# Equity based destination club



## seatrout (Jan 12, 2008)

What is everyone oppinion on an Equity based destination club.

We have a beach home in Galveston which we rarely use. May be 7/days a year.  but it does have emotional value and we hope that someday, we would completely rehab it and use it more as the children is bigger.  It just when we take a week out of work, we would go somewhere far rather than down the street.

rather than sit on realestate that we personally manage.  What does everyone think about any potential invesment value of an Equity based destination club?  Have any of them drop in value with the recent slowing down in realestate?  I would not be financing these.  It would simply be a diversifying our investment.  The the initial capital would sit as buying another reit/bond/or mutual fund.

example of one: 

http://www.crescendoresidences.com/

http://www.sherpareport.com/destination-clubs/crescendo-residences.html

Triet


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## NeilGoBlue (Jan 12, 2008)

seatrout said:


> What is everyone oppinion on an Equity based destination club.
> 
> We have a beach home in Galveston which we rarely use. May be 7/days a year.  but it does have emotional value and we hope that someday, we would completely rehab it and use it more as the children is bigger.  It just when we take a week out of work, we would go somewhere far rather than down the street.
> 
> ...



First, don't make any decisions for 2-3 weeks.. trust me on this...2nd, don't join a dc for an investment.  What equity clubs give you is protection against losses (club going under etc) or asset protection.  Do not join to make money.. you might make money (I have, if I sold today), but that is all gravy..


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## Elsway (Jan 12, 2008)

There is not universal agreement as to what constitutes an "equity destination club".

Bellehavens markets itself a an equity club because thethe members own the club which owns the real estate.  This is supposed to provide downside protection.

Other clubs have structured their deposit refund policies to enable members to share in future increases in deposits.  This structure has the upside potential normally associated with an equity.

Crescendo is the only major club which exists with the expressed purpose of owning real estate which will is expected to appreciate in value - and the club's assets will be liquidated at some future date, allowing members (investors) to cash in on this appreciation.

I believe Crescendo's appraised real estate portfolio was up around 9% in 2006.  Some of this appreciation may have come from international properties which benefitted from a weak U.S. dollar.  I would not expect a domestic real estate portfolio to perform well in the current market environment - it will probably be two or three years before U.S. residential real estate stabilizes in price (some local markets will do better than others).  Ergo, I think the timing is bad for an investment in Crescendo - depending on the extent to which their properties are located in the U.S..  I'm not sure how Crescendo accounts for the cost of furnishing homes - but furnishings are, generally speaking, depreciating assets.


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## PerryM (Jan 12, 2008)

*Wal-Mart where are you?*

Really big money is made when the masses of people participate in a product/service – take music, TV, movies, books; get a lot of folks involved and that’s where the big big money is at.

So far the DC industry is a cottage industry focused on rich folks where $300k is nothing to worry about and the cash can be in hand in 24 hours.

The really big money is when the DC membership, for 10 folks, is the same as a high end timeshare, like $50k and this is a $500k condo near a resort area.  This would be equity based and the folks get to participate in real estate appreciation.  There are 4,000,000 timeshare owners in the US and that’s the target.  Easy to get mailing lists and a Wal-Mart kind of company could just suck all the air out of the DC market.

The management company makes money on buying the condos and the management fee.  Right now there is just too much money going to the owners of the few DCs in existence and an inefficient market exists.

When will this happen?  I haven’t a clue.  Hopefully eyes are watching the DC market and dreaming of billions of dollars of real estate under their control and all the MFs that go with it.


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## seatrout (Jan 12, 2008)

Actually the real money is among all the "second home" owner in any vacation destination-- not the typical timeshare folks. Most of these owner use their property very little and have the routine maintenance and expense. There are thousand of these home that goes unused everyday.


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## vivalour (Jan 12, 2008)

post removed


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## Steamboat Bill (Jan 12, 2008)

The OP is asking for opinions on equity vs non-equity DCs.

I don't think there is a 100% correct answer for everyone.

The "majority" of DCs do NOT offer equity. BelleHavens and Crescendo are two that do...and may eventually merge into one club in the future.

Equity DC membership represents less than 5% of all DC members. Thus, most DC members don't care about equity.

We have debated this topic before, and some people would rather keep their investments and clubs separate. But I have heard from several equity members that LOVE the equity clubs as it easily can negate the lost opportunity costs of membership and some members can even MAKE a profit joining a club and their vacations are basically free.

I wish all clubs offered equity, but they don't.

I would not recommend joining a DC just because it is equity based over a non-equity club. I think there are more important factors like locations, variety, and number of homes in the collection.

If you find an equity club that offers locations you love, well, that is truly "icing on the cake"


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## travelguy (Jan 13, 2008)

IMHO,

1. For the same reason you do not need to purchase "equity" in a golf course in order to play golf at a Country Club, you do not need to purchase "equity" in a Destination Club to use it's properties.  The main purpose of a Country Club is the members use it's golf course and the main purpose of a Destination Club is the members use of it's properties.  Neither was created as an investment vehicle for it's members.  Both were created as a way for members to use the assets of the Clubs without the substantial capital requirements to "own" the assets.

2. There exist much better pure play investments for the difference in the membership and annual fee costs of "equity" Destination Clubs and "non-equity" Destination Clubs.  In addition, it's always better to control your own investment options.


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## PerryM (Jan 13, 2008)

*That's the problem...*



travelguy said:


> IMHO,
> 
> 1. For the same reason you do not need to purchase "equity" in a golf course in order to play golf at a Country Club, you do not need to purchase "equity" in a Destination Club to use it's properties.  The main purpose of a Country Club is the members use it's golf course and the main purpose of a Destination Club is the members use of it's properties.  Neither was created as an investment vehicle for it's members.  Both were created as a way for members to use the assets of the Clubs without the substantial capital requirements to "own" the assets.
> 
> 2. There exist much better pure play investments for the difference in the membership and annual fee costs of "equity" Destination Clubs and "non-equity" Destination Clubs.  In addition, it's always better to control your own investment options.




