A Free DC!

[Steamboat Bill]

I also believe that Ultimate has exposed itself to a significant amount of risk from all of the debt obligations they’ve taken on with the Tanner & Haley acquisition.

I hope he is WRONG on that predication. Unfortunately, ER passed on buying T&H assets as they could not figure out how to make it work.

 

[puffpuff]

One of the reasons to pass is that ER can no longer buiy properties with less than 10 per location given their size. Er is becoming a developer, charging retail price for homes for membership that cost them developers price. A sweet spot for ER owners.

 

[vineyarder]

ER passed on buying T&H assets as they could not figure out how to make it work.

PE came to the same conclusion; couldn't make it work financially.

 

[puffpuff]

PE came to the same conclusion; couldn't make it work financially.

it should be a good fit for PE. They already have a low end club, and UR completment their mid and high end. That is the direction they are going anyway,and in fact , their model is a direct copy from T and H.
Any thoughts?

 

[Elsway]

6) Right now your residences cost $2 M. What would the appraised value be on the day you accept and pay for a $2 M home? Is it $2 M or is there a finders fee in there?
A) Historically, members have been paying $2M for a home valued at $1.7M. The $300K gross margin is used to cover sales & marketing, repay financing costs, and to provide a 10% to 15% profit to investors. Once the homes are transferred to the Club, they are owned free of all the debt and any appreciation accrues to the Club and its underlying members.

Wow! This is a major flaw in the Bellehavens model. The only flaw, I believe.

I was very comfortable with the idea that the management company was retaining a portion of annual fees as profit. Also comfortable with the 10% of membership deposits which is retained for marketing. But, an incremental 15% profit as a finders fee???

Profits too high. Membership deposits are undercollateralized.

I am scheduled to speak with BH tomorrow. Will investigate further...

 

[travelguy]

Wow! This is a major flaw in the Bellehavens model. The only flaw, I believe.

I was very comfortable with the idea that the management company was retaining a portion of annual fees as profit. Also comfortable with the 10% of membership deposits which is retained for marketing. But, an incremental 15% profit as a finders fee???

Profits too high. Membership deposits are undercollateralized.

I am scheduled to speak with BH tomorrow. Will investigate further...

I believe a good question is if the "15% incremental profit as a finders fee" is in addition to any in-house brokerage commission from the property purchase.

 

[puffpuff]

Wow! This is a major flaw in the Bellehavens model. The only flaw, I believe.

I was very comfortable with the idea that the management company was retaining a portion of annual fees as profit. Also comfortable with the 10% of membership deposits which is retained for marketing. But, an incremental 15% profit as a finders fee???

Profits too high. Membership deposits are undercollateralized.

I am scheduled to speak with BH tomorrow. Will investigate further...

Given the fact that the properties are debt free, their MF is similar in quantum as other non-equity club, it means that the management company is retaining a very large portion of the MF as profit . . Yes part of the MF goes to a pool for upkeep. YOu may want to ask them the exact percentage and determine whether whether the retained amount is resonsable or not for services rendered.

 

[Bourne]

Wow! This is a major flaw in the Bellehavens model. The only flaw, I believe.

I was very comfortable with the idea that the management company was retaining a portion of annual fees as profit. Also comfortable with the 10% of membership deposits which is retained for marketing. But, an incremental 15% profit as a finders fee???

Profits too high. Membership deposits are undercollateralized.

I am scheduled to speak with BH tomorrow. Will investigate further...

Another good question to ask would be the collateral they maintain for a potential payout to all existing members after the increase in cost of membership becomes a reality.

 

[PerryM]

Another good question to ask would be the collateral they maintain for a potential payout to all existing members after the increase in cost of membership becomes a reality.

With a 3 in/1 out I don't know if they have to worry.

 

[Bourne]

So do none of the other DC with different business model.

If a 3-1 works for BH, I cannot see how a 2-1 would not work for other DCs too. If this exit criteria was the major factor in preventing a DC from going bust, no DC can technically go belly up.

 

[NeilGoBlue]

I'm new to the board and a proud almost member of Bellehavens. (they have my deposit as of a week ago, but I haven't officially joined, yet)

To reply to the recent posts:

Bellehavens has a winddown plan. I can't remember the exact criteria, but if a certain percent of the members are on the resignation list, then the 'wind down plan' is implemented and Bellehavens sells off all properties, they take a 10% management fee for doing so, and all other proceeds minus selling expenses are returned to the members.

Neil

 

[Elsway]

I'm new to the board and a proud almost member of Bellehavens. (they have my deposit as of a week ago, but I haven't officially joined, yet)

To reply to the recent posts:

Bellehavens has a winddown plan. I can't remember the exact criteria, but if a certain percent of the members are on the resignation list, then the 'wind down plan' is implemented and Bellehavens sells off all properties, they take a 10% management fee for doing so, and all other proceeds minus selling expenses are returned to the members.

Neil

I could be wrong on the details, but I believe Belle Havens winddown plan is structured so that members are asked to vote for or against a winddown if 20% of the membership is on the member resignation list (i.e. resigned membership but deposit not yet refunded).

