Creating your own timeshare

[Elan]

Has anyone gone together with other families and purchased vacation property? I've had the discussion of doing just this with some friends and work colleagues numerous times, but we've never gone beyond that. Now that condo prices are down considerably in the resort town that's a couple hours from home, we've talked a bit more seriously. Anyone done such a thing, and if so, how is it working out?

 

[DaveNV]

I have a friend who owns a condo in Puerto Vallarta. He visits and stays in the unit for about four months a year. The rest of the time is rented out weekly by the management company that owns the building, with my friend getting a cut of the money.

Not exactly a timeshare, but sort of like one. You may want to see if you could work a similar deal, and use a vacation management company to handle the unit when you didn't want to be there. My friend makes enough as his share of the rental money that his vacation time is free to him, and the condo payments are made by the renters. It's a pretty sweet deal.

Dave

 

[Elan]

I have a friend who owns a condo in Puerto Vallarta. He visits and stays in the unit for about four months a year. The rest of the time is rented out weekly by the management company that owns the building, with my friend getting a cut of the money.

Not exactly a timeshare, but sort of like one. You may want to see if you could work a similar deal, and use a vacation management company to handle the unit when you didn't want to be there. My friend makes enough as his share of the rental money that his vacation time is free to him, and the condo payments are made by the renters. It's a pretty sweet deal.

Dave

Yeah, that's a great deal, and an idea I've contemplated. Unfortunately, the rental market in my area of concern is saturated, even in good times (because lots of people do what your friend does). So to rent out a unit, you have to either have the lowest rental price, or lower the rental requirements, neither of which is that desirable of an option to me.

 

[Talent312]

With enuff friends, family or other investors, it might be possible to put together a trust or partnership for the purpose of acquiring an individual condo, and share its use in assigned slots, but there'd need to be an agreement as to its management.

 

[BevL]

I personally wouldn't touch something like that with a 10-foot pole unless I was in it with people I didn't really care about.

We've had the opportunity to buy into a deal like that - a place in Palm Springs where everybody takes two months - one month at a time - and rotates throughout the year. Last we heard, there were some family members and former close friends who weren't speaking to each other over the fact that one of the couples divorced, didn't want to participate and basically threw up their hands and said, "Not our problem, sue us." Then of course, somebody has to take over those fees - some didn't want to - well, you get the idea. We were so happy we hadn't gotten involved.

So while I think the concept is good, the human element could be difficult.

 

[Ridewithme38]

I've thought about this...But every area has undesirable times...What if you and a friend want to stay at the same time? Who's going to take the less desirable times?

 

[Elan]

I personally wouldn't touch something like that with a 10-foot pole unless I was in it with people I didn't really care about.

We've had the opportunity to buy into a deal like that - a place in Palm Springs where everybody takes two months - one month at a time - and rotates throughout the year. Last we heard, there were some family members and former close friends who weren't speaking to each other over the fact that one of the couples divorced, didn't want to participate and basically threw up their hands and said, "Not our problem, sue us." Then of course, somebody has to take over those fees - some didn't want to - well, you get the idea. We were so happy we hadn't gotten involved.

So while I think the concept is good, the human element could be difficult.

That part is not even a remote concern here. Sure, it's always a possibility, but I'm confident that I know the others well enough that it's not going to happen. Furthermore, all of the likely "ugly" scenarios would be hashed out and their resolution signed off on by all participating parties before the property was purchased.

 

[Elan]

I've thought about this...But every area has undesirable times...What if you and a friend want to stay at the same time? Who's going to take the less desirable times?

This is a summer and winter resort area, with dead times in the fall and spring. But I'm talking anywhere from third to fifth share ownership here, so supply of time will far exceed demand, and the unit will be empty far more than it's occupied. Prime time (holidays, etc) would rotate through the ownership, just as it does elsewhere.

I should clarify that the context of such a deal has become as much about "investment with usage" versus "usage with possible ROI". In other words, most of us think it's a good time to buy in terms of long term appreciation, whether we actually use the unit or not (but we will).

 

[Passepartout]

Jim, we've thought about this, too, and have a pretty good idea where you are thinking about. I've lived there, and 'mud season' is long!

The attorney who lives with your humble corespondent advises that anything like this be entered into just like a business partnership with clearly defined rules of use, payment, succession, responsibility and more.

