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Does Lack of Financing Depress Resale Values?

CalGalTraveler

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We recently attended a hotel branded developer presentation, and were amazed by the amount of attention given to financing the timeshare. Even though some of the timeshares were $75,000 to $130,000 they stressed a low cost per month price with a low down payment.

I read that the auto buying equation changed when automakers realized that financing an auto purchase eliminates pressure on the TOTAL sales price of a car. Instead of

"This car will cost $20,000"

they now say
"This car will cost only $xxx per month" (with a total price tag of $35,000.)

It seems that TS developers are following this logic in their sale process. While there is self-financing available from developers for timeshare purchases, resale buyers must either cough up the entire resale amount at the time of purchase, or self-finance from a Heloc.

This limits what resale purchases buyers can afford and places downward pressure on resale prices for upscale resale properties because there is significantly less demand when limited or no financing options exist. Many can come up with $5 - 10k on a credit card, maybe $25k, but $50 - $100k upfront is out of reach for most people. This is probably why most resale timeshares sell for sub $15k (if they sell for anything at all.)

Perhaps the developers like it this way because they can ROFR their property and replenish their inventory at a fraction of the price. On the other hand, defaults are costly and with increasing inventory to ROFR, this could be more than they can chew. As more and more TS developer properties go upscale, this could exacerbate the resale demand issue, and we could expect to see the greatest % price reductions at upscale properties which could negatively affect their brand as high-end buyers ultimately realize the largest financial losses given a cap on resale affordability.

I am not aware of commercially available, reasonable TS resale financing options.

Is there an opportunity in the TS industry to add resale financing options similar to financing options that came available for the auto resale market? When financing came available for the auto resale market, prices seemed to stabilize and the secondary market expanded and became viewed as a more viable purchasing option. Resale financing could expand the market, boost the price of TS resale, and prevent more defaults. It could also increase TS exit options thus reducing the fear of being "locked in" that many potential buyers have today.

Imagine if you sold your timeshare on Redweek or Tug and could offer the buyer "xx" per month financing via a reputable finance firm? There would be more demand for your timeshare and you could secure a higher price.

Your thoughts?
 
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Iggyearl

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As has been discussed numerous times on Tug, the timeshare purchase is normally a "luxury" purchase, which is certainly not necessary. The standard advice is to buy what you can afford to pay cash for. Since the major developers do almost no underwriting of their prospects, it is no wonder that they figure, "Any sale is a good sale." This means taking a gamble on less than qualified prospects, and reducing the sales pitch to "payments." Many people who live day to day will look at a $200 or $300 monthly payment as doable. If they default, the developer has at least gotten the down payment and any monthly payments that they have made. Last year, Wyndham wrote off $94 million in defaults. I guess it begs the question - How much made it to the bottom line before the train went off the rails.

A resale timeshare lender would be extending credit for a product that is only a "promise of accommodations" which doesn't mean much when someone's circumstances change. When divorce, job loss, health issues happen, the timeshare would be the first to go. Compare that to a used car, which for most is a necessity.
 

CalGalTraveler

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As has been discussed numerous times on Tug, the timeshare purchase is normally a "luxury" purchase, which is certainly not necessary. The standard advice is to buy what you can afford to pay cash for. Since the major developers do almost no underwriting of their prospects, it is no wonder that they figure, "Any sale is a good sale." This means taking a gamble on less than qualified prospects, and reducing the sales pitch to "payments." Many people who live day to day will look at a $200 or $300 monthly payment as doable. If they default, the developer has at least gotten the down payment and any monthly payments that they have made. Last year, Wyndham wrote off $94 million in defaults. I guess it begs the question - How much made it to the bottom line before the train went off the rails.

A resale timeshare lender would be extending credit for a product that is only a "promise of accommodations" which doesn't mean much when someone's circumstances change. When divorce, job loss, health issues happen, the timeshare would be the first to go. Compare that to a used car, which for most is a necessity.

