early stage startups, but once a startup has started to scale they should have a team in place and the company should be capable of operating without the CEO/founder for a week at a time. I don’t think it’s healthy for startup founders not to take time off. I think it is likely to lead to burnout or poor performance over time.
As I mentioned in my earlier post, I am not affiliated with the management of Equity Estates in any way and I wasn’t asked to comment on this post by them. I am an owner/member in Equity Estates Fund II. I chose to comment because I think it is a good product and I have had a good experience thus far. It might not work for you, but it has certainly worked for us.
I’ve taken 15 days off in the last 30. Counting ice cream, I think we spent less than $2K, mostly gas to Canada and back, hotels, and guiding fees for a cave. Of course, 8 of those days were backpacking and there is only so much you can spend on Mountain House meals. I agree that $75K would be a heckuva vacation. I think we spent $10K on two weeks in Europe and that was basically sparing no reasonable expense.
I like to stay in nice places. Right now I’m in Seattle for a medical conference and we’re staying in one of the”floating houses” that cost 1-2 million to own. But we’re renting it for about $400/night. When we go to Jackson Hole we stay in the same vacation rental every time and it runs about $650/night in the summer. Again, this place costs 1M to own. I honestly don’t think I’d want to vacation in a home that was 2k/ night because I’d be afraid my son would break something! I’m happy with the level of niceness of the places we stay on vacation and it wouldn’t make me happier to stay in a nicer place. So this wouldn’t be a good deal to me.
I’m not surprised you haven’t met a doctor in this deal. Doctors can’t afford it. Maybe we should have gotten a Wharton MBA and gone into finance instead!
Seriously though, please update us on your experience in 5 or 10 years and let us know how it went when everything liquidates. You’re obviously capable of calculating the overall return on the deal.
And I think you’re splitting hairs about the timeshare description.
JS, why would you compare your Equity Estates (EE) investment to investing $217,500 in the VTSAX fund? You said you only own a half share, so wasn’t your initial EE investment only half of $217,500? My MD and MBA are both from state schools, so please forgive me if I’ve misunderstood/misinterpreted your post.
Either way, I’d at least like the option of scaling back on my vacation expenses in “down” years, rather than being locked into “luxury” prices for so long. But that’s just my personal opinion.
Valerie, the original blog post was a little off on pricing. The minimum capital contribution of $217,500 covers 15 days. The annual fees on 15 days are around $10K, so still roughly $650/night.
I totally agree that you give up some flexibility by going with EE. My family loves vacation, so I know we will easily use 15 nights a year. Whether EE makes sense really depends on your personal goals, lifestyle, and vacation habits, so YMMV.
I agree. It is a very rare vacation where I spend $650 in any given day, much less average that over my vacations. I had a very nice room with a nice breakfast at the Hampton outside a busy national park last night for $190. I’m not sure what else I could have wanted for that vacation.
I appreciate this review. I came across it looking for information for a relative, trying to figure out if it was some scam. I agree this is obviously not a good investment for a doctor mainly because of the cost, but for someone who has the disposable income, and is already spending 50-75k per year on vacations it could make sense. At the very least as a way to subsidize your vacations. I would love to get more information from you about your experience to pass along.
AH, no problem. Let me know how I can contact you and I will reach out. We have taken a couple more Equity Estates vacations since I posted this and they have all been great.
Here’s my email [email protected]…. Thanks!
Glad it’s working out well for you.
White Coat Investor- thank you for your input. I just saw a promotion and was looking for a review and was happy to see it discussed by someone I already respect and follow.
JS – I work with a high end travel agency, so I know there are definitely those who do spend thousands, even for a suite, per night. The annual cost does not seem unreasonable to me, with the greatest risk being what happens at the conclusion of the 10 years. I also understand this type of real estate can sit on the market for a longer period of time.
Are there any additional annual fees for repairs, hurricane damage/loss, etc. ? Assume there are added fees for stocking the fridge, etc.?
I also would like to follow up on your experience – email [email protected].
I also would be interested in following up on your experience.
Hi SK,
We have not been assessed any additional annual fees beyond the annual maintenance fees for repairs, hurricane damage / loss, etc. As you might have guessed, a number of EE’s Caribbean properties were impacted by last year’s hurricanes. I thought they did a great job handling the hurricane related issues. They quickly communicated which properties were impacted, the extent of the damage, and what they were doing to get the properties back up and running. As far as I know, all of the hurricane damage was covered by insurance, which included a loss of use provision which compensated EE for the lost usage time. None of the properties were out of commission for very long and all of the properties are back in use now.
