I thought about this post for some time. Having read a recent post debating the merits of timeshare ownership, and with the summer vacation season approaching, I cannot help but warn those who might be tempted or pursuaded to buy a timeshare about what I consider the worst thing they can do with their money. Go to Vegas - at least you have a chance of winning. With a timeshare you lose the minute you sign.
I like people. I like families. I have four children(now almost grown). I like seeing young families enjoying themselves on vacation. I don't like seeing them get ripped off by one of the biggest scam industries of all time. We had friends that bought a timeshare many years ago, at first they used it - but later it actually cost them dearly when they couldn't even give it away. But they still were liable for all those yearly fees, and they were turned over to collection agencies when they couldn't pay. It sucks to have your credit ruined - especially when you're going through hard times to start with.
Over the past 25 years, my wife and I have honestly considered buying certain timeshares at times, and have sat through numerous sales presentations ranging from low to extremely high pressure. We even signed a contract once, but after reading the fine print and doing some basic accounting cancelled the contract within the 5 day "cooling off"/right of rescission period mandated by the state in which it was signed.
Take the following example: You sit through a really nice presentation for a 2 bdr condo at a fairly new resort with wonderful spacious units, pools, health club, etc. The talk is ALWAYS the same: Ownership=investing vs renting=money gone forever, a lifetime of vacations, a resort book with wonderful pictures, blah, blah, blah. Being a saavy couple, though, you keep saying "no, we'd like to think this over" - but one of you is inevitably more enticed than the other. The salesman gets up and gives you some time. He comes back. He will typically "work" the spouse that is more enticed - and 95% of the time this is the wife. I'm not being sexist here, this is the reality of timeshare sales psychology, and the reason single women are welcome at many timeshare presentations but single men are excluded. The salesperson will then "enlist" the enticed spouse to convince the one who is holding out. He will disappear again, now giving your spouse time to sell you on the idea - we could vacation here, in Hawaii, in Rome, we can exchange for anywhere in the RCI or II book. In the back of your mind is the "don't let this deal get away, remember, after phase III is completed these units will be selling for $10,000 more!" And, lets face it, you want to make your spouse and family happy. You're on vacation, relaxed, thinking of all those future wonderful vacations at those places in that exchange book. The last thing you want to do is say "no" and be negative and disagreeable and disappoint the love of your life while they are happy...
And guess what, all of a sudden, almost like magic, the Sales Manager appears. Amazingly, some foolish couple, usually with with a dumb husband who would rather "throw away" his vacation dollars, has cancelled out on their purchase and you'll never believe your good fortune: Forget that 2 bdr condo - you can buy a 3 bdr unit for the same $19,900. Not only that, but they will pay for your RCI and/or II initiation fee, the closing costs, the first year's maintenance fee, the first year's resort fee, etc, etc, etc. You'll "save" thousands of dollars! How can you resist such a bargain?
DO THE MATH PEOPLE!
1) What is the 3 bdr condo worth? 19,900 x 52 weeks = $1,000,000 Is what you just toured worth a million dollars? Show me one and I'll buy it before "phase III is completed!" Typically, what I see are units, including furnishings, worth 1/4 of the retail sales price.
2) How about those maintenance fees? $480/year x 52 weeks. Do you really think the maintenance, utitlity, and management expenses for a 1400 sq foot condo, including the common area costs, will be $25,000 per year? I'd like to get that contract. That contract isn't up for competitive bids though, is it? I wonder why?
3) But with vacation pricing soaring, shouldn't we "lock in" our vacation costs at todays rates? Reality check. You can't even "lock in" your lodging(timeshare) costs! Never mind the travel, food, and activities components. Your maintenance and resort fees will go up, often far faster than true inflation rates. Generally, you can rent the same or similar unit for the same price as the yearly maintenance + resort fees, and more often than not, for LESS! Even at the best resorts, such as Marriott's, etc, you can usually rent for LESS than the "time cost of money" + the yearly fees.