You make very good points. You are correct that most people view $200 to $300 a month as doable whereas they would be hard-pressed to come up with $30,000 cash outright.

However boats, RVs and vacation condos are "luxuries" that can be financed today. Often people pay $xxx down and finance the rest. Finance companies know that people can walk away from them yet they still offer financing.

Timeshares are re-posessable because they are not located onsite at the defaulter's address, there is no one to evict, and the repossesor can collaborate with an HOA or developer who may seek overdue MFs. They are potentially more re-saleable asset since they are well maintained vs. an old boat or RV. If the resale TS market became more liquid via financing then they could take the down payment and loan payments and sell to the next resale buyer.
 
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bizaro86

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There is financing available for resale DVC.

The problem is most timeshares sell for such a low price the cost of doing docs for a mortgage would never pay out. A week that is free on ebay wouldn't be worth $15k if financing was available.

I agree this may be an issue at the higher end. A Westin Kaanapali week that goes for $13k might go for $25k if all the resale ads said "or 220/month OAC" at the end.
 

CalGalTraveler

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@bizaro86 agree that low end timeshares won't get financed, but would help with higher end timeshares.

Can you share more about the resale DVC financing options? Is this underwritten by Disney? or by third parties? This may partially explain why DVC timeshares tend to hold their value better than other branded timeshares.
 

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Can you share more about the resale DVC financing options? Is this underwritten by Disney? or by third parties? This may partially explain why DVC timeshares tend to hold their value better than other branded timeshares.

Not financed by Disney - it's third parties.

IMO, you are getting it backwards. The value of higher end timeshares comes from their use relative to other rental options in the area. Onsite accommodations at WDW are in crazy high demand and command a premium and DVC rides that wave.

Because of that higher value, third parties are willing to finance a DVC resale - because it's still a relatively marketable asset.

But IMO, the underlying value drives the willingness to finance - not the other way around...
 

bizaro86

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I agree the underlying value drives financing ability, but some (high end marriott/westin/hyatt/hgvc) might be worth even more if financing was available.

I'm not affiliated, recommending or have ever used, but this company finances dvc resales. https://monerafinancial.com/
 

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However boats, RVs and vacation condos are "luxuries" that can be financed today. Often people pay $xxx down and finance the rest. Finance companies know that people can walk away from them yet they still offer financing.

Timeshares are re-posessable because they are not located onsite at the defaulter's address, there is no one to evict, and the repossesor can collaborate with an HOA or developer who may seek overdue MFs. They are potentially more re-saleable asset since they are well maintained vs. an old boat or RV. If the resale TS market became more liquid via financing then they could take the down payment and loan payments and sell to the next resale buyer.

A large difference in a lending company offering to finance RVs, boat, cars, condos, etc. is that they are worth something if the borrower defaults. The lending company can recoup some or maybe all of the loan amount. With a timeshare, they are worth next to nothing except to the TS developer -- they are the only ones who can sell a TS for thousands of $$. I don't ever see that changing, which means independent lenders have zero incentive to provide financing for timeshares.

TS companies can offer financing because even if the buyer defaults, the TS company would keep the down payment, any additional payments they made, and get the timeshare week back which they can sell for the same amount to another sucker. I think they can actually make more money if the buyer defaults vs. keeps up with their payments! You would never be able to say that of a lending company financing resale timeshares...

Kurt
 

taterhed

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Timeshares do have financing available. It's called a personal or signature loan.
It's a horrible idea. If you don't qualify, then that's a definite sign you shouldn't finance a TS.

Luxuries should be 'saved for' not 'paid for' on credit. IMHO.
 

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the reason timeshare prices are low on the secondary market has nothing to do with the lack of financing... Prices are what they are because thats what this stuff is worth

The better question is: are the prices of timeshares sold by developers inflated because financing them is so easy??