If you provide EE with a grocery list, they will pre-stock the fridge. They have only ever charged us the actual cost of the groceries purchased (they leave the receipt for verification). I think that’s a fair deal and having the fridge pre-stocked saves us time when we hit the ground. Their local hosts have also helped us in other ways at no additional charge. For example, when United lost one of our bags in Grand Cayman, the local host drive us to the local baby/kid store to get some replacement clothes for our kids.
I’ll follow up with you via e-mail.
JS – I really appreciate the effort you put into your posts on Equity Investments. A friend of mine (recently retired very successful homebuilder) has been telling me about this for several years. He invested in Group I (the first round of properties) about 5 years ago, so properties will begin to liquidate in 2021. He did a full share – 30 nights – and absolutely swears by it. Every property is not just nice, but over the top AMAZING.
He estimates on average $2,000+/night market value, depending on season. Now – what others have been saying is true – this isn’t for everyone. But if you travel extensively and tend to stay in high-end properties ($500-1,500/night), then this is extremely appealing. The sticking point for me (right now anyway) is as stated by TWCI – there is not a track record of going through a ten year investment period and actually selling the properties, returning the initial investment, and then paying out 80% of the “profit”. Until that actually happens, it seems to me it could still be a ponzi scheme. It conceivably could be self-sustaining (keeping the house of cards vertical) during the ten years just from the annual dues. The real test will be in 2021. My intention is to do some more homework on the founder and ceo Philip Mekelburg before getting too serious about investing. Having said all that, IF he turns out to be an honest businessman, I think Equity Estates is not only a legitimate investment + lifestyle opportunity, but a simply brilliant idea.
I hope it works out well for everyone.
Hi Gene,
Glad to hear this thread has been of use to you. I’ve been meeting to write back and share a few thoughts on due diligence for a while. I think a little bit of due diligence can go a long way toward helping you avoid making bad investment decisions, particularly with respect to a private placement like Equity Estates where there isn’t too much public information available. Here’s what I think people should do when evaluating an offering like this one:
1. Run the financials and make sure the numbers + ROI make sense given your personal financial situation.
2. Talk to the fund’s leadership to make sure they don’t set off any red flags and they seem to have a good handle on the business.
3. Talk to existing members to make sure the properties are as represented in the marketing materials and that they have been happy with their experience. Be sure to ask them about financial transparency and their interactions with the fund’s leadership as well.
4. Run a quick internet background check on the principals / managers of the fund to make sure they don’t have a shady past and have not had any major legal / financial issues.
5. Ask the fund for their audited financial statements. If they don’t have audited financial statements, run away very fast.
6. Verify that the auditors used by the fund are reputable. Contact the auditors and verify that they did indeed audit the fund and that the audited financials you have been provided are complete and unaltered.
7. Review the financial statements and ensure that the cash + real estate equity are roughly in-line with the amount the fund should have taken on in capital contributions + outstanding debt.
8. Ask the fund for a list of properties. Verify using local property/tax records that they do indeed own the properties and that they were purchased on or around the dates indicated by the fund. If you are too lazy to do this for all of the properties, pick a few at random and verify those.
9. Ask the fund managers for documentation of their performance in any similar past funds.
I do think it will be interesting to see how the first fund has performed when it closes out in 2021. However, I would be careful about using payouts to early investors as a means of determining whether a fund is legitimate. As Bernie Madoff demonstrated, it’s possible to run a ponzi scheme for a very long time by taking money from later investors and using it to return money to early investors.
Regarding Philip, as a fellow entrepreneur I have had several conversations with him about the business both before and after investing. My feeling is that he is a high-integrity guy who has the members’ best interests at heart and is thoughtful about the way he is growing the business. There are a number of shortcuts he could have taken to grow the business faster and I think it is telling that he has not taken those and is growing the business using a managed approach which limits risk for the principals and investors.
Hi JS,
We are looking into Fund IV. I would appreciate your updated opinion & experience since this post. Thanks in advance,
[email protected]
Glad to see this thread is still getting some action 5 year later. Since a few people asked, I thought I would check back in with my thoughts on EE at the halfway point. Overall, things have been going great! We have had a lot of great vacations with EE that would have been considerably more cumbersome to arrange on our own. We have been to Grand Cayman, Turks & Caicos, Punta Cana, New York City, Hilton Head and San Diego and have visited most of those properties multiple times. It is nice to have a few homes away from home.