That’s the problem with the DC industry – the 4,000,000 American families who OWN a timeshare are used to ownership – passing that timeshare down to the heirs in the will, and using the free market to sell their real estate.

90% of the DCs have chosen a model that greatly favors the owners to the point of absurdity, at least to me:

1)	The members own nothing and thus have no real estate laws to shield them

2)	The members can’t sell their membership in the free market but must sell back to the DC

3)	The members must stand in line to get their money back after 3 or 4 new members are found – hopefully

4)	The members are making unsecured loans to folks over the phone

5)	The members have NO state laws that are geared to protecting DC members – NOT ONE

6)	The members are second or third in line to recoup any monies in case the DC goes belly-up 

To me this is such a lopsided deal that I refuse to become a member with ANY DC at the moment.  I just feel that this current arrangement is abusive and won’t submit to the DC tyranny as it exists now.

Hopefully someone is watching and calculating just how much money can be made by doing DCs the right way – a level playing field for the customer.

Maybe a DC will come along and do it the right way - I'm still hoping.


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## Steamboat Bill (Jan 13, 2008)

PerryM said:


> That’s the problem with the DC industry – the 4,000,000 American families who OWN a timeshare are used to ownership – passing that timeshare down to the heirs in the will, and using the free market to sell their real estate.
> 
> 90% of the DCs have chosen a model that greatly favors the owners to the point of absurdity, at least to me:



If you compare a DC to a TS, then some of your points are valid. However, I chose to join a DC as it offered me a great "Found Opportunity" that does not exist with any other product...."incredible accommodation's at incredible locations at reasonable prices", especially compared to timeshare alternatives.

Don't get me wrong, I still own several timeshares, and use them for situations where DCs don't have locations (on-site Disney World, The Canyons) or for taking a less expensive vacation , but they are not even in the same league of quality when compared to a Destination Club.

In other words, DCs offer me an unbelievable collection of world-class properties that will blow away 99.9% of all timeshares. Just like joining a private golf club offers a members an opportunity to play golf at an exclusive resort, rather than playing with the masses at a public weed infested golf course, a DC offers properties that are designed to impress.

One day, DCs may offer "some" of the features you are looking for, but I doubt they will offer everything you are seeking. But there are other non-timeshare products that may fit your criteria ---- Fractionals or Personal Residence Clubs.

I chose NOT to buy a fractional or  personal residence club as  I found them too restrictive, even though they are deeded real estate, can be resold, can be passed to your heirs, and have real estate laws to back them up. Most fractionals are similar in quality to a Destination Club property, and only make sense if you are satisfied vacationing several times per year at the same location. 

I think fractionals offer competition and are an alternative to destination clubs and if they ever get a real trading program in place, I can see many people that will buy one. 

However, it is a rare day that someone decides to buy a timeshare instead of joining a destination club.


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## PerryM (Jan 13, 2008)

*A price point for everyone...*

You can’t compare Neiman Marcus to Wal-Mart – two different markets.   However the real money is with Wal-Mart; that’s all I’m saying.

I am not criticizing anyone for buying a DC; I’m sure folks did their due diligence.  I just think that the DC industry has taken the wrong model – the country club model to a vacation experience.

Just as I seldom buy from the developer anymore (but do when warranted)  I put the current DC industry in to that same developer’s camp.  I’m looking for a firesale or a new DC who will treat their members better with sharing real estate appreciation (It doesn’t have to be 100% to the members or owners; revenue splitting is perfectly ok too).

In the mean time I can’t think of how a DC could have gotten me closer to the slopes this past Christmas week at Marriott’s Mountainside in Park City.  It cost me about $1,000 for the week in a 2BR and I’ve done it for many years now.  I guess the DC could have provided nicer wallpaper and rugs but I don’t mind Marriott’s.

This is very similar to how the airlines treat folks – fly normal class or pay twice to have little more room, a meal, and first off the plane.  That’s what makes America so great – everyone has a price point that is just right for them.


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## Steamboat Bill (Jan 13, 2008)

Here is another perspective:

Timeshares are more like staying in a hotel or large 2 bedroom suite and are designed to save you money over the long run if used properly vs renting a 1-2 hotel rooms. They are designed for the masses and are targeted to the middle class.

Destination Clubs are more like staying in a vacation home that you own and are usually much larger than timeshares, 3-4 bedrooms are common. They offer an alternative to VRBO and/or buying a second home and are targeted to the affluent and are designed to be exclusive.


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## seatrout (Jan 13, 2008)

thankyou everyone for their wisdom.  I am certainly more knowledgable after these post and my own research.

Perry-- you are absolutely right that there are more $ in Wallmart than the specialty product.  There is however tough competition in this market and typical Wallmart customer fit the timeshare model more.   I believe that Mr Marriott already have this market.  One of my timeshare- Hyatt- for example have  in my opinnion quit the "wallmart" model as many of their new development are fractional's in the 100-300K range.


Steamboat Bill-  with HCC for example-- if you join years ago do you "lock in" your yearly maintenance fees with cap of 5% increase -- or do you continue to pay the new fees that new member pay?  I can understand TS as you pay what it cost.  but in DC-  do these yearly maintenance coorelate to the true cost of maintence or is it simply what the market would pay?

I agree that many DC are based on the countryclub model.  Countryclub however have very high turn over. I would join a country club simply because of convience as it is in my back yard.--even if the one  5 mile the road is nicer.  Thus they have a captive market while DC does not.  To standout, they need to have some competitive advantage.  HCC have done that as it has the least expensive entry point in the field.   Right now however, it is significantly more than a year ago and if they go up to 100k, they may be similar to the rest of the field.


What I am puzzle about is that as the realestate market as a whole have not rise, DC and developer TS price continue to increase yearly.  


Triet


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## Steamboat Bill (Jan 13, 2008)

seatrout said:


> Steamboat Bill-  with HCC for example-- if you join years ago do you "lock in" your yearly maintenance fees with cap of 5% increase -- or do you continue to pay the new fees that new member pay?  I can understand TS as you pay what it cost.  but in DC-  do these yearly maintenance coorelate to the true cost of maintence or is it simply what the market would pay?
> 
> What I am puzzle about is that as the realestate market as a whole have not rise, DC and developer TS price continue to increase yearly.



