Does Lack of Financing Depress Resale Values?

[CalGalTraveler]

In looking at your links, these are personal loans not secured loans, so the value (or lack thereof) of the timeshare is not considered when they decide to underwrite the loan or not.

Kurt

Does it matter to the seller what kind of loan it is?

For the HOA as a personal loan it seems they can't just abandon the timeshare.

For developer defaults, dont they also leave it to the HOA to pay the lien for MF? Are they obligated to take it back?

 

[PigsDad]

Does it matter to the seller what kind of loan it is?

You wrote "Lots of old boats and RVs cannot get financing." I was just responding to that -- I thought it was obvious...

Kurt

 

[alwysonvac]

I, for one, appreciate the creative thinking and the attitude that we might be able to affect the value of the secondary resale market. I’m not surprised that there are lots of opinions and counter arguments— that’s healthy debate. What does surprise me are the comments that don’t participate in healthy debate, but simply reject. And, “but this is how we always react to this question on TUG” is a closed-minded attitude that will keep us from learning and, possibly, growing. I’m interested in discussing ideas for increasing the value of the resale market. Thanks, CalGal, for putting obvious thought into your posts!
Sent from my iPad using Tapatalk

Sorry if you didn’t like my post.
Simply stating the general mind set doesn’t mean end of discussion. Obviously if I felt that way I won’t have made several other comments in this thread.

Many topics are not new. They have been rehashed over and over again on TUG so folks are simply going to have opinions.

For example, the standard advice on TUG is to rescind, research and buy resale. However there are some who have financed and continue to finance their timeshares. And there are some who bought from the developer and continue to buy from the developer. And those topics come up from time to time on TUG as well.

 

[ronparise]

Two things
There is more to the definition of value than "its what a buyer is willing to pay"


the classic formula that it is the amount a ‘purchaser willing but not obliged to buy, would pay to one willing but not obliged to sell

and another definition of value

The price at which a property, if offered for sale in the open market, with a reasonable time for the seller to find a purchaser, would transfer for cash or its equivalent, under prevailing market conditions between parties who have knowledge of the uses to which the property may be put, both seeking to maximize their gains and neither being in a position to take advantage of the exigencies of the other

and yet another

value is the price where the neither the buyer nor the seller gained an objective financial advantage at the expense of the other in the transaction.

and another

The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.


Sure,, value is what a buyer would pay, but there are important qualifiers that have to be considered..
Ive highlighted important qualifiers in the above definitions


********************************************************************************************************

 

[bizaro86]

The "for cash" in the above definition is met in a financed real estate or timeshare sale. The seller receives cash. Whether the buyer gets it from their chequing account, a loan, or the sale of a black market kidney isn't especially relevant.

 

[CalGalTraveler]

@Anne&Jim Thank you for your kind comments. Healthy debate is good and takes a conversation forward.

I have learned a lot from the posters on this thread and will try some of these ideas when I sell because it does not cost anything to try. I can differentiate my TS from others without reducing the price. If others don't want to try it, then that benefits my listing more because it further differentiates my TS. Plus I can still offer a cash price. So what's to lose?

I believe that there are very few bad ideas. Just bad timing or context. The financial crisis of '08 was a decade ago. Perhaps the conventional wisdom of paying cash and lack of access to financing was borne out of this context when even primary homes could not get financing? Today is different. More financing is available, people have jobs, money in the stock market etc.

Revisiting sacred cows is always beneficial. As they say in business, "Disrupt or be disrupted."

 

[Saintsfanfl]

I've never seen a lack of financing to buy a timeshare, except during the worst part of the downturn, but even then it wasn't that hard to get a loan to buy one. They are high interest high risk loans and given out like candy. You can have the best credit in the world and you will still pay a hefty interest rate.

Cheap timeshares on the resale market are actually partly due to available financing. Timeshare presentation sales result in a trade-in of current owned but unwanted timeshares for new ones, all financed as a package deal. The old timeshare where the profit has already been banked is dumped as fast as possible to the highest bidder, many times for prices less than $100. The process is repeated over and over.

Without financing timeshare sales would have been slow all along, or possible non-existent altogether. Resale prices would increase because there wouldn't be so many available units from defaults and trade-ins by unqualified buyers.

 

[CalGalTraveler]

I've never seen a lack of financing to buy a timeshare, except during the worst part of the downturn, but even then it wasn't that hard to get a loan to buy one. They are high interest high risk loans and given out like candy. You can have the best credit in the world and you will still pay a hefty interest rate.

Cheap timeshares on the resale market are actually partly due to available financing. Timeshare presentation sales result in a trade-in of current owned but unwanted timeshares for new ones, all financed as a package deal. The old timeshare where the profit has already been banked is dumped as fast as possible to the highest bidder, many times for prices less than $100. The process is repeated over and over.

Without financing timeshare sales would have been slow all along, or possible non-existent altogether. Resale prices would increase because there wouldn't be so many available units from defaults and trade-ins by unqualified buyers.