I continue to feel good about the leadership at EE. They have done an excellent job managing availability in response to the pandemic and responding to the few weather-related events that the properties have experienced. Thanks to the recent real estate boom and run on vacation properties, the properties in Fund II are all up a considerable amount. I am happy with the investment and feel like we will get a good return on capital in addition to some nice vacations.
Hi JS,
Thank you for sticking to the topic and your updates. I am interested in the EE model and believe it or not, yours is the most comprehensive analysis on the web. I’m not sure if that is a good thing or not. It is really intriguing to me and I would love to get your thoughts privately.
Please reach out when you are able. [email protected]
Thanks!
JS (yes, common initials)
Hi, my husband and I are considering investing in EE Fund V. Would like to know if you are still happy. I also have a Wharton MBA and appreciate your analysis! I think the key here is to eventual liquidation of properties due to equity ownership. So…it is an investment, just a diversified high end property investment. Many comments above don’t consider the liquidation value. It may come in 10 years, but it comes.
Hah, this post just keeps going and going. We’re still happy with Equity Estates. We’re actually headed to Turks & Caicos with them this summer. We were supposed to go to Hilton Head with them last month, but the house was a Fund I property and got sold as part of the Fund I liquidation, so we ended up renting a different property.
The timing on the Fund I liquidation could not be better. The Hilton Head house sold for just under $5M, which is far more than what EE paid for it. Their approach to handling the Fund I liquidation seems very fair. They have been able to keep a number of desirable properties in the portfolio while getting Fund I investors a fair price and have sold other properties to 3rd-party buyers.
Could we have done better by investing in the stock market and renting on Airbnb instead of investing in Equity Estates? Maybe. The stock market has done really well over the past few years, certainly better than I anticipated in my model. I don’t know what the ultimate return on Fund II is going to look like, but vacation real estate has been hot as well and I believe all of the Fund II properties are up in value, so I expect it to be fairly strong.
We have visited a lot of vacation destinations we probably would not have without Equity Estates and I am still not comfortable with the Airbnb model of renting a house from an unknown party in a foreign country. Several of the EE properties have become like second homes to us without the full investment of buying an entire vacation property. Overall, I would make the investment again.
I’m not really interested in this debate as I’d NEVER buy a timeshare, but:
1. There’s no way I’d spend that much on a vacation hotel. We’re usually $120 per night at the Hampton Inn.
2. If something sells on ebay for 10% of its price, the market has spoken — full price is not a great idea!!!
This is tangientially related to the topic….my wife and I went to an all-inclusive resort in Huatulco, Mexico through Apple Vacations this past year. It was very nice, I would go back. They were pushing listening to a 90 minute spiel about an exclusive membership program that in return you would get a free one hour massage. We went to listen (I’m a sucker for a free massage). I expected a time-share talk but this was different. It was basicly a time share membership with no time share to own. They stressed repeatedly that this was not a time share but the parallels were evident. You paid for a certain level of membership (as I recall it was between 8-30,000 for different levels) and with your membership you would be part of an exclusive group that could go to their different resorts for greatly reduced fees. There was also a yearly membership charge (just like a time shares yearly maintenence fee). We declined. I later checked with Trip Adviser and read all the horror stories related to this product. Buyer beware!
I have found that Mexico all-inclusive timeshares are more like upfront membership fees that get you long term perks and discounted rates. Personally I have benefited from our families at Palace Resorts. But it has no yearly fee.
we did a timeshare tour in Breckenridge b/c they gave us around $1000 worth of hotel room to do it. put us up in a nice mountain view suite for like $150/night. i knew going in what a load of crap it was.
the guy was the oiliest salesman ever. his cubicle was full of family pics and skiing bric-a-brac… as was every cubicle there.
we got the “did you know that the average cost of a hotel room in 1990 was $75?” line.
i very quickly told the guy that my income as a resident was $55k, he told me I could “easily afford” a $5000/yr fee on this salary.
Towards the end we had this convo:
Me: you keep calling this an asset, how much cash flow is this property going to provide me each year?
sales: i wouldn’t think of this as an income-producing asset
Me: that’s what we call a “liability.”