HCC members do lock in their annual dues + ~5% (max) increase per year. Thus, I will ALWAYS be paying LESS than someone joining today. I think DC are "better" than timeshares (in terms of annual dues) as we don't own the proerty and are not subject to assessments.

Please realize that destination clubs are a new industry that has a business model of escalating prices and new members get better deals than later members. To attract members, a new DC must undercut the competition.

I too am surprised at the cost of the new Marriott timeshares ~ $50k or more for a 2 bedroom platinum week in Marco or Palm Beach...add in 14% financing and this is a VERY expensive purchase.


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## Bourne (Jan 13, 2008)

I maybe in a minority here but here are my two cents...

DC and timeshares have no comparison. The comparison is between HCC and timeshares. Remember, HCC has <10% members when compared to the industry. It is an exception to the rule than the rule itself. For every HCC member that joins, there are 5 new DC members joining the likes of ER, UE and QN. 

Like I have said many times before, the core growth for DCs is in the 2-3Mil home range. That is where the vaccum exists. Even if a hotel company comes in, it would be hard to knock of the ERs and UEs of the world. 

To use Perry anology, 

Timeshares: Flying coach.
HCC: First Class but still the same plane.
DC: Private Jet Travel.


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## PerryM (Jan 13, 2008)

*Sign me up if...*

What gets me about the DC industry is their comparison to a second home – without the hassles.

Well, throw in lack of real estate appreciation and it’s a hard sell, at least to me.  Someone get’s that real estate appreciation – why not me? 

1)	I’m the one who puts up the money

2)	I’m the one that takes the risk of a DC

3)	I’m the one that can’t sell my DC membership to anyone I want for any price I think is right

4)	I’m the one that has not a single law or bureaucrat on my side

5)	I’m the one who must wait for 3 or 4 more folks to join before I can get my money

6)	I’m the one paying 8% of the membership fee in MFs and repaying a 50% mortgage in many cases

7)	I’m the one who will be second or third in line if the DC goes bankrupt

8)	I’m the one who gets NO real estate appreciation

9)	I’m the one with a guaranteed loss of 20% on the deal

Call me crazy but I want more…. 

DC’s can be built on condos costing $500k to $5 M and the membership works the same way.

A $500k condo is a Marriott quality condo and that’s not a bad DC.  For $50k and 10 members who own the condo and 8% or $4k per year you get 4 weeks of usage, of which 1 would be a holiday week.

I think this DC would explode as timeshare owners make a simple migration to individual condos all around the world.


Where do I sign up?


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## Steamboat Bill (Jan 13, 2008)

One of the selling points to me was the ability to use one of 30 different homes with HCC, where an ER member gets a choice of over 300 homes.

There is no way to get bored with a Destination Club as there is so much variety.

Bourne is correct in that the "only" DC to cater to the high-end timeshare  buyer is HCC. That is why I joined them and why they are so popular on TUG.

However, HCC only has 300 of the 5,000 DC members (6% market share) and therefore 94% of Destination Club members are paying MUCH more than joining HCC.

I would estimate that the average cost per night for all 5,000 DC members is in the $1,200-$1,500 per night range. Other than chartering a private sailboat for a week long cruise in the BVIs, I have never spend that much money per night on a vacation destination property (excluding all-inclusive things like cruises).

I agree that a DC is great for the owners, but it is equally great for members (let's not forget the found opportunity costs of staying in multi-million dollar homes).

I get the feeling (rumor) that a major player may enter the DC market in 2008, but their offerings will not be cheaper than what is currently available, they will simply try to out muscle (spend) the competition.

Either way, Exclusive Resorts (with over 3,000 members) is in the catbird seat.


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## TarheelTraveler (Jan 14, 2008)

Most of Perry's complaints apply to a non-equity model.  I'm with him completely from the standpoint of wanting to leave the interest to heirs, benefitting from appreciation, having the security of ownership, etc.  Like Bill, I think you will see a competitor on the equity side to compete with ER in 2008, but it won't be at HCC's price point.   HCC provides great value.  Residences that blow timeshares out of the water but at a similar price.


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## seatrout (Jan 14, 2008)

It would be nice to see another competitor for HCC, one that provide some equity.  Where there is a McDonald, shouldn't BurgerKing come along ??

Since I missed the boat on the price increase- is there any upcoming sale ??

looking at the number with  around 250 members for the 30 homes, only 1/9 can go on vacation during the same week.  How does HCC handle New year and xmas??-- as everyone of the 250 members would likely want to go somewhere.

Is there a lotery for these week ?? Do you guy use your timeshare then for these holiday week??

Triet


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## Bourne (Jan 14, 2008)

There cannot be a competitor to HCC that can provide equity at the same *price point*.  

A back of the envelope calculation -  $1 Mil + 15% upfront fee(Bell Havens example) + 5% closing = $1.2 Mil / 7(6-8 members) = 150 - 175K. The actual number is going to be a bit higher as furnishing is not included. That said, this is for a full membership (35-40 days usage). HCC is currently selling memberships at half the cost. However, you can have a non-equity based model DC at the same price point. 

Regarding a sale, I have not seen prices go down ever for any DC in the past few years. IMHO, it is never going to happen. It may stagnate but will never go down. 

HCC has a 1 in 3 rule regarding holidays. Looking at July 4th, Xmas and New Years only, it translates into ~30 * 3 * 3(1 in 3 rule) = 270 premium holiday weeks. i.e. everyone gets a great shot at booking one of these week every three years. Also remember that bulk of original members bought into the club for ski weeks. The chances of booking the weeks mentioned before are better than the calculation provided. 

When a new property is added mid year, HCC does have a lottery system for premium holiday weeks. That said, I did end up using one of my timeshare weeks at Morritts Grand over Xmas this year.