Jim Ricks

 

[Sea Six]

I know people who tried this. It went well for a few months. Then, they fought about who gets which prime holiday weeks. Then, they fought about who actually used it more, because some did more than others. Then, they fought about who broke what, and who should pay to replace it. Then, some owners thought it would be OK to let their teen/20 kids use it once in a while. Then the lawyers got involved.

 

[Elan]

Jim, we've thought about this, too, and have a pretty good idea where you are thinking about. I've lived there, and 'mud season' is long!

The attorney who lives with your humble corespondent advises that anything like this be entered into just like a business partnership with clearly defined rules of use, payment, succession, responsibility and more.

Jim Ricks

Each participant would likely use the unit for a week in the summer, a week in the winter and the occasional long "get me outta the rat race" weekend throughout the year. I don't foresee much off-season usage.

There will definitely be a legal document that details rights, succession, etc. Although one can't foresee every scenario, we've discussed most of the obvious ones. Under no circumstances will any of this be pursued without a binding document in place beforehand.

 

[Elan]

I know people who tried this. It went well for a few months. Then, they fought about who gets which prime holiday weeks. Then, they fought about who actually used it more, because some did more than others. Then, they fought about who broke what, and who should pay to replace it. Then, some owners thought it would be OK to let their teen/20 kids use it once in a while. Then the lawyers got involved.

Sounds like they didn't put much thought into it beforehand. Usage of time is one of the easier things to work out. Each participant should be fully aware of what their entitled usage is when they sign on the dotted line, just like a normal timeshare.

 

[MelBay]

We had this discussion with 4 other couples we run around with. We decided that 30+ years of great friendship was worth more than a misunderstanding over an unpaid light bill or property taxes or something similar.

 

[1950bing]

It sounds like a good way to get rid of your friends.

 

[Patri]

I also think it will cause more problems than any benefits accrued. My parents bought an apartment building with their best friends. Worked out for MANY years. Then the other guy got sick, my parents offered to buy them out, the other couple's kids refused to let her, somehow thinking my parents would come out ahead financially. Truly, both couples want to be out of the deal but the other lady is listening to her kids, and her husband has alzheimers.

 

[Kay H]

Bad idea. I know of several long time friendships ending over similar situations. No one plans ahead for a divorce or bad health or bad finances, but sh** happens. Then the trouble begins.

Sorry this is not what you want to hear.

 

[Timeshare Von]

Not me, but my ex's parents and his FIL's business partner bought a condo in Ocean City, MD and used it between their families to include the kids, etc. They seemed to make it work but then again, it was only two "partners" in ownership . . . and not several. The more you add to the mix, I believe the potential for issues grow exponentially. Not worth it to me either.

 

[BocaBum99]

Buying a condo with friends amounts to losing friends and gaining enemies. I wouldn't do it unless you were the general partner and they were the limited partners. My parents did it with 2 of their closest friends. Mistake.... Huge mistake.

 

[Elan]

Buying a condo with friends amounts to losing friends and gaining enemies. I wouldn't do it unless you were the general partner and they were the limited partners. My parents did it with 2 of their closest friends. Mistake.... Huge mistake.

What happened?

 

[Makai Guy]

Are you too young to remember I Love Lucy? Every time Lucy and Ricky tried to do anything with Ethyl and Fred, it ended in a disaster.

 

[am1]

Better for each to buy a condo in a different area and let each other use them the odd time that they want them. Rent out the excess time through a management company.

Your idea in theory is great but a fractional ownership would work better.

 

[glypnirsgirl]

I have not done this with vacation property, but I did do it with commercial investment property.

First, we got the group together. I was one of the last ones invited in. There were a total of 12 investment units. I had a full unit. Some investors had 1/2, some had 2. We chose the property in which we were investing and did a purchase and cost analysis. We figured out the loan amount, taxes, insurance and extra for refurbishing (we were rehabilitating property and the refurbishment was the most significant costs).

We formed a corporation and the initial investment in the corporation was substantial, but not hideous, about $5000 per investment unit. Most of the initial investment was used for the down payment on the property, the balance was placed into reserve. We knew what the monthly payment was on the loan before investing and we agreed that we would each put an exact dollar figure in each month as our contribution. The monthly contribution amount was sufficient to pay the mortgage, interest, insurance and the amount that we believed would be sufficient for reserves.

