Selling membership in private club

[Rob Marshall]

Anyone ever heard of a club where a member can sell his membership interest to another person who is looking to join? Someone was telling me this is common in California. Never heard of anything like this other than a refundable bond type deal.

[Paul Jones]

If you own a share/stock when joining, then you might have options.  I am able to sell my share if I want to leave; however, it is only valuable if the club is full.

[Tom_Doak]

Anyone ever heard of a club where a member can sell his membership interest to another person who is looking to join? Someone was telling me this is common in California. Never heard of anything like this other than a refundable bond type deal.

There are quite a few clubs set up that way.


One of my courses was even set up as a limited partnership so that you could invest your IRA money in the joining fee, to make it easier for younger people to join.  As far as I know, that setup is one of a kind.

[Alex Miller]

Many equity clubs offer this, but typically it is a transaction that is hand-held by the club to someone on the waiting list. With a transfer fee of 60+% so the amount recouped by the party selling is significantly less than what the new member pays. Proceeds going to the club.

[Rob Marshall]

Thanks for the replies. I guess it’s just not something popular in my area.

[Tom_Doak]

Thanks for the replies. I guess it’s just not something popular in my area.

It's way more common for courses built in the last 30 years.


Case in point:  when O.J. Simpson was having financial troubles paying his legal fees, some golf magazine put out there that the one membership he wouldn't quit was Riviera, because he loved the place so much.


That, and it was the only membership where he would get $0 back if he resigned. 

[Mike_Trenham]

Typically the buyer must be approved by the membership committee and there is a % payable to the club. 


Well run clubs point the interested potential younger members that will be highly active to the less financially driven sellers/estates.

[Matt MacIver]

We were not “set up” this way but found by necessity it was the best and/or most viable option in ~2008 (remember then?!).


Dirty laundry but under the bridge back then: private club Member-owned, 220 resigneds on the list but with a 4 join-to-1 pay back equity math, so no one was getting equity back anytime soon[size=78%]. Most faced it: there was no Equity. So we allowed people for three months to undertake private transactions to sell their Membership at any negotiated price and in they’d come - resigned Members got some cash (not what they expected) and club got no upfront initiation fee but a new dues paying Member - our average Member stays 5.5 years (classic ‘90s neighborhood club) so we were better off. [/size]


12 years later, it was the smartest move we could have made - fill your Membership with young, well-healed folks in a stable to growing area - and rock on. Or is that too obvious?

[Jim_Coleman]

   I don’t know if it’s still true, but wasn’t there a time when Pasatiempo memberships were sold on an open market where prices moved like a stock?

[Kevin_Reilly]

One of my courses was even set up as a limited partnership so that you could invest your IRA money in the joining fee, to make it easier for younger people to join.  As far as I know, that setup is one of a kind.

That doesn't work for tax purposes.  It falls afoul of "prohibited transaction" rules. 

[Jim_Coleman]

Kevin: Tom is correct that many early members bought their “bonds” with IRA money. I know 2. They were structured specifically so the bonds would qualify. As far as I know, there have been no problems. Although, I suspect they’d have done better had they bought Apple stock.

[Jon Claydon]

There were a number of Secession members trying to get out this way back in the 08-09 crash. 

[Tom_Doak]

One of my courses was even set up as a limited partnership so that you could invest your IRA money in the joining fee, to make it easier for younger people to join.  As far as I know, that setup is one of a kind.

That doesn't work for tax purposes.  It falls afoul of "prohibited transaction" rules.

Generally, no, but this particular club was founded by a tax attorney who knew his stuff, and made it work.  It was a lot of paperwork at year end to conform to SEC rules, but he did that for a living anyway.


The main obstacle was actually that, as a registered investment, they couldn't turn down anyone for membership who wanted to write them a check, until the membership was full.

[Steve_ Shaffer]

Lookaway, a Rees Jones design,in Bucks County, PA  is operated as a Limited Partnership. There are General Partners and members.  Resales of memberships are based on market value as determined by the parties. 




https://lookawaygolf.com/

[Kevin_Reilly]

Generally, no, but this particular club was founded by a tax attorney who knew his stuff, and made it work.  It was a lot of paperwork at year end to conform to SEC rules, but he did that for a living anyway.