Your points are very interesting as it suggests that the reason timeshare resales are so depressed is because of DEVELOPER self-financing which they hand out like candy to people who cannot afford and default. Although this is different than the point that was being made about resale financing, it is a very good point and drives the structure of the industry.

If Developers did not have self-financing, then people who could not afford would not be able to buy and would not bail out later at fire-sale prices. The industry would not have grown to the size it is today with oversupply in places like Orlando and Vegas. Developers would have a very difficult time selling if people had to cough up the $75k to $100k+ prices they are charging today in cash or bank financing. This supports @ronparise point that developer prices are inflated and that the value of resales are below true value because many are sold as distressed properties when unqualified developer-financed buyers bail.

 

[Saintsfanfl]

This supports @ronparise point that developer prices are inflated and that the value of resales are below true value because many are sold as distressed properties when unqualified developer-financed buyers bail.

Ron is 100% correct. On the self financing keep in mind that they will bundle those loans and sell them to a bank. This was brought up in that documentary about Westgate. Selling the debt was their whole system and during the downturn the banks would no longer buy the loans and Westgate could not afford to continue to self finance.

 

[taterhed]

Yup....
When the economy is up and financing rules are slack.......new car sales skyrocket. Why? easy credit. The result is a surge of used cars with higher rates and more problems.

It will be interesting to see the effect of the slowing rising FED rate (maybe not so slowly) and the gradual disappearance of the <2% rates on many forms of consumer loans.
The times....they are a changing....

 

[Saintsfanfl]

Yup....
When the economy is up and financing rules are slack.......new car sales skyrocket. Why? easy credit. The result is a surge of used cars with higher rates and more problems.

It will be interesting to see the effect of the slowing rising FED rate (maybe not so slowly) and the gradual disappearance of the <2% rates on many forms of consumer loans.
The times....they are a changing....

Changing indeed. Hopefully the federal funds rate doesn't ever go back over 20% like it did in 1980.

 

[CalGalTraveler]

Ron is 100% correct. On the self financing keep in mind that they will bundle those loans and sell them to a bank. This was brought up in that documentary about Westgate. Selling the debt was their whole system and during the downturn the banks would no longer buy the loans and Westgate could not afford to continue to self finance.

Bundling sub-par mortgages was a key factor which led to the '08 crisis. Unlike an individual loan that is scrutinized by a banking committee, such bundles hid many bad loans. Sounds similar.

In the current scenario, this over-abundance by developers means that it is a buyers' market for resales. What do you think will happen if/when developers cannot sell the loans?

 

[Saintsfanfl]

Bundling sub-par mortgages was a key factor which led to the '08 crisis. Unlike an individual loan that is scrutinized by a banking committee, such bundles hid a many bad loans. Sounds similar.

In the current scenario, this over-abundance by developers means that it is a buyers' market for resales. What do you think will happen if/when developers cannot sell the loans?

Ones that target lower income borrowers and resell, it inhibits their ability to continue selling timeshares. Or they change their cash flow model and keep the loans themselves rather than selling them. I don't know if they all sell the loans, but when the banks won't buy, it usually means the risk is too high, which indicates the ones kept in-house are difficult to manage as well.

I don't know if anyone truly keeps them in-house. I believe Marriott finances using an independent company. True in-house financing would enable attractive interest rates and even the fake 0% that car dealers offer. Instead every timeshare financing I have heard of is a very high interest rate, even from a max credit rating borrower.

 

[x3 skier]

True in-house financing would enable attractive interest rates and even the fake 0% that car dealers offer. Instead every timeshare financing I have heard of is a very high interest rate, even from a max credit rating borrower.

My 0% financing wasn’t “fake” to me. After I negotiated the total price of the car, I divided the cost by 60 and that was the fixed monthly payment. Actually it’s a slightly negative interest rate to me since later payments will be lower in value because of inflation.

Cheers

 

[Saintsfanfl]

My 0% financing wasn’t “fake” to me. After I negotiated the total price of the car, I divided the cost by 60 and that was the fixed monthly payment. Actually it’s a slightly negative interest rate to me since later payments will be lower in value because of inflation.

Cheers

0% interest rates are not real, and not even a legal loan. They are designed to fool the buyer/borrower. The price of the car is increased to compensate for the disguised 0%. On their books they can't even record the 0%, they have to use at least the minimum interest rate for the loan to be legitimate.

You can easily test this when you negotiate by stating you will get your own financing, or pay cash. If you negotiate the lowest price possible with these purchase methods, and then switch and say you want the 0% in-house financing, they will not be able to do it at that price (provided you really got the best price).

Part of the purchase price is always the interest on a 0% loan. The penalty is you can no longer escape the interest by paying early.

 

[x3 skier]

You can easily test this when you negotiate by stating you will get your own financing, or pay cash. If you negotiate the lowest price possible with these purchase methods, and then switch and say you want the 0% in-house financing, they will not be able to do it at that price (provided you really got the best price).

Which is exactly what I did.