All of us were professionals and none of us received compensation for our services. I did the legal documents. One of the other investors was a CPA. One had commercial property rehabilitation experience and she dealt with the contractors, etc. That part was agreed to upfront.

It worked really well. We paid our down payment. Paid our monthly payments each month. After about 8 months, we had our first renters in the first property and continued to make our monthly contributions. We deposited the rent and the contributions into the same account and after a few months, we had sufficient down payment to invest in a second property. We had a meeting of all of the shareholders and agreed (all but one investor who sold her unit to her sister for the payments she had paid in - so at no profit - but that was their agreement) to purchase a second property. Because we were rehabilitating commercial property, the rest of us believed that rehabilitating the property that needed it the worst that was close to the first property would be mutually beneficial. And we bought the second property and continued to make the monthly payments for another 8 months until we got the property ready to rent and it sat vacant, but ready for awhile. We got it rented it out eventually, but not for sufficient to pay the costs in full, so we continued to make monthly payments.

The original idea had been to contiue to buy property and rehabilitate it in the same commercial neighborhood until we had rehabilitated the whole neighborhood either by ourselves or that other investors got inspired.

The second building developed problems with the roof due to the age of the building that were not covered by insurance and were extremely expensive to repair. We basically got hit with a special assessment for the roof - an additional capitalization requirement in corporate speak. The roof damage caused our tenant to move out legitimately because it interfered with the business use of the property. So, we were out the money for the repairs and not receiving rent. So we continued to make monthly contributions. Eventually we got the roof repaired and got the property rented and continued to make payments to the capital account for a few more months. I made capitalization payments for almost three years before we could stop making contributions.

Eventually, the rents were enough to cover the expenses and to make capital reserves. After we had a lot of money in the reserve account, two units wanted to sell the buildings and cash out the reserves. The remaining investors (I was one of them) agreed to buy out those two units and own a 1/10th interest instead of a 1/12th interest. We had a professional appraiser appraise the value of the building and we figured out how much equity the corporation had (equity in the buildings plus the reserves) and used that as the value of the units. What we neglected to take into consideration was the investment risk. Oh, well.

The remaining 10 units, owned by a total of 8 investors, continued to participate in the original concept for a period of time that outlasted my first marriage (a total of 17 years, 11 years in the investment) and the period of my divorce (9 years). Shortly after my marriage to Ian, the original master mind of the concept died. Most of the other investors were well into their 70s and decided it was time to divest. We sold all of the properties (a total of 4 accumulated over the years) and split the proceeds. I recovered my initial investment and the capitalization payments that I had paid over the years. The profit was modest about 6K per investment unit. Not much, but only subject to capital gains tax.

I was glad that I had done it. We were able to get along throughout the entire process. I was the youngest of the investors at 29 when we started, and 50 when we divested. It was a great experience. It was mainly great because the women involved were all very congenial, dependable and smart. It worked great!

elaine

 

[Elan]

Just a general comment:

While I appreciate everyone's deep concerns for my friendships , and you may ultimately prove to be correct that this concept is not worth pursuing, I need to hear more than opinions and anecdotal tales of woe to convince me that there are issues that can't be overcome with enough foresight and legal expertise. I'd love to hear why some of these partnerships failed as that would be beneficial in avoiding the same issue(s) should we decide to move forward.

 

[Elan]

I have not done this with vacation property, but I did do it with commercial investment property.

First, we got the group together. I was one of the last ones invited in. There were a total of 12 investment units. I had a full unit. Some investors had 1/2, some had 2. We chose the property in which we were investing and did a purchase and cost analysis. We figured out the loan amount, taxes, insurance and extra for refurbishing (we were rehabilitating property and the refurbishment was the most significant costs).

We formed a corporation and the initial investment in the corporation was substantial, but not hideous, about $5000 per investment unit. Most of the initial investment was used for the down payment on the property, the balance was placed into reserve. We knew what the monthly payment was on the loan before investing and we agreed that we would each put an exact dollar figure in each month as our contribution. The monthly contribution amount was sufficient to pay the mortgage, interest, insurance and the amount that we believed would be sufficient for reserves.