The main obstacle was actually that, as a registered investment, they couldn't turn down anyone for membership who wanted to write them a check, until the membership was full.

Tom, I remain skeptical that anyone can buy a club membership in any form, whether via a bond, LLC interest, share of stock (e.g. Pasatiempo) or garden variety initiation fee with their IRA, and then use the club as a member (or have any member of their family use the club). 


I don't think it would survive the bright lights of an IRS examination, as it fits squarely within the types of situations that IRA "prohibited transaction" rules were intended to address.  I for sure wouldn't use my IRA for anything like this, unless the club obtained an IRS private ruling saying it was approved!  (I wouldn't use an IRA for this anyway, for financial reasons...it would be a poor investment and would require an annual independent valuation appraisal).

[JohnVDB]

   I don’t know if it’s still true, but wasn’t there a time when Pasatiempo memberships were sold on an open market where prices moved like a stock?

I believe you are correct.


I was a member at Rock Creek Country Club in Portland, OR where you bought the membership from another member and paid a $500:transfer fee to the club.  This was in he 80s and 90s.  I can’t say if they still do it that way.

[Kevin_Reilly]

It is still the case at Pasatiempo.  A friend recently bought a share.  It is all spelled out on the website:


https://www.pasatiempo.com/golf/membership

[SB]

Lookaway, a Rees Jones design,in Bucks County, PA  is operated as a Limited Partnership. There are General Partners and members.  Resales of memberships are based on market value as determined by the parties. 

https://lookawaygolf.com/

I talked to someone involved in the founding of this club and they said that it all worked legally, but he wasn't sure they would do it again that way.  They had to register as a security with the SEC and the costs and red tape were monumental.


Most clubs that I've seen give the resigning member a specific amount using either a "bond" or a "deposit" structure.  Sometimes it's a percentage of the new initiation fee UP TO a specific amount.  That's probably fine legally.  I think anything that starts to look like an investment would have to be structured as such.

[John Kavanaugh]

If you want to avoid disappointment don't join a course ever thinking you will get your money back. I don't know how they do it but every time I have joined a course that sells to another owner my deposit disappears.

[Mike Hendren]

If you want to avoid disappointment don't join a course ever thinking you will get your money back. I don't know how they do it but every time I have joined a course that sells to another owner my deposit disappears.

All yes, the so-called exit fee.  In banking we call that the pre-payment premium.


Merry Christmas, John.


Bogey

[Dan Grossman]

If you want to avoid disappointment don't join a course ever thinking you will get your money back. I don't know how they do it but every time I have joined a course that sells to another owner my deposit disappears.

I don’t agree with most of John K’s posts, but this one is one the mark. I joined my club with the assumption that my equity contribution is worthless. It has theoretically gone up up 8x, but I’m not banking on it.

[Jeff Schley]

Desert Mountain has some sort of similar scheme where there is a market rate from members who are selling to new members. I checked into it a few years ago when I was considering a retirement location in a few years. Seems you are locked into paying dues until someone takes you up on your offer, I had heard some where almost waiving their amounts entirely to get out of the dues. I'm sure now they are back to being strong membership wise, but some here know better than I in the area.

[Rob Marshall]

Desert Mountain has some sort of similar scheme where there is a market rate from members who are selling to new members. I checked into it a few years ago when I was considering a retirement location in a few years. Seems you are locked into paying dues until someone takes you up on your offer, I had heard some where almost waiving their amounts entirely to get out of the dues. I'm sure now they are back to being strong membership wise, but some here know better than I in the area.

One of my retired partners is a member at Gateway in Ft Myers. When the market tanked in 2008 he found out that he couldn't quit. He had to keep paying dues until a new member jointed to take his place. They ended up creating some sort of lottery system where if you paid 3 years dues in advance you could stay on as a member and if you decided to quit later you were except from the prior rule.