Considerations for Renting or Buying Extended-Stay Properties

If hotels aren't appealing to you when you travel, other options abound.

Sublet or rent an apartment or a home. Have you dreamed of renting a flat upstairs from a bakery in some Parisian arrondissement or a pied-à-terre steps from New York's Central Park?

    Benefits:
    • If you plan to spend a lot of time in a particular area, renting will give you a truer feel for living like the locals.
    • It may be more economical than a hotel—especially if you prepare your own meals.

    Drawbacks:
    • You may only have the chance to look at the apartment through photos on the Internet before you stay. What you think you're renting may not be what you get.
    • Since you may be renting someone's home, you may be subject to a credit check. If you sublet, you may not have the rights inherent in a lease.
    • You could be subject to damage claims if you don't document the apartment's condition when you arrive. (Read more about this at the end of the article.)
Timeshare. This is the right to use (or sometimes own) a specific week at a specific housing unit in a specific location.
    Benefits:
    • It's like having a vacation home, only with less maintenance and upfront expense.
    • Many timeshare companies allow you to exchange your week for another property if circumstances prevent you from taking your regular slot.
    • Timeshares are deeded, and you can sell or transfer them.

    Drawbacks:
    • The value of a timeshare does not appreciate, and property quality varies widely.
    • Although this is a less expensive option for a vacation home, the lower cost is usually reflected in areas such as:
      • Available amenities
      • Unit size and condition
      • Service level
    • The reputation of some timeshare companies is questionable, so due diligence is highly recommended.
Destination club or private-residence club (PRC). This is an ultra-high-end version of a timeshare—a mix of multimillion-dollar private home, luxury resort, and country club.
    Benefits:
    • Many clubs offer members weeks of time and access to a portfolio of five-star properties with concierge service, fully stocked refrigerators, and travel assistance.
    • Some clubs base membership on hobbies or interests. So you can stay near areas where you can pursue passions, such as golf, fly-fishing, or visiting wineries.

    Drawbacks:
    • Memberships are limited to a few properties and a few hundred members. Accordingly, initiation fees run into the hundreds of thousands of dollars and require low- to mid-five-figure annual dues.
    • Most club memberships do not buy you equity in a property and won't build your portfolio.
      • If real estate values in the area go up, you won't benefit.
      • If the club company is sold or goes under, you may have no recourse or say in the matter.
Fractional ownership. This represents a destination club with equity.
    Benefits:
    • Along with a lower level of risk than buying a second property, buyers:
      • Get a deed registered and guaranteed by title insurance
      • Can form partnerships to purchase ownership
      • Can sell their ownership
    • This format lowers the barriers for those who have dreamed of owning a home in Europe. Like a timeshare, you may be able to exchange weeks to stay at other properties around the world.

    Drawbacks:
    • Annual dues are higher than at PRCs and initiation fees hover below $1 million.
    • The amount of time you can spend at a property depends on the particular ownership ratio you buy compared with the other owners.
    • You have to reserve in advance, discouraging some who like to travel spontaneously.
    • Any real estate purchase has risks, such as declining property value. It may also be difficult to find a lender to help you finance a fractional purchase, especially if you're looking abroad.
    • Like regular real estate, this is better as a long-term investment. If you're not willing to commit to a property for at least five years, it's probably better to rent.
Second-home ownership. If you are seriously in love with an area and spend a lot of time there during the year, buying a property outright may be a viable option.
    Benefits:
    • You get a home away from home, and you have the option of renting it out for extra income when you're not using it.

    Drawbacks:
    • You'll have added mortgage, tax, insurance, utilities, and maintenance bills in a location where you may not be considered a full-time resident to vote on issues that may affect you.
Think carefully and choose wisely
Whatever option you choose, a few standard caveats apply:
  • Don't rush into anything or succumb to high-pressure sales tactics. Find out if any deal comes with a cooling-off period, when you can back out without significant penalties or loss of deposit.
  • Understand any binding paperwork before you sign it.
  • Never purchase or reserve a property sight unseen.
  • Know whom to contact in case of an emergency while you're on-site.
  • Protect yourself from damage claims by taking photographs of where you'll be staying, both upon your arrival and your departure. Immediately bring any concerns to the property manager, so there's a record that any damage occurred before you arrived.
  • If you'll be spending time away from home, double-check that your homeowner's insurance will replace any personal items that may be stolen during your absence or that your auto insurance covers rental cars in the U.S. or abroad. And it isn't a bad idea to purchase trip or renter's insurance (if applicable).
Finally, seek input from your lawyer and accountant to be sure your decision makes sense and doesn't impinge on your other retirement dreams. And remember—I am always available to consult with you about this decision and about how it may fit into your overall financial plan.

© 2008 Commonwealth Financial Network