Fractional Ownership of Vacation Houses
Around a month ago I was doing research on VC-backed startups and to do an investment pitch for a PE company interview. I found Here - a vacation rental company allows you to own a vacation home partially. The minimum investment is $100. You will get pay by the rental incomes but you also will need to pay management fees and other related fees for maintenance. I don't think you can get your principal back unless the company or the main investor? decides to sell the house.
Do you think it is a good investment? Especially for people who cannot afford buying a whole property or people who are too busy to manage a house. I also read on Reddit that people say companies like this will raise their charge on management fees in the future, once they have enough customers or have built the reputation etc.
As a general rule of thumb I would not do fractional ownership/timeshare. It's almost always a losing proposition. The only exception to this is if you're buying irreplaceable real estate and can't afford the real thing (like the one below).
https://www.timberskauai.com/
I wouldn't pitch a VC backed company (I assume you're talking about Here.co or any of the other players in the fractional STR space) to a PE firm given the risk of VC in general, sure they may have a proven concept but are very likely hemorrhaging cash at the expense of growth. A traditional PE firm on the other hand would be looking for businesses with in place cash flows. Unless I'm misunderstanding this and you're interviewing with a VC firm asking you to pitch a venture deal.
I haven't done any research on their fee structure, but typically these fractional ownership offerings are fee heavy (acquisition, asset management/property management, performance) for LP's with very limited upside that are specifically marketed toward non-sophisticated investors who have no idea what they are stepping into.
You're also essentially pitching a PE firm with a real estate operating business that is essentially just glorified hospitality with meaningful regulatory restrictions regarding how they can raise capital.
But if you're just speaking about pitching short term rentals. The only real pro's I can think would be the lack of institutional capital in the STR space. Limited availability of STR properties which will only continue to dissipate as local municipalities ban or restrict STR's (a quick google search will list numerous places that have already banned/restricted them). Additionally, there is upside if you can find residential properties that you can convert to STR's obviously abiding by any local laws/regulations.
For con's you have relatively low going in cap rates for currently operating STR's. STR's require a ton of management (again you're basically running a small time hotel). Institutional investors (who will be wiling to pay higher prices likely via a portfolio sale) could be years away. You also risk the possibility that STR's could be banned in your location at any time at which point your cash flows go to zero, among various other issues.
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