All of us were professionals and none of us received compensation for our services. I did the legal documents. One of the other investors was a CPA. One had commercial property rehabilitation experience and she dealt with the contractors, etc. That part was agreed to upfront.

It worked really well. We paid our down payment. Paid our monthly payments each month. After about 8 months, we had our first renters in the first property and continued to make our monthly contributions. We deposited the rent and the contributions into the same account and after a few months, we had sufficient down payment to invest in a second property. We had a meeting of all of the shareholders and agreed (all but one investor who sold her unit to her sister for the payments she had paid in - so at no profit - but that was their agreement) to purchase a second property. Because we were rehabilitating commercial property, the rest of us believed that rehabilitating the property that needed it the worst that was close to the first property would be mutually beneficial. And we bought the second property and continued to make the monthly payments for another 8 months until we got the property ready to rent and it sat vacant, but ready for awhile. We got it rented it out eventually, but not for sufficient to pay the costs in full, so we continued to make monthly payments.

The original idea had been to contiue to buy property and rehabilitate it in the same commercial neighborhood until we had rehabilitated the whole neighborhood either by ourselves or that other investors got inspired.

The second building developed problems with the roof due to the age of the building that were not covered by insurance and were extremely expensive to repair. We basically got hit with a special assessment for the roof - an additional capitalization requirement in corporate speak. The roof damage caused our tenant to move out legitimately because it interfered with the business use of the property. So, we were out the money for the repairs and not receiving rent. So we continued to make monthly contributions. Eventually we got the roof repaired and got the property rented and continued to make payments to the capital account for a few more months. I made capitalization payments for almost three years before we could stop making contributions.

Eventually, the rents were enough to cover the expenses and to make capital reserves. After we had a lot of money in the reserve account, two units wanted to sell the buildings and cash out the reserves. The remaining investors (I was one of them) agreed to buy out those two units and own a 1/10th interest instead of a 1/12th interest. We had a professional appraiser appraise the value of the building and we figured out how much equity the corporation had (equity in the buildings plus the reserves) and used that as the value of the units. What we neglected to take into consideration was the investment risk. Oh, well.

The remaining 10 units, owned by a total of 8 investors, continued to participate in the original concept for a period of time that outlasted my first marriage (a total of 17 years, 11 years in the investment) and the period of my divorce (9 years). Shortly after my marriage to Ian, the original master mind of the concept died. Most of the other investors were well into their 70s and decided it was time to divest. We sold all of the properties (a total of 4 accumulated over the years) and split the proceeds. I recovered my initial investment and the capitalization payments that I had paid over the years. The profit was modest about 6K per investment unit. Not much, but only subject to capital gains tax.

I was glad that I had done it. We were able to get along throughout the entire process. I was the youngest of the investors at 29 when we started, and 50 when we divested. It was a great experience. It was mainly great because the women involved were all very congenial, dependable and smart. It worked great!

elaine

Elaine, thanks for the detailed and helpful response.

Were there ever issues that arose where the partners could not agree on a solution? If so, how were they handled?

 

[BevL]

Just a general comment:

While I appreciate everyone's deep concerns for my friendships , and you may ultimately prove to be correct that this concept is not worth pursuing, I need to hear more than opinions and anecdotal tales of woe to convince me that there are issues that can't be overcome with enough foresight and legal expertise. I'd love to hear why some of these partnerships failed as that would be beneficial in avoiding the same issue(s) should we decide to move forward.

Well, in my tale of woe, basically it came down to some of the group wanted to pursue legal action, some didn't. At least one of the "I want to go after them" parties basically threw in the towel and refused to hold up their share of expenses PLUS the additional share of expenses of the defaulting party, which created more problems for those who wanted to salvage what they could so were chipping in extra money. So in the end, everybody kind of ended up upset at everybody else.

While I do know legal advice was obtained in preparation of the original agreement (one lawyer prepared and others had to obtain independent legal advice as they wanted, or at least sign the document in the presence of an independent lawyer) I don't know if anyone actually pursued legal advice when things went off the rails.

I hope your group has a positive experience if you go ahead with it. As I said in my original post, I think the concept has merit. Not my cup of tea, but could work if, and the big if, everybody takes their responsibilities completely seriously and it's a business, not a friendship thing.