All destination clubs offer luxury vacation properties in desirable locations and high levels of service, but if you are considering joining one, you may be trying to decide whether to join a rental based club or an equity ownership club. Both have their benefits, but have very different structures. One option isn't better than the other - your best choice really depends upon your personal circumstances and goals. Here's an overview of both rental clubs and equity ownership clubs or funds.

Rental Clubs

With rental clubs, members are customers of the club, and ownership remains with the investors and founders. Members do not participate in any losses or gains of the club, so there is little risk and no possibility of financial return. Some clubs, like Exclusive Resorts and Quintess, offer membership options with a higher, six-figure membership fee and ask members to prepay their annual dues for a fixed number of nights each year. In these clubs the nightly rate is the same whether members stay at peak or off-peak times, and the clubs have reservation rules as to when members can reserve the homes.

Other clubs such as Inspirato, and Rocksure have a lower membership fee, typically around $10,000 and offer a usage-based model. In this model, members pay a nightly fee as they use the homes. These nightly rates vary by property, by location, and by times of year, so that just as in any rental market the peak holidays will cost more than the shoulder season. Members view these per night and annual fees as the cost to access these exclusive properties and exceptional service.

According to Inspirato's president David Kallery, "Ownership and equity models require companies to purchase homes, which leads to high membership initiation fees - often in the six figures. Additionally, members typically need to wait years before they can resign a membership, and the deposit they receive back is tied to the club's ability to gain new members. This leads to a lack of financial flexibility on behalf of the club and member, and little diversification in the properties and destinations that are offered. Additionally, closed based equity clubs require members to purchase and commit to pre-selected vacation nights, which inevitably leads to limited availability throughout the year".

Equity Ownership Clubs

While the equity ownership model also offers high-end properties and great service, their structure is quite different from rental clubs. Members in equity ownership clubs have an equity position in the company and are actual owners of the real estate portfolio. In this model, they have an investment in multiple properties and can gain or lose money as the portfolio's value changes. The thinking is that over a long enough time period eg 8+ years, the properties will increase in value and the owners will benefit from this increase. As such, membership in these equity clubs is often thought of and positioned as an alternative to buying just one vacation home - instead the owner members buy into a portfolio of fully maintained homes in various locations.

Equity Estate's Philip Mekelburg claims, "There's a pride of ownership and application of prudent and smart use of capital in the minds of those who like to own. Our owners care about the properties they own and use, that shows in a lot of ways".

Some equity ownership clubs (sometimes referred to as residence funds), including 21-5, Luxus Vacation Properties, Equity Estates and Equity Residences issue shares, which are considered registered securities. Members are actually shareholders in the company. When issuing shares, however, these clubs need to comply with all applicable securities laws, and owners in the US must be accredited investors (with a net worth of $1 million or earnings of a least $200k in each of the last two years). Under securities laws, these clubs are only permitted to market to accredited investors, which can be limiting.

Other equity ownership clubs, like Destination M, and the Ritz-Carlton Destination Clubs, don't issue registered securities. Membership deposits are backed by the real estate, and the owners receive a share of any increase or decrease if they sell their membership interest. M Private Residences' Garry Leitch cites appreciation as a major benefit of this type of club, as members take full advantage of property appreciation.

A primary difference between rental clubs and equity ownership clubs (beyond the owner versus member distinction) is the size of the clubs. Rental based clubs have a broader base to market to, and therefore generally have more members. This larger membership can translate to more choice in destinations and properties - although many of the equity clubs have formed reciprocal partnerships to increase their choice of destinations. If having more choices is important to you, you may decide to join a rental club, but if you'd rather own part of a smaller, boutique company, consider an equity ownership club.

When you look at your home, your primary residence, the general wisdom is to buy, rather than rent. But in the luxury vacation home market, and particularly for destination clubs, the answer is not as clear cut. It really depends on your personal preferences. As we noted at the beginning, all the clubs offer a full range of services, with travel planners and local hosts and concierges to make the vacations thoroughly relaxing, so there's not a lot to choose in this regard.