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The Economy of Timeshares

April 05, 2005 01:50

These are my observations and experiences with a timeshare company's effort to sell me a timeshare (and my subsequent refusal to accept their glamourous offer)

For those who aren't up to date on the concept, here's how it works (in theory). I get a free 3 day, two night stay at a resort condo at the lake. I'm also given my choice of one of several prize packages, one is a cruise, another a paid trip to Las Vegas, another a paid trip to Orlando, FL, and a couple others, valued (as they state) at around $1250 apiece. In exchange for these valuable prizes, all I have to do is give them 2-3 hours of my time to allow them to give me a sales pitch to sell me a timeshare. The stay and prize is free regardless if I say yes or no.

The timeshare they're attempting to sell me works as follows. Say I go on vacation for one week a year somewhere and take a few small 2-3 trips throughout the year. When you add in the value of the hotels, time spent eating out, etc, your annual vacation expenses add up significantly, and over a 30 year period, you've spent about $50000 vacationing with no return on your investment except some faded photographs. With a timeshare, I will (supposively) spend a great deal less because instead of blowing all my money on hotel rooms, I'm actually spending that money building equity in my own timeshare, which I then own.

The timeshare company builds some vacation condos and breaks the deed for each condo into 52 timeshares, one for each week of the year. Those 52 timeshares are then sold off at an average price of $12000 each. For each timeshare I purchase, I get to use my condo for one week of the year. My choice of week depends on which tier I purchase. The more expensive tiers allow more choices of weeks for those weeks more in demand (such as in the summer and over major holidays). I purchase my share of the deed for the agreed upon price and after paying it off, I own it forever. In addition to using my condo, I can also trade my week over RCI which allows for an exchage with other participating resorts, thereby allowing me to literally vacation anywhere in the world for just a small fee. There's also a small monthly maintenance fee of $54.

Now, during the presentation, I'm given a whirlwind tour of the facilities. The saleslady shows me the marina, and walks me through a showcase condo in mostly pristine shape. Everything looks delightful. Then we go through several dozen pages of information, and she scribbles out lots of numbers with some rather fuzzy math on how much of an advantage it would be to own one of these timeshares. Naturally, since I'm only there for the free stuff, I decline their generous offer. They proceed to the hard sell, of course. First, they pull out one of their top tier timeshares which they just HAPPENED to have there, and since it was one that someone upgraded from they can sell it to me much cheaper and it has better features than the ones they've been talking to me all day about. After declining that, they offer me a lower tiered one at a substancially discounted rate, that I could upgrade from later. After declining that, I get a 1 year, noncommital membership offer for only $750, that would lock in the deal and give me up to a year to decide if I wanted it. No monetary excuse is too small. If you WANT to buy something, they have an offer that will allow you to buy something. If you don't want to buy something, well, lots of people are suckers, what can I say.

Despite their best efforts, they eventually give up and move on to more gullible prospects. Did I say gullible? Perhaps I'm getting ahead of myself here. Before we jump to conclusions, I'll throw down some of my own fuzzy math and we'll see what makes the most sense.

The condo I stayed in, and the one they showed me were slightly different, but generally the same. They consisted of 2 bedrooms, two bathrooms, the master bath having a jacuzzi tub, a living room, dining room, and kitchen. It was about the size of my first two bedroom apartment, and on par with it in most respects. I'd estimate the area at about 850 sqft. The rooms and kitchen were fully furnished, and included amenities as you'd expect from your average 4 star hotel. Not too shabby (especially since I wasn't paying for it :). The appliances, fixtures, and construction quality were what you'd expect from your average apartment complex. Not top of the line, well used, but mostly functional. Now, were I to purchase or build a condo of similar size in the same geographic area, I would expect to pay about $50000, but not a lot more. Assuming every timeshare owner was able to haggle the salesmen down to $10000 per share, that means they are selling that condo for $520000. It's just SLIGHTLY possible that you're not getting a fair return on your investment.

But remember, you're not supposed to think of it that way. You're "buying your vacation", not buying a condo. You're saving money down the road on vacations you've yet to take. You're putting up money now, so you can save money later. This is a wise investment. $12000 vs $50000 over 30 years. Who can argue with that fuzzy math! The ultimate problem is the maintenance fee. That $54 that slips through the cracks during negotiation. The one number that isn't set in stone. "But it's only gone up $5 over the last 30 years, so you can rely on it!". Irregardless, that's $650 a year you're spending that's NOT going into the equity on your "vacation" but into their coffers. The simple fact of the matter is that $650 for a week will go a long way toward covering your hotel expenses, which is all this "vacation" actually implies. And yes, money spent on a hotel is not building equity for you, but neither are the maintenance fees. The only difference is, with a timeshare, you're rewarding them for their ingenuity by giving them an extra $10000, with the added benefit of having far less flexibility over when and where you can take your vacation. Feeling gullible yet?

So are they just pocketing all that extra money, laughing their way to the bank at the expense of their gullible customers? Only partially. First off, that free stay and the prize costs them. They can't really reneg on those agreements should they stumble on someone smart enough to see through the fog, or broke enough to diligently decline, for if they did, people wouldn't jump at the opportunities. Granted, it doesn't likely cost them $1250 each. Those trips are available only during off-peak months when demand (and therefore cost) is low, and it's expected that many people won't easily be able to take advantage of them, and therefore a significant percentage won't. Think about all those retail rebates you never sent in, yet considered a savings off the purchase price anyway. We are credit oriented consumers. We've been conditioned to not consider the total cost of what we purchase, only what we have to pay for it right now. The rest we can take care of later. And so the timeshare salesman works his magic. And certainly earns a healthy commission. In the end, out of that $10000 sale, they've probably spent $5000 for marketing and sales, and $1000 for cost. Still, a 400% profit isn't bad. Well, not for them anyway.

Of course, they pitch to you that you can sell it if you don't want it. Of course, they won't be the ones selling it for you. They don't make huge profits that way. You could try selling it for the same price they are, but lets face it, if they were able to scheme you into paying for it in the first place, they're probably better salesmen than you are. You'll probably be forced to sell it for what it's worth. And that's about what they're listed for all over the internet. 10-20% of their original purchase value. And although you can pick up one of those timeshares really cheap that way, you're STILL paying that $54 a month.

So who in their right mind would ever want one of these things? It would work well for a few people. Those who purchase and use country club memberships would find the amenities to their liking, as you can use them all the time for free, even if you're not actually staying there at the time. Since you can get 3 free nights in a row during the week, if you travel to places that have resorts owned by the same company, you can stay virtually all week for free. For some people this fits perfectly. Most people however work Monday through friday, 8-5, and don't have the time or desire to visit country clubs frequently. Yet these are the people who have enough money to buy into these things, and so they do. In droves. And the internet is littered with people attempting to sell off their regretful purchases for a fraction of what they paid.

So if you can stomach a sales pitch when you're an attentive audience, maybe you too can get a free weekend. Just leave your checkbook at home.