Negotiated a cash price and then paid it with a monthly loan payment that was that price divided by 60. The “best price” is what they were willing to accept in a cash deal and that I was willing to pay.

How the manufacture’s captive finance company makes money is not my problem. The difference between what the dealer paid for the car and what I paid, based on my research, was about $500 for the car I got. No problem with that. Whatever additional incentives the manufacturer gave to the dealer to move the iron is unknown to me.

Bottom line, the cash price and the 0% finance price were the same.

Cheers

 

[CalGalTraveler]

Some of our longtime friends are starting to lease cars. They are finding that if they can stay under the mileage caps, it is less expensive to lease than to own for certain cars. We have always owned our cars and then ran them into the ground. We will compare to leasing next time we need a new car.

The other option is buying BMWs after they come off a 3 year lease. Apparently 70% of BMWs are leased so there is a lot of certified inventory out there and they can be bought for about 1/2 the cost of new. My 2006 BMW has pretty much the same design as the new models so people cannot really tell the difference anyway. Kind of like buying a resale timeshare.

 

[CalGalTraveler]

Ones that target lower income borrowers and resell, it inhibits their ability to continue selling timeshares. Or they change their cash flow model and keep the loans themselves rather than selling them. I don't know if they all sell the loans, but when the banks won't buy, it usually means the risk is too high, which indicates the ones kept in-house are difficult to manage as well.

I don't know if anyone truly keeps them in-house. I believe Marriott finances using an independent company. True in-house financing would enable attractive interest rates and even the fake 0% that car dealers offer. Instead every timeshare financing I have heard of is a very high interest rate, even from a max credit rating borrower.

HGVC told me that they self-finance and hold the loans so they can take back the assets easily should the buyer default.

 

[Saintsfanfl]

HGVC told me that they self-finance and hold the loans so they can take back the assets easily should the buyer default.

That is definitely a better strategy than what Westgate was doing and it has served them well.

 

[bizaro86]

HGVC told me that they self-finance and hold the loans so they can take back the assets easily should the buyer default.

I'm pretty sure they actually put the loans into a special purpose vehicle and borrow a bunch of money against them, then manage the special purpose vehicle for the owners of the new notes.

 

[Saintsfanfl]

I'm pretty sure they actually put the loans into a special purpose vehicle and borrow a bunch of money against them, then manage the special purpose vehicle for the owners of the new notes.

But at least it gives them the right to act on defaults, protect the asset, and resell it. While that action might be self serving, it also protects the HOA and the other owners, and keeps a floor on the resale. Most Timeshare companies act with reckless abandon, which not only kills resale values, but leaves the other owners high and dry, footing the unpaid maintenance fee bills.

 

[CiCi]

“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.”

Don’t fully understand the issue...We financed our TS resale through a personal loan at our credit union. Easy Peasy along with a very low interest rate.

 

[dioxide45]

0% interest rates are not real, and not even a legal loan. They are designed to fool the buyer/borrower. The price of the car is increased to compensate for the disguised 0%. On their books they can't even record the 0%, they have to use at least the minimum interest rate for the loan to be legitimate.

You can easily test this when you negotiate by stating you will get your own financing, or pay cash. If you negotiate the lowest price possible with these purchase methods, and then switch and say you want the 0% in-house financing, they will not be able to do it at that price (provided you really got the best price).

Part of the purchase price is always the interest on a 0% loan. The penalty is you can no longer escape the interest by paying early.

0% financing is really just another form of a buydown loan. The dealership pays a portion of the upfront price to the lender to buy down the rate. Kind of like points on a mortgage.

We recently went to buy furniture and they had different financing options. The regular and cheapest method was 12 months on their store credit card. Same as paying cash or using another form of payment. You could also get 24 or 36 month financing, but you didn't get as big of a discount on the upfront purchase price. So if you went for the longer terms, they took some of that upfront price and sent it off to the lender to buydown the rate for the longer term. You still paid the "interest", just all of it was paid upfront.

 

[Arusso]

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

As has been noted in the past, the inherent problem of TS as an assert , despite the fact that the product is fundamentally based on real estate, is that the developers do not yet have or are reluctant to establish a robust interest in resales. Until such time as the developers are willing to repurchase either deeded or RTU contracts, they are the only ones that can risk financing.

 

[icydog]

I’ve never been interested so I don’t know but I found some old detailed posts (2007 & 2008) from TUG member DaveM regarding timeshare finance options.

The thread that you mention in your post was written in 2007. In 2007 I was making a little bit of cash buying, selling and trading timeshares. Then 2008 came along, the mortgage crisis happened, and the bottom fell out of timeshares. A good week in an off-brand timeshare, pre-2008, had value. The same timeshare, post-2008, was worthless.

It hit big developers too, Disney, Marriott, Hilton and Hyatt. Disney and Marriott virtually discontinued ROFR. It was a freeforall in the timeshare marketplace. And I was out of business (albeit a very small business)

What I did find nostalgic, and kinda sad, were the posts by some of our most prolific contributors who have since past on! I now realize how important they were to TUG’s success.