Hi JS, can you contact me regarding Equity Estates? Looking for updates on how it is going for you. My email is: [email protected]. Thanks
I too am an Investor in Equity Estates Fund II and have been since July 2015. I concur with everything that JS has said. We bought in initially for the vacation experience (15 nights). We were originally looking for a vacation home in Hawaii, but this made more sense both economically and from expanding our vacationing circle. We are a family of 4 and have seen great value in what we pay for and what we get with Equity Estates. We just came back from the private home right on the beach in the Turks and Caicos and it was the best vacation my family and I have ever taken. Plus with the ability to cook all your food at the house, we barely went out and just enjoyed the private beach.
I am a former business owner and did a lot of due diligence on Equity Estates. I actually have a friend who knew Phillip quite well and talked with him at length about Equity Estates. Equity Estates was one of the few luxury funds that didn’t collapse in 2008/2009 because they didn’t over leverage their balance sheet to buy properties. From what I have experienced in almost 3 years they are on the level.
Its not all roses they have had their growing pains. Specifically the increase in annual fees from $10,000 to ~$13,400 ($900/night). I was very upset when this happened and talked to Phillip at length. Bottom line they messed up and didn’t budget correctly on what it would take to maintain the portfolio after Fund II closed. (meaning they had a full compliment of properties) They definitely extended themselves buying the 2nd property in the Turks, but in Phillips opinion it was undervalued. (After visiting the property and experiencing it, I agree)
So is Equity Estates for everyone? No it most definitely is not!! But if you love vacationing in amazing houses and locations for a fraction of the cost, then it is worth a look. The Sherpa Report does a nice job summarizing the various companies. Just google it
I also looked very closely at Equity Residences. It is very similar, but with some differences. They rent out their properties to non owners to help reduce the annual fee, which some may like but less pride in ownership. They are not as open in their financials, which was a no go for me. (That may have changed now) They had a lot less properties, which defeated the point of vacationing in lots of different places.
Troy
Hi Troy,
We are looking into Fund IV. I would appreciate your updated opinion & experience since this post. Thanks in advance,
Jason
[email protected]
I have been a member of Equity Estates & The Hideaways Club since 2012 & yes the annual fees are high but than so are the quality of the properties. I travel approximately 5 months a year and with today’s technology one can work from wherever they can access the net.
The only difficult time in booking is over the holidays where Equity Estates does a lottery system. On average I am chosen on the lottery every second year for the New Years week. One year I was not chosen and ended up renting a condo in the same building as Equity Estates (EE) condo in Turks & Caicos. The condo was not as nice as EE condo and cost me $27,000 for the week.
I realized that the $25k annual dues was worth the 30 nights usage I have . Over the years I’ve enjoyed amazing trips to great ski destinations in Europe & US, unbelievable homes in Sri Lanka, Bali, Thailand, Morocco, Carribean, Tuscany, Paris, London and other beautiful destinations.
If you are putting up 20% of your net worth, then perhaps you may want to lower your expectations to utilize funds towards growing your net worth for the future. If your investing less than 1% of your net worth than EE is worth considering.
My humble opinion………….d
Thanks for sharing. I agree that if $27K for a week is a trivial amount for you, that this can be a reasonable thing to do. I just don’t think that’s the case for most of my audience, not to mention most people.
I agree i am blessed to afford more than the most people, but not sure it is a reason for you to knock EE. I do agree that if one is looking purely for an investment, this isn’t the best investment vehicle however if one is considering a luxury second home, a private residence club is worth considering !
Sounds like you agree with me then. Bad investment, but if you have the money, buy whatever you want.
Didn’t say I agree with you. I said if you are primarily looking for an investment & ROI, a residence club would not be your first choice. If you are looking at large upper end residences that are comparable to home, this is an option to consider and the potential for upside exist as a bonus.
If you don’t plan on using the nights you pay for annually, this is not the option for you.
Whether you say you agree or not, it seems to me we have the same opinion. It’s a consumption item, not a great investment.
What I find funny is that people for whom this investment represents what they say is 1% of their net worth — so, they’ve got assets in the $50m range — are locking themselves into a timeshare for a decade so they can save a couple thousand bucks on accommodations each year. Don’t pick an investment vehicle because you like San Tropez and they have a house there. Invest your money in sound investments, and vacation in the places you want to vacation.
JS, can you contact me regarding EE, I have enjoyed reading your posts. [email protected] Thanks.
