Equity Residences is redefining vacation home ownership by making it an affordable and financially attractive investment. It’s latest offering, the Equity Platinum Fund, includes exclusive residences in Hawaii, California, and Florida, as well as international locations.
Marina Brennan is a Marketing Manager for Equity Residences. We sat down with Marina to discuss what makes Equity Residences unique, how the fund works, and what investors can expect when they stay at one of the Equity Residences’ homes.
LFG: Let’s start with some of the basics. What are the main qualifications to look for in finding an ideal investment property?
Marina: We look for the following investment indicators: appreciation potential, ability to generate high returns on the rental market, low seasonality, high demand for a location, and a large number of bathrooms and bedrooms in a given home.
Our fund rents out homes thirty-five percent of the time, according to our model. We find homes that our investors can use as they would a fractional home, but pay low operating fees because a large part of the carrying costs is offset by our rental income.
So our investors benefit from our homes being rented out on an open market. But they also benefit when they vacation in the homes themselves.
Let’s say that one of our homes rents for $15,000 a week on VRBO. Combined with the site’s fees and transient occupancy taxes imposed by the municipalities, this amount rises to $18,000 for a week.
Our investors don’t have to pay that kind of cash outright to enjoy the homes. They do give us their investment cash upfront and vacation rent-free. And when we liquidate the portfolio in ten years, they recover the full upfront investment. Plus they get 80% of the portfolio appreciation, according to their invested capital.
LFG: What is the range of prices that these homes are valued at? Is there a specific range?
Marina: Yes, we buy homes valued between one and a half million to four million dollars.
LFG: What do these homes provide? What kind of amenities do they have? And is there a specific location where these homes are?
Marina: We diversify our portfolio across multiple locations, but we always look for premium spots. We buy homes on golf courses, on the beach, on ski slopes. Basically, we want our investors to be in the center of it all.
One example of this is our Lake Tahoe Northstar Resort home. It is located close to the Ritz-Carlton, right on the slopes. You just put on your skies, exit from the mountainside door, and land on the slopes.
Another cool thing about our Northstar Resort home is the clubhouse located across the street. Our investors are members, so they can use the local concierge, pool, gym, and other amenities.
LFG: Is there specific square footage that you look for?
Marina: I’d say we base our decision on the sleeping capacity and amenities more than just the square footage.
Usually, our homes fit at least eight people. That’s because our investors usually like to travel with their families and make memories. So between kids and grandparents and whatnot, the whole family can end up occupying the whole house. And some families bring their nannies, so they definitely need a lot of room.
LFG: Do you find that most of these investors are looking for an investment or an investment vacation home at the same time?
Marina: They’re coming to us from different perspectives. Our Director Steve Dering likes to say that investing with Equity Residences is a head and a heart decision.
Maybe they want to buy a second home, but they don’t want to deal with the upkeep of a second home. When people buy second homes for vacations, they usually look in places like Aspen, for skiing, or Key West, South Carolina, Hawaii or Florida if they want someplace warm.
Many people who come to us used to have second homes; perhaps they sold them over the headache associated with just the upkeep and trying to rent it out. Sometimes they would be losing money and it was just very inconvenient. Or maybe they don’t use it as much as they wish they did; another main point for them is that they feel obligated to travel to the same home all the time, instead of diversifying their travel.
Some investors were looking at fractional ownership before coming to us, but found it inconvenient for their lifestyle and travel habits.
We provide an opportunity to make both a pragmatic financial choice and lifestyle decision. Our investors don’t have to compromise their financial goals in order to travel well.
LFG: Is Equity Residences able to facilitate the rental of the home when the investor is not using it themselves?
Marina: Yes, we have an in house property management company. And the homes are listed on sites like Airbnb and other channels, including directly on our rental website.
We take care of the investor bookings, rentals, upkeep, property management, calendar management, concierge and other services.
Our investors just show up, stay at the house, and enjoy their vacations.
This approach saves our investors the most scarce resource they have – time.
LFG: When investors are looking for a home, is there a location that’s more popular than another?
Marina: Currently our fund has homes in six locations, but we’re always looking to buy in others. We do survey our investors and take their opinion into consideration. The most popular destination happens to be Hawaii. So we’ve been looking at homes in Hawaii, on Maui and Kauai. And we’re looking at some developments there.
Ski areas are another popular destination, but we still want to find good value there. For example, Big Sky is a ski resort in Montana, which also has access to nearby national parks. Home values there seem to be better than in the investor favorite Jackson Hole, so we might buy in Big Sky.
LFG: So when looking for the ideal home for an investor, are there differences in homes? In other words, what would a 1.5 million home be like and a 4 million home be like?
