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A Private Residence Club (PRC) is a club of properties—each owned by multiple members—usually in a community with resort/hotel amenities and services. Members own fractional equity in a real estate development, and each unit has a certain number of members, normally ranging from 6 to 12 owners. PRC communities operate between 30 and 400 fully furnished apartments, cottages, townhouses, condominiums or separate homes with resort amenities and services. PRCs are usually located in popular golf, ski and beach resort destinations.
For many, the high entry cost is a barrier to purchasing a vacation home. This might justify the growth of the fractional ownership market in the past few years. In addition to eliminating the barrier of high entry cost, there are other economic merits for jointly purchasing your vacation home. Significant changes in the U.S. Tax Code during 1997 have caused annual rises in second-home purchases. In that year the IRS made it easier to sell property and roll proceeds into a new property. That’s because those tax-code changes allowed certain amounts of capital gains to be excluded from taxation. According to the National Association of Realtors, second-home purchases had rocketed up 27.4% by 1999. Research has shown that notwithstanding those increases, many more individuals would purchase second homes if there were a more intelligently affordable way of doing it. That number will continue to increase as more fractional opportunities emerge.
While 20% of individuals with household incomes in excess of $100,000 have expressed an interest in purchasing a vacation home, only 4% have purchased a vacation property. More vacation properties haven’t been purchased due to insufficient alternatives for grander vacation-home purchase opportunities. There are a few commons reasons. First, prospective purchasers want such a property whose purchase price is not easily within reach. That is to say, they do not want to spend their money on something less than what will satisfy their needs.
Softening of second home prices could hurt the fractional owners, reducing the market value of their homes or hurting the sale of new fractions. The other side of the coin is that when the market softens, it’s a great time to be a fractional owner. As an owner/member you have not committed all your capital to one home in one market, making downturns more tolerable. Whereas taking a stake in a fractional vacation home is a lifestyle choice rather than an investment choice, a softer real estate market enhances the benefits of choosing fractional rather than full ownership.
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