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## PerryM (Jan 14, 2008)

*Make it up in volume is the answer...*



Bourne said:


> There cannot be a competitor to HCC that can provide equity at the same *price point*.
> 
> A back of the envelope calculation -  $1 Mil + 15% upfront fee(Bell Havens example) + 5% closing = $1.2 Mil / 7(6-8 members) = 150 - 175K. The actual number is going to be a bit higher as furnishing is not included. That said, this is for a full membership (35-40 days usage). *HCC is currently selling memberships at half the cost. However, you can have a non-equity based model DC at the same price point. *
> 
> ...




Don’t forget to throw in highly leveraged too.  For what HCC is charging there is a LOT of financing going on – 50% of a new condo is in a mortgage that the members pay in the monthly MFs.  (Hope they don't ever skip a month)

HCC could and did make their initial memberships virtually 100% equity based – those original members get to get out of HCC for 80% of the CURRENT membership fee.

If HCC did it for a few they could do it for all – sure it means less profit but they could make it up in volume.  DCs seem to suffer from what some politicians can’t understand – lower a rate and make it up in volume.


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## Bourne (Jan 14, 2008)

PerryM said:


> Don’t forget to throw in highly leveraged too.  For what HCC is charging there is a LOT of financing going on – 50% of a new condo is in a mortgage that the members pay in the monthly MFs.  (Hope they don't ever skip a month)



True. It is implied that a non-equity based model will leverage the difference to raise cash and buy a home. 



PerryM said:


> HCC could and did make their initial memberships virtually 100% equity based – those original members get to get out of HCC for 80% of the CURRENT membership fee.




This is based on market conditions. Higher the risk higher the reward. If you have no more than 5-8 homes and a track record of few months, no one is going to join without major upside. Also, that membership was * not 100% equity based *. The underlying homes were either *leased or highly leveraged*. Even more than they are today. Also, HCC was selling excess inventory on VRBO to raise cash at that time. 



PerryM said:


> If HCC did it for a few they could do it for all – sure it means less profit but they could make it up in volume.  DCs seem to suffer from what some politicians can’t understand – lower a rate and make it up in volume.



The above statement is incorrect. They cannot make it up by volume. Here is why...
Bellhavens: Pure Equity Based. Cannot keep up with the pace of growth of other DCs because it can only market to Acredited investors as defined by SEC. 
UR: Only major club to still provide 80% of future value. Already calling it lifetime memberships. I am 80% sure ( pun intened ) that this option is going to disappear after the merger. Also remember, that almost all of their growth has come by mergers. Remove PE and TH members and they are a < 100 member club. 80% of future value did not do wonders for them.


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## PerryM (Jan 14, 2008)

Bourne said:


> ...
> 
> The above statement is incorrect. They cannot make it up by volume. Here is why...
> Bellhavens: Pure Equity Based. Cannot keep up with the pace of growth of other DCs because it can only market to Acredited investors as defined by SEC.
> UR: Only major club to still provide 80% of future value. Already calling it lifetime memberships. I am 80% sure ( pun intened ) that this option is going to disappear after the merger. Also remember, that almost all of their growth has come by mergers. Remove PE and TH members and they are a < 100 member club. 80% of future value did not do wonders for them.



*HCC is living way beyond its means (Hell, the entire DC industry is)* – it’s mortgaged to the hilt.  If HCC paid cash for the condos then they could easily make it up in volume.  Right now HCC offers a Private Membership for $70k – get 35 nights and pay $9k in MF.  I’m assuming this is for a 1/8 share.

That relates to $560k or 50% leveraged about $1 M condos.

If $560k is mortgaged in a 30 year loan at 8% (highly risky and jumbo loan) then the monthly mortgage is $4,100 or $49k per year.  The MF of 9k * 8 members = $72k or $23k per year or about $2k per month for taxes, replacement reserves, management fees, and housekeeping.

*There isn’t any room for even the slightest hiccup in this business plan.*

So I agree, the current HCC business plan is drowning in debt.  They need to switch to 100% cash and a $560k condo and their solvency is much more assured.  Then they could offer 80% back of Current membership fees - and let the members participate in real estate appreciation.


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## TarheelTraveler (Jan 14, 2008)

To me, equity was an absolute requirement before joining a DC, but I don't think it is for most people.  Locations and number of homes is the primary driver.


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## seatrout (Jan 14, 2008)

TarheelTraveler said:


> To me, equity was an absolute requirement before joining a DC, but I don't think it is for most people.  Locations and number of homes is the primary driver.



Please elaborate on your experience with Creshendo
which I believed you joined


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## Bourne (Jan 14, 2008)

PerryM said:


> *HCC is living way beyond its means (Hell, the entire DC industry is)* – it’s mortgaged to the hilt.  If HCC paid cash for the condos then they could easily make it up in volume.  Right now HCC offers a Private Membership for $70k – get 35 nights and pay $9k in MF.  I’m assuming this is for a 1/8 share.
> 
> That relates to $560k or 50% leveraged about $1 M condos.
> 
> If $560k is mortgaged in a 30 year loan at 8% (highly risky and jumbo loan) then the monthly mortgage is $4,100 or $49k per year.  The MF of 9k * 8 members = $72k or $23k per year or about $2k per month for taxes, replacement reserves, management fees, and housekeeping.



You may call 50% leverage as living beyond its means. To me, 50% leverage in DC is a reason to sign up when the industry norm is 20-30%. Anyone in commercial real estate will confirm that 50% leverage is a pretty safe bet. 

We may have a difference of opinion here. 



PerryM said:


> *There isn’t any room for even the slightest hiccup in this business plan.*
> So I agree, the current HCC business plan is drowning in debt.  They need to switch to 100% cash and a $560k condo and their solvency is much more assured.  Then they could offer 80% back of Current membership fees - and let the members participate in real estate appreciation.



Again, 50% leverage is not drowning in debt.  Regarding the example you provided, I think you missed my point completely. 

