When you join a destination club, you are sold on the basic premise that you will get access year round to a consistent, high quality pool of homes and condos, that in many ways will feel MUCH more like a home than a hotel or rental condo. If you understand the business model of the club you are joining, you probably also realize some basic but important subtleties:

• the primary economic upside for the founders, investors and management team of the club is the real estate appreciation, and their ability at some point to lock in some real estate gains
• annual operating costs of the homes are reflected back to members in the form of annual dues, and you would like these dues not to go north every year.

In that context, leasing homes is good and bad. Bad because your club does not own the home and therefore does not benefit from asset appreciation and because, in general, year round leasing is probably more expensive than ownership. Also, it’s harder for destination clubs to deliver on their unique “in-home” experience, when the property is leased, vs. owned and managed by the club.

On the good side, leasing homes might make sense when member usage is only going to be for 3-6 months of the year (ski season), and that cost is lower than on-going ownership. And good, as leasing can provide a way for clubs to test new locations before committing to buy, and can also provide additional home capacity in high demand locations (ski resorts).

Net net? We think that destination clubs should keep leased homes to no more than 30% of the portfolio during years one to three – giving them flexibility to manage locations and availability. In the later years, we think that leased homes should end up at around 10% of the portfolio.

So before you join a destination club, ask them what they think about leasing vs. buying.