Good post. You saved me a bunch of time. Not a doctor, but I am an accredited investor and a Chicago MBA (for whatever that is worth…lol). I appreciate that you state up front that you didn’t dig into the details (and maybe there are some that change the calculus), but in general I think the comments above are spot on — it’s a matter of the percentage of your net worth you’re willing to put into this type of private equity investment (I’d say anything in the 5-6 percent range for all your PE is plenty), your risk tolerance, and the utility you get out of the access to fancy properties and whatever level of service they provide. From my standpoint, it’s not as if private real estate is a non risky endeavor. Unless they have some hurdle rate (say 8 percent?) before they take their 20% profits, I’m not at all interested in this as an investment. The 1 percent mgmt fee seems reasonable. Most PE funds I’ve seen charge 1.5 or 2 percent as the norm on invested capital, plus any start up costs. Not saying this is a bad deal, maybe it’s great for some. It is an interesting, creative way to structure things, so kudos to the EE management for thinking outside the box a bit.
Equity Residences investor here…for what it’s worth, I’ve absolutely loved the investment experience thus far. To clarify a few things:
1) is it for everyone? No, of course not. But it’s been perfect for my family because a) we like having a lot of space when we travel, often with extended family and friends; b) we’re finicky about where we stay and have had very mixed experiences with the level of quality at AirBnb’s. Equity Residences gives us a portfolio of big, beautiful, consistent homes to choose from…it’s great.
2) is it the absolute best financial investment you can make? No, I’m sure it’s not. Honestly if you’re a “make every decision based on what the spreadsheet says” type of person, I’m sure you’ll end up watching your money grow in some random fund. But we’re more of the “amazing vacations with our family and friends is the joy of life” type of people. So maybe we come out of this 2% behind where we could have been with some other investment…we’ll happily make that trade.
Yeah, you need to have at least 200k that you can live without for 10 years. I realize that’s steep. But if you have the money, and you love vacations, then press delete on your spreadsheet and enjoy this awesome investment!
Hello JF,
Thank you for sharing your experience with the fund. I am current a MBA candidate and an entrepreneur. Love traveling and have been to over 90 countries so far. Need to settle down for my business so Equity Estate might be a good option. Thinking about using the nights as gifts to clients and employees. Not sure if you have any experience like that. It would be great to connect with you via email, [email protected].
Cheers,
MK
Hi JF,
I’m a prospective Equity Residences investor and would love to learn more about your experience thus far. I completely agree with you that this is not a “by the spreadsheet” type investment. I’m also okay with a slightly lower return on investment in exchange for a decade of priceless memories with my family. I’d love to connect with you via email if possible – [email protected]. Thanks!
JB
We bought into EE over a year ago – Fund 4. We love it. My son and I are going on a last minute trip for two days to Snowmass, CO. If a residence is not booked in the upcoming 21 days, an EE investor can book that house for $600/night and it does not count against your days. It’s an awesome deal. The home would easily cost $2000/night in Snowmass. 3 bedroom, 3 bath. Beautiful. You also have your vacation booked and planned by a personal travel consultant. They send you your itinerary before you leave which includes: flights, driver picking you up, what u want for groceries, all activities and details, etc…. my wife and I have two kids. 3 and 7. We also have planned a London and Kona trip this year with our 15 days. If we planned these trips on our own, they would of been much more expensive, and disorganized. Another major benefit, is we know where we are staying and can trust we aren’t being misled. After going on a number of London trips being planned via AIRBNB – it nice to know the place you are staying is what is represented on the internet. EE estates is great for the right person….10 years ago I was in a different place and probably would of thought it was a complete insane purchase. But as I got older, had kids and made a little more money, I see the value in it much more. I love talking about it, so if I can help. Let me know.
It looks like I happened upon this blog for the same reason as other people, they’ve seen ads as EE is promoting Fund IV and were curious how a timeshare called itself “the opposite of a timeshare”.
I think the most compelling thing to me about the original post is the highlighting of the idea of “combination products”. I think they exist to appeal to someone like me who is always looking for a good deal, and can say “Honey! Sure it’s a big investment but think about how much we’d be saving on vacation rentals, and the places we’d go!” It’s like opening an account with a bank with mediocre interest rates because they gave you a toaster. Focus on the interest rates.
Yes, if everything goes right, you may make some money on an investment that carries a middling amount of risk and some upside, and may save you some money on your normal vacation habits. But what if those habits change? When you lose a primary source of income vacations are one of the easiest thing to pare down, but here you’re locked in. And why are you locked in to a decade of spending $27k/year on vacations? Because it got you access to an investment. There are lots of investments out there.