A DC will only switch to 100% cash to market itself as a 100% equity based plan. Once it becomes a 100% equity club, it has to market the member's participation in real estate appreciation. Once it starts doing that, it can only market to Accredited Investors i.e. a person with documented $1Mil net worth or 200K+ annual income. To me, that is not mass market and sales volume will actually fall down. Bell Havens is a classic example of this situation. 

http://www.sec.gov/answers/accred.htm

Here are some other points...
The calculations provided are very simplistic. A DC cannot run as a non-profit. 

Even the best run Equity based club has its risks. To take an example, 
-A $2M home added to the club is based on 10 full members joining with $200K each. 
-Add 10 members and the price of membership goes up by approx 10%. A member leaving at this point expects $220K in return. 
-The moment a $2M home is added to the club, it loses 20% of its value.( 15% management and 5% closing)
-An underlying asset of $1.6M has a liability of $2.2M at the point of addition. 

To drive my point home, *An underlying asset of $1.6M has a liability of $2.2M at the point of addition. *. And BH is a well run company.


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## Tedpilot (Jan 14, 2008)

Perry - Curious, I assume that you are making assumptions about the debt structure, if any, at HCC or any other club there is without known disclosure, correct?  I say this because you do not know for certain how they have financed or purchased the units and/or the terms of the leases.  

What if it was done my way?  X _qualified_ investors bought Y stock into an emerging DC.  The DC takes the cash to buy property, start an office, and partially leverage property.  The DC is actually a share-held company unwielded by a single entity other than the board of directors.  Additionally, that DC then takes initial and annual fees from members to then run the company and provide the shareholders dividends and acquire additional property.  Would it not then be safe to say that such a mechanism could exist for DCs and they are actually in good financial health?  Could it be that if a DC was strong and growing it's stock would increase in value surpassing the rate at which real-estate incerases because of an increase in membership and the ability to buy more property at no cost to teh shareholders?  I think so.  

I view DCs very differently than most.  Simplistically they are clubs, and only clubs from a _user_ standpoint less a few which throw a few bones worth of equity.  I view them as businesses and nothing more.  Their product is vacation property and they service it well.  The properties are probably heavily depreciated on a given tax year like machinery or equipment at any other company, financed only to the extent to which stay afloat and most certainly have significant up-front investors that deeply off-set maximized mortgages.


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## TarheelTraveler (Jan 14, 2008)

In response to the question on Crescendo, I've been very happy.  Great houses that are even better than the pictures, great service, and experienced management with extensive real estate and hospitality experience.  Only negative is a somewhat limited number of houses currently, although this is going to change significantly in the coming months.

As an example, we're in Punta Mita, Mexico right now.  Have a chef cooked breakfast every morning.  House overlooks the infinity edge pool, fairway and ocean in an incredible resort with Four Seasons golf and beach club membership included.  Concierge is great.  She showed us around the entire resort and was available to answer questions and make arrangements at any time.  Went to the local village pharmacy today to get our daughter some medicine.  Glad we didn't have to try to tackle that with very limited knowledge of Spanish.  Have a local U.S. number that people can call and free long distance to U.S. and Canada on a Vonage phone.  The house is professionally decorated with high quality and durable furniture.  Plenty of DVDs, board games and video games are in the house.


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## Bourne (Jan 14, 2008)

TarheelTraveler said:


> In response to the question on Crescendo, I've been very happy.  Great houses that are even better than the pictures, great service, and experienced management with extensive real estate and hospitality experience.  Only negative is a somewhat limited number of houses currently, although this is going to change significantly in the coming months.



As I understand, Crescendo works like a REIT. Is a possible merger or takeover in the works...


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## Steamboat Bill (Jan 14, 2008)

Bourne said:


> As I understand, Crescendo works like a REIT. Is a possible merger or takeover in the works...



There are some rumors in the air, but due to NDAs...nobody will confirm anything. 

Either way, if it happens it will strengthen both clubs.


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## travelguy (Jan 15, 2008)

Tedpilot said:


> Perry - Curious, I assume that you are making assumptions about the debt structure, if any, at HCC or any other club there is without known disclosure, correct?  I say this because you do not know for certain how they have financed or purchased the units and/or the terms of the leases.
> 
> What if it was done my way?  X _qualified_ investors bought Y stock into an emerging DC.  The DC takes the cash to buy property, start an office, and partially leverage property.  The DC is actually a share-held company unwielded by a single entity other than the board of directors.  Additionally, that DC then takes initial and annual fees from members to then run the company and provide the shareholders dividends and acquire additional property.  Would it not then be safe to say that such a mechanism could exist for DCs and they are actually in good financial health?  Could it be that if a DC was strong and growing it's stock would increase in value surpassing the rate at which real-estate incerases because of an increase in membership and the ability to buy more property at no cost to teh shareholders?  I think so.



Ted,

Excellent post!  I've grown weary of responding to the several posters who have will not sign NDAs and have not done significant due diligence yet continue to post very uninformed and inaccurate information on DCs.  Thank you for making this post of how a "hypothetical" DC might work.


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## PerryM (Jan 15, 2008)

*Keeping up with the Jones is dangerous...*



Tedpilot said:


> Perry - Curious, I assume that you are making assumptions about the debt structure, if any, at HCC or any other club there is without known disclosure, correct?  I say this because you do not know for certain how they have financed or purchased the units and/or the terms of the leases.
> 
> What if it was done my way?  X _qualified_ investors bought Y stock into an emerging DC.  The DC takes the cash to buy property, start an office, and partially leverage property.  The DC is actually a share-held company unwielded by a single entity other than the board of directors.  Additionally, that DC then takes initial and annual fees from members to then run the company and provide the shareholders dividends and acquire additional property.  Would it not then be safe to say that such a mechanism could exist for DCs and they are actually in good financial health?  Could it be that if a DC was strong and growing it's stock would increase in value surpassing the rate at which real-estate incerases because of an increase in membership and the ability to buy more property at no cost to teh shareholders?  I think so.
> 
> I view DCs very differently than most.  Simplistically they are clubs, and only clubs from a _user_ standpoint less a few which throw a few bones worth of equity.  I view them as businesses and nothing more.  Their product is vacation property and they service it well.  The properties are probably heavily depreciated on a given tax year like machinery or equipment at any other company, financed only to the extent to which stay afloat and most certainly have significant up-front investors that deeply off-set maximized mortgages.