Marina: It really depends on the market. Take Hawaii; it is a very expensive real estate market in the US because the buildable land is scarce, the labor costs more than on the mainland, and building materials need to be shipped from the mainland.
In Mauna Lani, Hawaii, we worked directly with the developer. We bought what was, at first, an empty piece of land, because our model needed to be approved in a development. As our model factors in multiple owners and multiple stays, it can be really difficult to find a development that would support it. On top of it, some places in Hawaii are starting to put restrictions on transient occupancy.
An opposite example of this is our penthouse in Siena, Italy. It is located in the old walled city of Siena. Property values in Italy are generally lower than in the US, especially in depressed markets like Tuscany. The penthouse is the smallest home in our portfolio, and it also currently our only European acquisition.
LFG: What else does a property need to have in order for an investor to consider it a good investment?
Marina: We look for a combination of good investment, good value, but also luxury. For example, the house we bought in Tahoe. It’s mid-mountain, right next to the Ritz-Carlton. As far as I’m aware it’s the only house in the mountainside development that’s allowed to have multiple owners. So that already gives it a high resale value.
LFG: That’s definitely a lifestyle of luxury. Everything is basically planned out and provided and when the investor goes, or whoever decides to rent the home, everything’s pretty much set for them to just completely enjoy themselves?
Marina: Yes, from access to private clubs and beaches to personal service; for example, when investors arrive we take the grocery list and our concierge will go and fill up the refrigerator. We can arrange a lot of things for them.
LFG: And how often do investors tend to use the homes they invest in? Or do they jump around in different homes that they’ve invested in?
Marina: Well, they can use any homes in our portfolio. We have two funds, and they can use homes in the Equity Platinum Fund portfolio, or they can use homes in our first fund portfolio which is called the Equity Villa Fund.
Usually, investors stay for a week at a time. The number of weeks in a year they can use the homes depends on the invested amount. The higher the investment, the more they can travel with Equity Residences and our affiliates Third Home and Elite Alliance.
Some investors find their favorite homes and go there year after year. Others like to explore and stay in multiple homes in the portfolio.
LFG: When are these homes the most popular, or does it really depend on location?
Marina: The Rosemary Beach home in Florida is popular over Spring Break and during the summer. For the East Coast it’s popular in winter, so it’s pretty popular year round basically.
As the homes come on the market, our investors want to try them out. I can definitely say that Tahoe is super popular during winter, because of the skiing. But it’s also popular in the summer. Kayaking, paddling in the lake; it’s just beautiful.
LFG: What other areas are you looking to expand to?
Marina: Turks and Caicos is in demand from investors, and speaking of the Caribbean, we have currently one home in the Cap Cana Resort in the Dominican Republic.
LFG: That’s beautiful, and definitely popular with guests.
Marina: Yes, we find that our investors want consistent luxury accomodations, the amenities, consistent service, and destinations that are easy to get to when an entire family goes on vacation.
LFG: What else should investors know that you look for and you are going to provide for them when they decide to invest in Equity Residences?
Marina: What we’re going to provide for them is the fact that the Fund generates income and takes care of the most of the property management expenses and hustles. That’s one of the things that differentiates our fund – the rental income.
That rental income is one of the reasons we look where we look — warm places like Hawaii or Mexico or Florida, places with low high seasonality and strong demand. Or places with binary seasons such as Northstar Resort, Lake Tahoe. It usually means that we’re going to generate higher rental income from those places. Rental income covers operating costs, pure and simple.
Let’s say your operating cost for a house, like Tahoe, is somewhere in the neighborhood of $10,000 a month. Well, investors don’t have to fully cover those costs because renters cover most of those costs. Our investors pay anywhere from zero to $3,000 a year operating fee for a minimum investment level; they do contribute a little bit to the upkeep of the homes. But our close competitor’s fees start at $14,000. For luxury portfolios, some of the destination clubs charge up to $120,000 a year just in maintenance costs.
LFG: How long do investors typically keep an investment?
Marina: We hold the portfolio for 10 years, after which we sell off the homes. Equity Platinum Fund has two periods – the fundraising period and the investment period.
During the fundraising period, which is four years, we raise funds and acquire homes. Once the four years fundraising period stops, we start what’s called the investment period. We hold the homes for ten years, after which we liquidate the portfolio, and distribute initial investment amount to investors plus 80% of the portfolio appreciation.
LFG: Awesome — so it also fits within their schedule and perhaps their business lifestyle, correct?
Marina: Absolutely. If they can work from anywhere, then why not work from Tahoe and ski part of the time?