The answer to that question is no too. Developer prices are high because salesmen are able to convince folks that this is a good deal

Consider this... I bought 126000 points from wyndham for $25000 I put 50% down and financed the rest over 5 years ...my payments were $300 a month..or $3600 a year. Add maintenance fees of about $750 a year and you see a weeks vacation will cost $4350 for the first 5 years. Amortize the $12000 cash I put in this over 5 years and my weeks vacation goes to nearly $7000 a year for 5 years
 

taterhed

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the reason timeshare prices are low on the secondary market has nothing to do with the lack of financing... Prices are what they are because thats what this stuff is worth

The better question is: are the prices of timeshares sold by developers inflated because financing them is so easy??

The answer to that question is no too. Developer prices are high because salesmen are able to convince folks that this is a good deal

Consider this... I bought 126000 points from wyndham for $25000 I put 50% down and financed the rest over 5 years ...my payments were $300 a month..or $3600 a year. Add maintenance fees of about $750 a year and you see a weeks vacation will cost $4350 for the first 5 years. Amortize the $12000 cash I put in this over 5 years and my weeks vacation goes to nearly $7000 a year for 5 years

And that is why you are not a salesman Ron!
Those numbers are scary aren't they?
 

CalGalTraveler

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The value of resale timeshare is a chicken and egg problem. They are considered not worth much because people cannot afford to pay cash and cannot get financing. They don't get financed because of the view that they are not worth much (because people can only afford to pay so much cash.)

The reason developer prices are high is because financing makes it possible. Economics dictates that an item is valued at what a buyer is willing to pay. Obviously buyers are lining up for developer units as they see value. A resale unit is essentially the same product. Why do you view this same unit this differently?

The resale market needs more liquidity.

Similar to junker cars and old RVs many older and off location/season timeshares are not worth anything and there is a glut in the market. Those will never be financed and that is not what I am referring to.

However scarce locations such as platinum Maui Oceanfront, NYC, Oahu etc are under priced in resale markets because financing is not available. A Kaanapali resort going for $5k - 18k today should go for 25k+ (with developer at $75k+). Demand is limited due to lack of financing.

Location, Location, Location (and Season)
 
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PigsDad

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The value of resale timeshare is a chicken and egg problem. They are considered not worth much because people cannot afford to pay cash and cannot get financing.
I don't think I agree with you here. I think the driving factor in why timeshares are not worth much is that there are alternatives that are comparable in price without buying a timeshare week. VRBO / Home Away have made finding and renting a comparable vacation villa much easier, and there is no need to spend big bucks to buy a timeshare that has a long-time commitment associated with it. With the internet, consumers have much more access to information and don't have to go through third-parties to find rentals, and that has driven down the price, IMO.

Kurt
 
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ronparise

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And that is why you are not a salesman Ron!
Those numbers are scary aren't they?

I was a salesman most of my life, but I sold products that people needed or wanted, and the numbers worked
 

ronparise

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The value of resale timeshare is a chicken and egg problem. They are considered not worth much because people cannot afford to pay cash and cannot get financing. They don't get financed because of the view that they are not worth much (because people can only afford to pay so much cash.)

The reason developer prices are high is because financing makes it possible. Economics dictates that an item is valued at what a buyer is willing to pay. Obviously buyers are lining up for developer units as they see value. A resale unit is essentially the same thing. Why do you view this same unit this differently?

The resale market needs more liquidity.

Many older and off location/season timeshares are not worth anything and there is a glut in the market. Those will never be financed and that is not what I am referring to.

However scarce locations such as platinum Maui Oceanfront, NYC, Oahu etc are under priced in resale markets because financing is not available. A Kaanapali resort going for $5k - 18k today should go for 25k+ (with developer at $75k+). Demand is limited due to lack of financing.

Location, Location, Location

What is it about that timeshare that makes it worth so much. If it should be worth $25000 it would be worth $25000

It isn’t because it isn’t

Financing is available for anything of value. Ask yourself why financing isn’t available for timeshares. Heres a hint. They aren’t worth squat
 

JohnPaul

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There is financing available for secondary market purchases of some of the higher end properties. One example is Vacation Club Loans out of Florida. We used them for our secondary W 57th St purchase before refinancing. As you would expect rates are not low but that's true of the developer as well. Financing was for up to 80% of the purchase price.
 