Much of what we do here, on this timeshare chat room, is to look at inputs and outputs and come up the strategies used by developers/exchange companies.  Many of these are trade secrets and no one but employees know how it really works.  I, personally, enjoy reverse engineering systems.

It’s just plain old math – HCC says it buys $1 M condos and only $500k of cash rolls in so $500k of borrowing takes place.  If, as in your hypothetical example, the condos are financed with stock then that is certainly a way to get cash, but the deeds are owned by the stock holders and they expect a hefty return.  I guess they would stick it out longer than a bank in case the DC has problems attracting new members and continuing the income stream.

Whether it’s a bank or stock investors the result is the same – miss a few mortgage payments and there will be hell to pay.  I’m guessing a 20 – 30 year note is involved.

This, to me, is doing business in a condo worth twice as much as can be supported by the members – the members won’t complain but they are now exposed to 20 – 30 years of risk.  Me, I’d be much happier knowing that NO debt is involved and that the club owns the condos outright with no strings attached.

So what’s wrong with a $560k condo in the HCC inventory that has no debt and that the $9,000 MF * 8 members = $72,000 per year goes for maintaining the condo in pristine condition and a fat profit to the owners?  They are getting the eventual real estate appreciation on top of the monthly MF too.

I just think, and it’s the opinion of just one person, that the DC industry started off on the wrong foot – lots of debt when cash is a much safer route for everyone involved.  I guess its the old game of keeping up with the Jones.

P.S.
The DC industry has a great scheme going for it – put up NO money, find 8 folks who will give them an unsecured loan, charge the 8 folks rent to use the condo and then sell the condo for a fat profit.  To add 100% debt servicing on top of this seems just too piggish to me and we all know that bulls and bears are ok in business but pigs get no sympathy.

The DC industry is just too piggish and eventually this will come back and get them stuck and roasted alive.


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## Bourne (Jan 15, 2008)

There are no piggish profits. 

Do a back of envelope calculation of basic costs of running a DC and you will know. 
1. Staff pay
2. Operation cost..
3. Marketing...
4. Real Estate tax and Home owners dues/insurance( its a condo )

Then take the piggish profits, if any...

4. Maintenance of units...

Do you want me to detail the calc that I am talking about or is it evident.


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## PerryM (Jan 15, 2008)

*Hiccups are bad for the DC industry...*



Bourne said:


> There are no piggish profits.
> 
> Do a back of envelope calculation of basic costs of running a DC and you will know.
> 1. Staff pay
> ...




This thread is about equity based DCs and I’m proposing that equity does not come with a 100% mortgage attached.

If the DC model is to go beyond equity and provide condos that come with 100% debt then that’s the piggishness I’m referring to.  The owners of the DC and the members are living way beyond a safe level and have decided to use condos that are way beyond their cash means.

I think this is unnecessary and a reason the DC industry is built on a house of cards; well actually a pile of mortgages.  Look at how many homeowners enter foreclosure for living in a house way beyond their means.

It has nothing to do with profits but eyeing something that neither the owners nor the members can afford.  That’s the DC model for 90% of the DCs out there – very very high risk.

Hope no one gets a hiccup.


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## TarheelTraveler (Jan 15, 2008)

I don't often agree with Perry, but a DC model without debt makes a lot of sense, as it lowers the risk and is better from a tax and a cost of borrowing perspective.  If you raise a membership fee in order to acquire property without debt, the consumer can then decide whether to incur debt in purchasing the membership fee (rather than the DC management deciding).  If the consumer chooses to finance all or a portion of the membership fee, he or she is typically borrowing money at 6-7%, with the interest often being tax deductible to the consumer through a home equity loan for example.  If the DC is borrowing money, it is probably at 8-11%, is deductible to the DC and not the consumer, and results in higher dues and risk.  However, there is certainly an incentive to leverage a DC like this, because it lowers the membership costs and allows the purchase of more expensive properties through a lot of leverage.


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## seatrout (Jan 15, 2008)

TarheelTraveler said:


> In response to the question on Crescendo, I've been very happy.  Great houses that are even better than the pictures, great service, and experienced management with extensive real estate and hospitality experience.  Only negative is a somewhat limited number of houses currently, although this is going to change significantly in the coming months.
> 
> As an example, we're in Punta Mita, Mexico right now.  *Have a chef cooked breakfast every morning.  House overlooks the infinity edge pool, fairway and ocean in an incredible resort with Four Seasons golf and beach club membership included.*  Concierge is great.  She showed us around the entire resort and was available to answer questions and make arrangements at any time.  Went to the local village pharmacy today to get our daughter some medicine.  Glad we didn't have to try to tackle that with very limited knowledge of Spanish.  Have a local U.S. number that people can call and free long distance to U.S. and Canada on a Vonage phone.  The house is professionally decorated with high quality and durable furniture.  Plenty of DVDs, board games and video games are in the house.



On a lighter note for this tread.  I do not have a live in maid nor ever had a professional chef cook for me.

Does the  "chef" stay at the property in the maid quarter in Punta Mita ??
Is the food and greens fees included with your maintenance bill ??
Is that typical of most of your trip ??  As in private jet, do most highend DC have the "chef" services?  Where we I sign up

I would need to sell our vacation home in Galveston.  It has it own 200' pier over a fish highway.
every summer during trafic time (incoming tide), you can catch unlimited speckel trout.


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## TarheelTraveler (Jan 16, 2008)

I hear you.  We've got a cleaning person and a yard person on a weekly basis at home, but certainly not anything like that.  No one stays in the house, but several of the Crescendo residences have a 1/2 day cleaning person and some have breakfast cooked for you.  I assume the availability is based on cost for the most part.  For example, in New York, there is a destination host, but not a cook.   I will tell you that breakfast each morning was a highlight for us and our guests.  They would do American-style breakfasts for you, but we preferred the Mexican style.  No charge for these services (other than normal dues), but you do have to pay for food and drink that the house is stocked with (other than the customary drinks that are always present).