Let your financial advisor manage your investments, and when you want to vacation, go on vacation. You’ve just socked aside $2k/night for two weeks of trips a year, enjoy it.
I’m pretty sure people don’t join EE because the feel their getting a great financial return. Weather that’s true has yet to be seen, but is far down the list. They join EE because it makes your life easier, travel much more convenient, we go places you typically would never plan on our own, you’re able to invite friends and family because the homes are very large compared to most other accommodations that you’d plan on your own. Here’s a real life example for my family. We have been going to Maui fir 10 years. Typically we Goto Kapalua Bay resorts. There we get a beautiful small condo which is 2 bedrooms. For Hawaii it’s a good value: about $1400 per night. Taxes and fees are a significant part of that. We have 4 people in our family – even tho for Hawaii that’s a fairly large rental, it’s still tight. This year we’ve booked Hawaii through EE. The home from EE has 5000 square feet, 5 bathroom and 4 bed, private pool, etc. Because of the extra space, we are now inviting grandma. What is that house rental worth in Hawaii? Truth is, I don’t really care, I just love the convenience of it and the fact there are no “bad” surprises (dirty unit, misleading descriptions, place that smells like pets, uncomfortable bedding, etc…). The fact that I could of made an extra 4% or 10% on the $269k really isn’t part of the equation. I don’t want to loose the money, that’s true, but I didn’t “invest” it with EE because I thought it was the best place for a “return”. I did it because i get to spend more quality time with my family doing things and going places we may not typically go. It’s pulled us out of our “vacation” rut. So far so good. ‘Maybe it ends up being a disaster, if it does, I will come back here and let you all know what a dummy I was! :).
@Brockk thanks for the perspective. Your case makes sense. I’m curious, do they make the fund particulars public? As in, they say they sell properties after 10-12 years which I’m assuming means closing out that fund. It looks like Fund I is closing in 2021 so for the first one the timeframe was more like 15 years. Do investors get all the particulars, like how much was invested, what the returns were, the bought/sold prices, what if any home inventory remains etc? This is the sort of information I’d want when investing in any other fund — the specific holdings and the annual returns (with the understanding about past performance etc). They tout transparency, has that been your experience?
They allow investors access to this info. But as far as I know, it’s not in a public forum. They actually are very open with these numbers when I asked them. I’m probably not as detailed as what it sounds like you are, so perhaps there are things they don’t share that I’m not aware of. Although I’ve never run across that or felt my questions weren’t fully answered. For me, the sales cycle took weeks. I spent 8-10 hours on the phone asking questions and listening. There’s a lot of nuances to the program that take a while to fully understand (lottery, lefty or stay, holidays, 21 day discount period, etc…). I can totally understand why there’s so much misunderstanding about it. That being said, Out of the 300 people who are invested, I’ve never heard of one being unhappy. I’m sure there are some, that’s too many people for there not to be, but everyone I’ve seen, whose in the program, loves it. I think we all realize it’s probably not going to make a incredible rate of return, but again, that’s not the main reason people invest in EE. At least that’s my experience.
I don’t know, man, a fund that promises healthy returns but won’t offer specifics on its holdings “in a public forum” sounds like a sketchy investment, no? If they made good investments with full transparency they’d share the details.
“To each his own “. That’s one of the things that makes this world a beautiful place.
I’m not saying it *is* sketchy, I’m just trying to understand what they mean by full transparency. You said they’re very open with these numbers when you asked them. Do they give investors annual reports as to the estimated value of the holdings — from Zillow or their own comp reports or whatever — so you know how the fund is doing?
This isn’t rocket science, right — they paid a certain amount for a specific number of houses, bought more as more people invested, and eventually they sell them all. That is an extremely simple investment fund to document, much easier than a fund that is constantly getting rebalanced and whose holdings could change by the minute. They tell you the holdings in that you know where you can vacation. Do they show you the estimated current values of the properties and how your investment as a whole is doing?
Something is going on because this is seeing way more traffic/comments than it has for years.
Very entertaining reading. I’d like to know the story behind all of these new EE posts. Maybe they have a new marketing team?
I have been a member of EE since 2011, when I joined Fund 1. If one is looking for strictly a ROI, than I am sure there are other investments that would outperform EE. Having said that don’t forget to build the following into your financial model of return:
1. If you invest the funds elsewhere and use your return to pay for similar accommodations, you have to pay with after tax dollars.
