Clubs offer second, third homes with none of the headaches

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It's open house for great real estate steals. See how much home can you buy for the money, especially with these well-priced foreclosures in cities across the U.S.

Top Picks: Foreclosures for Under $150,000

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Buyers' Market: $150,000 | $250,000 | $350,000 | $450,000

Many Americans dream about a second home. But an increasing number are choosing third, fourth and even 50th homes, with no mortgages, repairs or insurance.

How? By joining a destination club, a recent form of vacation "ownership" that has quickly captivated deep-pocketed buyers.

At its simplest, the concept pools a group of people and uses their money to buy a portfolio of vacation homes that the group shares.

Most clubs feature homes in popular destinations: the beach (Hawaii, the Caribbean, Florida and Los Cabos, Mexico), ski resorts (Aspen, Jackson, Beaver Creek, Park City, Whistler, B.C.) and golf (Scottsdale, Kiawah Island, Pebble Beach). Some include major cities and Europe.

The number of homes in each club ranges from a dozen to several hundred, with a median of about 100. Most clubs own the homes and some lease, but each promises luxury and an average home value measured in the millions.

In theory, clubs combine the advantages of vacation-home ownership with the carefree service of hotels. Though none of the clubs can be called cheap, and they usually work out to more than $1,000 a night, they allow members to leverage up to more expensive homes than they could otherwise afford.

Ben Addoms, founder of Quintess, one of the largest clubs, explains: "If you were looking to buy a $2 million home, even if you spent 60 days a year in it, you would still be spending at least five times per night what you spend with Quintess, and you would still be limited to just one destination."

But be aware of pre-conditions: Memberships are typically based on a set number of nights annually (typically 20 to start). And expect high initiation deposits (most are in the $200,000-$400,000 range) that accrue no interest and are returned only upon leaving the club.

The biggest hitch, however, is that these clubs make the most financial sense to families who need larger accommodations, yet families tend to travel at the same times. This can make it difficult to get the desired homes at peak periods.

Still, for vacationers with flexible schedules, destination clubs can offer lots of options.

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A look at three popular destination club formats

Non-equity. This is how the first clubs were organized, and most still are. Members do not own anything, which can be troubling if a club fails, as did Tanner & Haley in 2005, when it was then the industry's largest. By comparison, other forms of partial vacation real estate, such as timeshares or fractional ownership, typically offer a deeded property interest. Besides the security issue, hefty initiation fees do not usually pay any returns. The best-known clubs using this model include Exclusive Resorts, the industry's largest, and Quintess.

Equity. Owners have their deposit secured by deeded real estate, providing a degree of security (but no guarantee) and the potential for appreciation, though destination clubs should not be considered investment opportunities. The premier example is the new Abercrombie & Kent Residence Club.

Non-deposit. The newest twist on the paradigm involves no initiation fee and often no annual dues or nightly service charges. Members of the One Key World club pre-buy a certain number of nights: 15 ($34,900), 25 ($49,900) or 45 ($84,900), which are transferable with no expiration date. As a result, founder Steve Kent says, "We get more competition from people independently renting villas than from other clubs." In another wrinkle, Capricorn Villas requires a relatively modest annual membership fee, $2,000 to $4,000, then rents its homes to members at varying nightly rates beginning at $500.

Copyright 2008 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

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