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## seatrout (Jan 16, 2008)

The following content does not fit this thread but your commend reminded me of the various class difference in the world. I am truely glad that it is not so extream here and even the bottom class of our country can rise if they have the determination.  My parent for example was able to rise out of the bottom of the barrow in this country after immigration out of Vietnam.

In the US, live in maid is consider a luxury typical of those private jet level. So daily maid service may be typical on highend accomodation. I would say that many "accredited investor" do not have live in maid.

In many part of the world, it was standar for the middle class to have live in maid and cook.

I went to a conference in Brazil several year ago and rented a condo for the weekl(1200 /wk) It came with a live-n made who cook us dinner and clean the red dirt from our shoes as well as our laundry. We never had our *tennis shoes clean daily before*. She also clean the bed and do the laundry without any laundry machine. It was fun at first but afterwhile we felt bad for her. Gave her a big tip and thought about bringing her to the US.  She have ZERO  opportunity to rise in her society and out of her class.
The "second class" in brazil live in a very small closet that is typical of a mail quarter. I think they make $100/month. 

My kids did appreciated what they have in the US better af ther this trip

The friend I had in Brazil was a plastic surgeon. Imagine a pair of breast cost the same as a Oakley sunglass. Their medicine is socialize there so all the physician are quite poor with exception of the plastic surgeon.  Except there are massive competion in plastics surgery  ( I even thought of getting my wife a new pair being they cost the same as a pair of Oakley )

So staying in these  multi-million dollar home is great  BUT I may also need to bring the kid down to earth so that they don't grow up to be spoiled brats.


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## NeilGoBlue (Jan 16, 2008)

seatrout said:


> So staying in these  multi-million dollar home is great  BUT I may also need to bring the kid down to earth so that they don't grow up to be spoiled brats.



As steamboat bill has said.. you can always slum it in million dollar homes.. you don't need multi million dollar homes.....lol...


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## 3DH (Jan 16, 2008)

OK, I'll bite... I have read through all of the reasoning and am still willing to jump into the ring!

Yes, we are members of LUSSO... and I believe we made a great choice joining that club, after first making the leap with (and subsequently resigning) another very, very large club that will remain nameless. 

Perry... all DC's are not the same, and I realize I am opening myself up for some serious slamming here, but...

LUSSO offers 100% of the membership deposit back upon leaving the club, PLUS 50% of any appreciation in membership deposits since joining. They also offer a "perpetual" membership that CAN be willed to your heirs, or transferred to a relative during your lifetime for NO FEE, should that decision be made for any reason. 

I would also like to add that with most DC's you are not responsible for taxes and governmental fees, of any kind, related to the real estate -- which you DO pay for timeshares.

Furthermore, I would welcome a shout if ANYONE on this forum has ever been able to sell a timeshare for more than you paid (from the developer... the ones with "benefits", so we say). If so, here is your cheer:  You won't typically find an appreciation of your investment in the timeshare world, either -- don't expect it in the typical DC scenario. As I mentioned, LUSSO does offer appreciation, as do the "equity" clubs.

Anyway, to each his/her own... for our family, the DC has worked  much better, as we have much larger properties, complimentary transportation to and from the airport, a SUV in the garage (yes, the ones that guzzle gas and get my whole family places, much like the one in my own garage!), concierge for each location (not ever shared with more than 1 other family at a time...), and a true "home" -- with every known appliance and convenience I am used to at my home, in a location second to none! 

I am not telling you to jump on the bandwagon, but rather not to knock those of us who have discovered its worth! I, for one, appreciate the multi-million $ homes!


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## PerryM (Jan 16, 2008)

3DH said:


> OK, I'll bite... I have read through all of the reasoning and am still willing to jump into the ring!
> 
> Yes, we are members of LUSSO... and I believe we made a great choice joining that club, after first making the leap with (and subsequently resigning) another very, very large club that will remain nameless.
> 
> ...



I can help you with someone who made a profit on selling a timeshare.  I did 5 times and all 5 were bought directly from Marriott to top it off.

Making a profit on a resale timeshare is no great feat – folks do it all the time.  Throw in all the profit from renting a timeshare and it’s a great hobby that pays big bucks for your effort.

I like what I hear about LUSSO – I like the revenue sharing and wonder why this same scheme can’t be adopted by ALL DCs? 

I didn’t get much from their web site – how much to join and what benefits for different memberships?  I don’t have the time today to investigate further and would appreciate a recap.


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## 3DH (Jan 16, 2008)

LUSSO membership pricing info:
http://www.lussocollection.com/page/rd07-membership.jsp
$395k to join, $28k per year dues, unlimited use. 
(one membership level)

No, it's not cheap nor for everyone, but, if it is right for your family, it is a great choice!
Is it right for you?

As to selling timeshares, I can only tell you we have had limited to no interest in renting/selling our unit at Orange Lake CC... would just as soon sell the thing. (We were lucky enough to buy it at a charity auction, so have very little invested in it other than annual fees) 

And, thankfully, since we don't use our Starwood weeks, we can still convert them to Starpoints then to airline miles to fly free to DC vacations. If that benefit ever changes I will be in a real tough position!


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## PerryM (Jan 16, 2008)

3DH said:


> LUSSO membership pricing info:
> http://www.lussocollection.com/page/rd07-membership.jsp
> $395k to join, $28k per year dues, unlimited use. (one membership level, other than corporate)
> No, it's not cheap nor for everyone, but, if it is right for your family, it is a great choice!
> ...




Thanks for the info - painting the kitchen today, while the stock market cries its eyes out.

Marriotts and Disney owners routinely sell their units for profits if held long enough (5 years).  Resales are easy to buy, rent them out (Not Disney, they don't like that), and sell for more than they were bought for.

But you have to pick a healthy timeshare developer, one that isn't at war with its owners like Wyndham or WM.  These two organizations, under the same umbrella, are NOT the timeshares to make a profit with.