2. During peak periods EE does a lottery to determine who receives which property. I always travel over the New Years and typically am chosen every 2nd year, for the NEW Years week. One year I wasn’t chosen and rented a condo in the same building as EE with approximately the same sq ftg., etc. My rental cost me $27,000 for the week vs the annual dues with EE of approximately $24,000 for 30 nights. So when you do your financial model build this into the equation.
3. At the same time as joining EE, I joined The Hideaways Club based in the UK & have belonged to 2 previous Residence Clubs, Private Retreats & Ultimate Escapes. My experience with EE far exceeds those of the other previous US based clubs I have been a member of.
If you enjoy having a great place to stay when travelling, amazing Pre service as well as great service while in residence EE will not disappoint, well maybe once when a trip was cancelled due to hurricane damage…….lol! From someone who typically travels 100 to 120 nights a year and uses AirBnb, VRBO, etc., EE and Hideaways Club take the guess work out of what will I receive when I arrive.
2021 marks the year that Fund 1 will close and properties sold off and all those involved will find out what funds we receive and have a better idea of our ROI, however I am sure we will look back on the pleasure we enjoyed at the residences and will simply say there is no way to quantify the experience
Did EE send out an email to all of their owners asking them to leave a comment here or something? This is bizarre how many comments have been left on a years old post in the last week or so.
WCI,
I thought the very same thing Jim. The sudden onset of a high amount of new posters on a very old thread AND the weird thing of people leaving their e-mails, is very unusual here. Maybe EE is desperate for new investors for a new fund or having cash flow problems and trying to get some dumb doctor money.
“1. If you invest the funds elsewhere and use your return to pay for similar accommodations, you have to pay with after tax dollars.”
It still cracks me up that these two parts of people’s lives get intertwined in this way. I just have no interest in making vacation decisions based on whether I’m using after-tax dollars (and wait, your annual fees are tax deductible? What?)
I just started receiving notifications of post from white coat investor.
Other comment to consider for those who look at this and say it’s a bad investment is to consider is having a high end vehicle or second home or cottage or chalet or a place in the city made primarily for investment purpose or for personal enjoyment??
There was a comment regarding time share amd EE. When purchasing a timeshare the built in marketing cost are typically 50% and 50 or 52 weeks are sold making it difficult to get the time you want and most require you to book one full week
With EE, if I remember correctly they sell 8 -30 night memberships for a total of 240 nights a year Which allows finding availability fairly reasonable
As many have said this is not for everyone for me it’s been extremely enjoyable and now I’m looking at purchasing in a few places I love such as Turks & Caicos, So Cal and Italy
When I joined I didn’t like the 10 year exit strategy however now think it’s great. In Hideaways Club there is no fixed exit strategy and more difficult to exit the club. Having said that I am still very happy to be part of their ownership and supplement my travels with some of their properties
What was your return on investment after your fund was liquidated?
I’m researching EE and ER funds right now because I started looking for a vacation property 3-4 hrs from home. EE and ER definitely seem like the lazy investment type where you are paying more (and losing some returns) for the price of convenience and predictability in quality.
There’s definitely a niche for it and quite possibly that niche will benefit greatly from it assuming the market continues on an upward trend. The real estate market has a similar path to the general market, albeit it might be offset a bit.
Now I’m just trying to figure out if this is worth the risk vs the risk of putting my money into an actual piece of property that I want to use from time to time. If you weren’t in that market already, I can see how you should never even consider these type of deals.
Hi all,
I just received another notification about this post, so thought I would check back in. Amazing that this thread is still going after 5 years, but I think the discussion has been productive. We’re still members of Equity Estates and have been very happy with it, although the pandemic has put a bit of a damper on international travel for the time being. We’re hoping to start back up this year, now that the whole family is vaccinated.
Equity Estates is winding down Fund I and from what I have heard they are doing a good job managing their fiduciary responsibility to the Fund I members while trying to keep some of the more desirable properties in the portfolio. Thanks to the recent vacation real estate boom, the properties in Fund II are up quite a bit. EE has added properties in many more locations and they are now raising Fund V.
Overall, I still think it is a good product and presents a great alternative to buying a vacation home or owning a fractional or timeshare. As many have mentioned in this thread, whether you will find value in it is dictated by your use case and what kind of vacation experience you are seeking.
The real estate boom has certainly helped. Please report in on your total return on Fund I. I’m very curious how it all turns out in the end.