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I don't think I agree with you here. I think the driving factor in why timeshares are not worth much is that there are alternatives that are comparable in price without buying a timeshare week. VRBO / Home Away have made finding and renting a comparable vacation villa much easier, and there is no need to spend big bucks to buy a timeshare that has a long-time commitment associated with it. With the internet, consumers have much more access to information and don't have to go through third-parties to find rentals, and that has driven down the price, IMO.

Kurt

If this is the case, then why hasn't the bottom fallen out of developer sales?
 

x3 skier

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If this is the case, then why hasn't the bottom fallen out of developer sales?

I believe the phrase associated with P.T.Barnum is the answer to that. “There’s a sucker born every minute.”

Also, not everyone who thinks about buying from the developer reads TUG first.

Cheers
 

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Alright, let's see how long it takes for someone to make a comment on the P.T. quote.....
 

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If this is the case, then why hasn't the bottom fallen out of developer sales?

Because the developers are catching folks off their guard. They’re forcing folks to make an immediate decision without allowing any time for folks to research.


Here are some excerpts from the articles on the TUG ADVICE page.

The following is from http://tug2.net/timeshare_advice/ti...ion_to_timeshares.html#_Buying_Your_Timeshare

DEVELOPER SALES
Developers are the entities that create timeshare projects by building the resort (or by converting an existing resort) and selling the units to buyers. Developers run the gamut from poorly financed, marginal operations to well-known travel and leisure corporations such as Marriott, Hilton and Disney. Many of the early developers of timeshare projects were marginal operations, and contributed to the bad image of timesharing.

After completing a timeshare project, the developer conducts a sales and marketing program to sell the units. Sometimes the developer handles both project development and sales. Other times, the developer will arrange for a company that specializes in timeshare sales to market and sell the intervals to buyers. To interest people in attending a sales presentation, the sales program usually includes financial incentives to people who attend sales presentations. The incentives typically include items such as gift certificates, discounts on accommodations, or other amenities.

Timeshare sales and marketing costs can easily be 50 percent or more of the developer’s sales price. You may be surprised that sales and marketing costs could be so high, but a good timeshare project can easily support these costs. For example, consider that a developer can probably build and furnish a two‑bedroom condominium unit in most parts of the United States for about $150,000 per unit. By dividing the unit into 50 one-week intervals and selling each interval for an average price of $10,000, the developer will have gross sales $500,000 per unit. If the developer spends half this amount marketing the units ($250,000 per unit), the construction cost and sales and marketing cost together will total $400,000, leaving $100,000 net income per unit.


The following is from http://tug2.net/timeshare_advice/cold_hard_facts_about_selling_your_timeshare.shtml

REMEMBER HOW YOU GOT INVOLVED IN TIMESHARES?
It was probably in response to a promotional offering with some type of free gifts or vacations. Then you where probably only informed about the developer's property and prices. Nothing at all about resales, even if they were available at the same resort. The developer spends between 40 and 60% of the selling price of the timeshare just to MARKET each unit at a new resort.

Then in spite of the over inflated prices and high pressure sales tactics, many people buy without really knowing what they are getting involved in. Being shown a book full of thousands of resorts and being told they could trade to any of them they wanted is persuasive and distracts the buyer from reality. Sound Familiar?


When you buy a timeshare, you are not given instructions on how to use it. You are not told that you can rent it out versus leaving it unused, you are given no explanation the exchanging process detail. It's like being handed the controls to an airplane and being told to figure it out on your own! It's no wonder so many people just give up in frustration! I know TUGGERs who have been doing this for over 20 years and still don't know all the ins and outs, so it's absurd to expect someone to just know everything right after they purchase!

THE DEMAND SIDE
Unfortunately, the demand side is just as bad for timeshare resellers. Most people don't even know there is a resale market available until after they buy from the developer. Those who do know about the resale market are usually more experienced timeshare owners looking for real bargains. This is furthered by the industry who has zero desire or benefit to promote resales as if they did, there is no way they could continue to charge what they do at sales presentations!