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## seatrout (Jan 16, 2008)

I sent for an info package from them.  

I personally would not loose any money selling my timeshares as well, It is just a hassel puting them on ebay.

Please clarify the "unlimited use" 
what would prevent someone who would essentially go on vacation all year ??
would the maintenance fees be increased ??


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## Steamboat Bill (Jan 16, 2008)

seatrout said:


> The friend I had in Brazil was a plastic surgeon. Imagine a pair of breast cost the same as a Oakley sunglass. Their medicine is socialize there so all the physician are quite poor with exception of the plastic surgeon.  Except there are massive competion in plastics surgery  ( I even thought of getting my wife a new pair being they cost the same as a pair of Oakley )
> 
> So staying in these  multi-million dollar home is great  BUT I may also need to bring the kid down to earth so that they don't grow up to be spoiled brats.



That was a great post for several reasons....I am trying to imagine the conversation at home...."honey I bought you a little (big) present(s)...you just need to go under the knife to receive it....Bravo to you if you pull this one off....you are my new hero.

Also, on a serious note, I have two kids 12yo and 9yo and we live in Boca Raton where they regularly get picked up for play dates in Bentleys and chauffeured driven cars. We take lots of nice vacations, but I don't want them to ever get jaded. Sadly, The definition of a poor person in my neighborhood is someone who drives a brand new Mercedes C-class. We considered joining ER, but felt the $3-4m homes were too over-the-top for my kids and I didn't want them to expect that every vacation. We just got back from HCC Stowe and it was a 3 bedroom 4 bath and the kids loved it....but the price of the home was in the $800-900k range.



3DH said:


> Yes, we are members of LUSSO... and I believe we made a great choice joining that club, after first making the leap with (and subsequently resigning) another very, very large club that will remain nameless.
> 
> Furthermore, I would welcome a shout if ANYONE on this forum has ever been able to sell a timeshare for more than you paid (from the developer... the ones with "benefits", so we say). If so, here is your cheer:  You won't typically find an appreciation of your investment in the timeshare world, either -- don't expect it in the typical DC scenario. As I mentioned, LUSSO does offer appreciation, as do the "equity" clubs.



I am glad we have a LUSSO member here....(there is only one DC that is very, very large ) and look forward to your posts.

I have purchased 7 contracts from Disney for Disney Vacation Club and sold 2 (for a $3k profit each). Before I joined HCC, I constantly posted about DVC (and how you can make a profit) and people got sick and tired of hearing about it. But you are correct as 95% of all timeshares bought from a developer can never be sold for a profit.

I posted a simple message offering some DVC points for rent on mouseowners last nigh and I have already had 10 requests. I listed my Westgate Park City ski week for rent months ago and never got one reply (so I banked it for 2009).


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## 3DH (Jan 16, 2008)

Seatrout, see my post at the link below for more clarification on the reservation system with regard to LUSSO's unlimited use:http://tugbbs.com/forums/showpost.php?p=451480&postcount=14


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## TarheelTraveler (Jan 16, 2008)

Almost every DC rule can be considered both good or bad depending on your perspective.  That's why there's not one DC that is good for all.  When I was looking at DCs, unlimited nights was a turn off to me, because I only had a limited amount of time for vacations and was concerned that this type of rule had to impact availability for me on a long term basis, because certainly some would take advantage to the extent possible.  If that impacts availability, I would suspect the DC would lower the ratio of houses:members, but in a sense, I would be paying for the lower ratio, even though I wasn't taking advantage of it.  However, if I was retired or had the ability to take a lot of vacations, that would be a primary criteria in selecting a DC.  I would absolutely want unlimited nights.


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## 3DH (Jan 16, 2008)

Agreed, Tarheel, for sure! I believe that is why LUSSO limits member/home ratio to 5.5:1. 

When we were members of the large club with a limited number of nights in our plan, I found we were over analyzing places to go and never felt we quite got the "best" deal for our time, and often felt we were settling with our choices of what was available. The other problem we had was taking shorter vacations instead of 7 days at a time. With the reservation rules of the club we were in, once we had made our allowed "advanced" reservations, we were forced to use the remaining days (almost a week remaining at that point) within their space available time. With that, we were forced to use them to go wherever was available (slim choices) before they expired.

As I said before in more length, there are DC's with many different plans and at various price points to satisfy the travel needs of just about anyone!


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## seatrout (Jan 16, 2008)

3DH said:


> Seatrout, see my post at the link below for more clarification on the reservation system with regard to LUSSO's unlimited use:http://tugbbs.com/forums/showpost.php?p=451480&postcount=14




Sorry.  I read the post and got a migraine headache.  Feel like those multiple/multiple choice test I took back in grad school.

Look like I have have 35 days book at any moment in time. Kind of like, I can check out 5 movie (7wks)  and after I return, I can rent more ??.  Am I reading it correctly?


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## seatrout (Jan 16, 2008)

Steamboat Bill said:


> That was a great post for several reasons....I am trying to imagine the conversation at home...."honey I bought you a little (big) present(s)...you just need to go under the knife to receive it....Bravo to you if you pull this one off....you are my new hero.QUOTE]
> 
> Bill
> 
> ...


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## 3DH (Jan 16, 2008)

Yes, you can book more, just no more than 35 days (from 4 reservations... one would have to 14 days to get all 35 at once) _at any one time_. When you go on one vacation, you are able to book another to fill in your max of 4.

To really confuse things, you can also have 2 long term reservations (1-2 yrs out) in addition to those 4 reservations or 35 days.

Never thought of it like the movie thing!


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## TarheelTraveler (Jan 18, 2008)

3DH said:


> LUSSO offers 100% of the membership deposit back upon leaving the club, PLUS 50% of any appreciation in membership deposits since joining. They also offer a "perpetual" membership that CAN be willed to your heirs, or transferred to a relative during your lifetime for NO FEE, should that decision be made for any reason.



If you're considering Lusso, looks like it might be a good time to join. Membership fee going to $425K and no appreciation after the end of February (100% refund, but no share of the appreciation as membership fee increases).


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