4) But we can exchange for ANY of those thousands of other resorts in the book, right? No, YOU CAN'T. You can only exchange for ones only that have similar value, only if they are available(exchanged by home resort "owners"), only if your trade is accepted, only if you select three different resorts or three differnt time slots, only if, only if, only if... READ THE FINE PRINT IN THE RCI AND II BOOKS! And read the reviews. There are loads of less than desireable accomodations in the exchange networks, and guess what? They're the ones that have the highest availability. And amazingly, often there is no availability for exchanges even though the same resort has plenty of vacancies if you are paying cash! Hmmm. And BTW, just in case you're really gullible, you simply aren't going to get a week at a deluxe Marriott in exchange for your "no name" resort. Just ain't gonna happen.
5) A retail example: A typical $15,000 2 bdr moderate value timeshare(not the Marriott, they are twice that price, plus - but the ones marketed to the typical young middle income family.)
Even if financed at 8.5% home equity loan rates your yearly carrying cost(never paying down the principle) is $1275. At the 13 to 15% financing offered by the sales company the cost is $2000/year plus. Add to that a minimum of $400 to $700 in maint and home resort fees + $80 to $160 in RCI and/or II yearly dues + $100 to $225 per exchange/points fees(if you exchange).
The result is that you will spend at MINIMUM $1750 per week for that timeshare that you can easily rent for $700 to $900 - and that is if you DON'T exchange!
Do not be led into the false pretext that if you pay cash or pay off the loan over say 15 years that it will help. I guarantee you that your maint, resort, and exchange fees will outpace inflation rates. Money invested reasonably should yield a 9% return (the historic return rates over the last 75 years for investment portfolios of 60% stocks/40% bonds).
If you pay cash, in 15 years(assuming tax rates of 25% federal and 6% state - you may do even better)at 9% you will have over $40,000. Remember, you can usually rent the same or similar accomodations for the annual maint + resort + exchange fees - and this is a fact you can verify by getting online quotes. For you to break even, that timeshare must appreciate to a secondary market(resale) value of $45,000($28,000 in inflation adjusted 2007 dollars) 15 years from now. It won't be worth that.
If you finance at 8.5% for 15 years, you will make monthly payments of $150 for 180 months. That same $150 per month, invested at 9%, will be worth almost $50,000 ($31,000 in inflation adjusted 2007 dollars)in 15 years. Your timeshare will not.
Apples to apples: You are going to go on vacations however, right? So you are going to spend some of that money - you're not going to sit home and save every penny. So lets assume that you pay slighly more than the timeshare maint + fees each year for rental accomodations. Let's say $1000/week for a nice condo that goes for $15000 retail. You'll save $750 in yearly costs, but won't have the appreciated value of the timeshare to show for it - you're "throwing away those rental dollars", remember?
Let's go worst case and assume that lodging prices increase 6% a year(they will probably be much less than that - around 3%) Over 15 years you will pay out $1000 the first year, $1060, the second, and so on. In 15 years you will have spent $23,275 on lodging. But remember, we we're banking the $750 difference between the cost of renting vs owning each year, as opposed to paying the carrying cost/debt service on $15000 - that we still owe. Well, that $750 (compounded yearly at 9%) is now worth $19,000. A net difference of $34000.
How much is that $15000 timeshare worth? Well, if you bought it retail, it was probably worth half that the minute you signed - $7500. What do you think the chances are of it being worth $34000 on the resale market are after 15 years? It would have to appreciate at a rate of 11% every year. This just ain't gonna happen. If timeshares were appreciating at that rate they would be worth close to their retail value - but the fact is they are not. In the real world, THE MARKET NEVER LIES!
The only way timeshares could ever be a good deal is if lodging prices increase faster than maintenance, resort, special assessment, exchange and all other fees - and even then the small benefit is probably 20 YEARS or more down the road! To win, rental lodging prices would have to go up at over double the rate of maintenance and all other resort and exchange fees. Do you really want to gamble your hard earned money on such an outlandish assumption? Why not just go to Vegas - put it all on red.
Always remember that in the vacation equation, lodging is only 1/4 to 1/3 of a vacation cost. Even if you could break even on a timeshare(which is doubtful), increases in all other vacation components(including the timeshare fees) will still escalate the costs of future vacations. Now add to this the lack of freedom in vacationing when using a timeshare. With cash, I can go anywhere, anytime, with no restrictions other than my wallet. In the final analysis, you will pay more to own a timeshare than it will ever be worth, both in use and appreciated value.
Cash is king.
Just say "NO" to timeshares!
Thanks!!