Why would anyone buy new if they could get the exact same week, at the exact same resort, for pennies on the dollar from an existing owner?

So where does that leave you as an owner looking to sell? Of all the factors (price, location, time of year, amenities, quality of resort, advertising etc.) that determine if and when a timeshare will sell, you can only control two factors .....Advertising & PRICE! Unfortunately you can't spend $1000 on dinner and gifts for your prospects as the developer did for you. The developer is spreading his cost over 100's or 1000's of units and is inflating the price to cover the cost ( which he can get because new buyer don't know any better). On the other hand, you are trying to sell just one unit to someone who knows about resales, is informed about timesharing and is comparison shopping among hundreds of like offers available. Each of these factors is the reason why timeshares sell for so little in the resale market.

 
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bnoble

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Because the developers are catching folks off their guard. They’re forcing folks to make an immediate decision without allowing any time for folks to research.

It's more than that, IMO. Not only are folks off their guard, but they are on vacation, having a great time. And, someone promises to bottle that magical feeling for them so that they can keep it forever "at today's prices." Most people who buy a timeshare feel really good about that purchase, and they don't particularly want to be told it wasn't the best possible financial decision. We see this all the time: people who come to TUG for advice but don't really want to be told to rescind.

And, really, that's okay. The guy sitting next to me may have paid less for the same flight I'm on. But, if I felt good about the price I paid for what I am getting, I'm okay with it.
 

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Economics is based on the premise that value is based on the price a buyer is willing to pay a seller. There is a concept of timing in economics e.g. a $6.00 hot dog is the value of a hot dog at a ballgame, when you would spend no more than $1.00 at home for the same hot dog. Perhaps developer sale falls into the former "ballgame" scenario.

We all participate in TUG, and many of you have said how much you enjoy your timeshare. Yet many of you are saying that timeshares have zero value ("worth squat" to be exact), so financing is not possible.

Does that mean that all resale buyers are suckers too? Are Tugers wasting their time on something of zero value?

Most buyers of developer sales are willing to pay $xxx down and $xxx per month. Buyers may not be able to translate that into the full amount (e.g. $30,000) until later.

The market would have more resale buyers if they could be offered $xxx down and $xxx per month vs. $15,000 cash upfront.

Lastly, why do you see a timeshare as different than an vacation condo, RV or a boat? (BTW...RVs and boats fall drastically in value after the initial sale, however, you can still get financing.)
 
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x3 skier

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Alright, let's see how long it takes for someone to make a comment on the P.T. quote.....

That’s why I used “associated with”:p

Cheers
 

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If this is the case, then why hasn't the bottom fallen out of developer sales?
Along with the other excellent responses, I would add that Developers are in the unique position to actually create demand for their product via avenues listed above (high-pressure sales, catching people off-guard / in vacation mode, etc.). Because of the manufactured demand, they can sell for a much higher price than the actual value (as determined by the free market without the influence of the developer) of the timeshare.

The market would have more resale buyers if they could be offered $xxx down and $xxx per month vs. $15,000 cash upfront.
Without the captive audience and high-pressure sales, I don't think that is a given.

Lastly, why do you see a timeshare as different than an vacation condo, RV or a boat? (BTW...RVs and boats fall drastically in value after the initial sale, however, you can still get financing.)
While it is true an RV or boat does depreciate, it is a gradual depreciation. The minute you drive that new RV off the lot, it loses maybe 10% vs. 90% (or more) with a timeshare. There is simply no way any company would finance something like that -- at least with an RV or boat, the finance company has an asset to back up the loan. If you feel otherwise, I think you should start up your own TS financing company and see how it works out for you.

The reason developers can offer financing is, as I stated above, they are the only ones for whom the timeshare has a high value, as they are the only ones who can successfully sell it for developer prices (due to suckers, captive audience, vacation-mode mindsets, etc.).

Kurt
 
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