So, if BH has 100 members and 20 members are on the resignation list the 100 members will vote on a winddown. If 75% of membership (75 members) votes in favor of a winddown, the properties are liquidated and proceeds are returned to the members on a pro rata basis.

This does provide a mechanism whereby BH could fail (members lose confidence in the club's solvency... or are otherwise dissatisfied). On the other hand, this structure appears to protect a portion of the membership deposits. (Assuming proper financial transparency and the nonexitence of fraud.)

 

[Steamboat Bill]

I'm new to the board and a proud almost member of Bellehavens. (they have my deposit as of a week ago, but I haven't officially joined, yet)

Neil...welcome to TUG..we are lookin forward to your BelleHavens review posts.

 

[PerryM]

I'm new to the board and a proud almost member of Bellehavens. (they have my deposit as of a week ago, but I haven't officially joined, yet)

To reply to the recent posts:

Bellehavens has a winddown plan. I can't remember the exact criteria, but if a certain percent of the members are on the resignation list, then the 'wind down plan' is implemented and Bellehavens sells off all properties, they take a 10% management fee for doing so, and all other proceeds minus selling expenses are returned to the members.

Neil

Congrats on your upcoming purchase!

If you can get the wind-down procedure and it's not protected by secrecy documents I'd love to see the details.

 

[NeilGoBlue]

I don't think I signed a NDA.. I'll check, and if I didn't I'll post the details...

Neil

 

[NeilGoBlue]

Elsway,

That sounds right, if I'm allowed to share details, I will check the agreement and post it..

 

[Kagehitokiri]

there are a number of equity / equity optional destination clubs now, but only 1 has no annual fees, making it truly "free".

 

[oldkey]

There are "no free lunches"

....sorry...couldn't help myself.

 

[Kagehitokiri]

the only "cost" is the lost interest from a higher return investment. the club anticipates 60-100% return (upon "maturity" after 10 years) depending on what price you purchase at.

 

[huestous]

Don't believe that I've ever found myself in disagreement with Perry's analyses before, but this DC is far from free.

Minor calculation error aside, there are three problems with the analysis:
1. Inflation was neglected. The mfs (annual dues) are $9000 today. That number will not remain static for one year, much less nine.

2. The cost of money was hand-waved away. This is most unPerry-like, as neglecting this cost runs counter to other valuation models he has described.

3. The costs have already increased as additional properties have been added. The Traveler membership is currently $125000 with $9000 annual fees, up from $100000/$8500 the date of the initial post.

Assuming a static 5% cost of money, the $125000 deposit costs $6250 per year. Further assume 3.5% inflation on the initial annual dues of $9000. The annual cost for the 15 days of use that this membership allows is therefore $15250 in year 1, $15565 in year 2, ... and $18101 in year 9. The total cumulative annual costs in year 1 through year 9 is $149,566, exclusive of the $125,000 deposit.

Assuming you opt out when the membership deposit has increased to $155,000, you will receive $139,500 (90% of the current membership cost). This is a net gain of $139,500 - $125,000 = $14,500, which is less than the annual cost during the first year of ownership.

There is indeed no such thing as a free lunch, or a free DC.

The minor calculation error in the initial post was the assumption that when purchasing at $100,000 and selling at $155,000, that 90% of the $55,000 difference ($49,500) is the net gain to the purchaser. The net gain is actually 90% x 155,000 - 100,000 = $39,500. Considerably more than at the current higher pricing, almost 3 years of annual fees using the modeling summarized above with the $100,000/$8,500 costs valid at the time of the initial post.

 

[Kagehitokiri]

this is what i was referring to in my last 2 posts, the first equity DC with no annual fees

Worldwide Private Residences LP
http://www.worldwideprivateresidences.net/
http://www.sherpareport.com/index2.php?option=com_content&do_pdf=1&id=117

 

[PerryM]

Don't believe that I've ever found myself in disagreement with Perry's analyses before, but this DC is far from free.

Minor calculation error aside, there are three problems with the analysis:
1. Inflation was neglected. The mfs (annual dues) are $9000 today. That number will not remain static for one year, much less nine.

2. The cost of money was hand-waved away. This is most unPerry-like, as neglecting this cost runs counter to other valuation models he has described.

3. The costs have already increased as additional properties have been added. The Traveler membership is currently $125000 with $9000 annual fees, up from $100000/$8500 the date of the initial post.

Assuming a static 5% cost of money, the $125000 deposit costs $6250 per year. Further assume 3.5% inflation on the initial annual dues of $9000. The annual cost for the 15 days of use that this membership allows is therefore $15250 in year 1, $15565 in year 2, ... and $18101 in year 9. The total cumulative annual costs in year 1 through year 9 is $149,566, exclusive of the $125,000 deposit.

Assuming you opt out when the membership deposit has increased to $155,000, you will receive $139,500 (90% of the current membership cost). This is a net gain of $139,500 - $125,000 = $14,500, which is less than the annual cost during the first year of ownership.

There is indeed no such thing as a free lunch, or a free DC.

The minor calculation error in the initial post was the assumption that when purchasing at $100,000 and selling at $155,000, that 90% of the $55,000 difference ($49,500) is the net gain to the purchaser. The net gain is actually 90% x 155,000 - 100,000 = $39,500. Considerably more than at the current higher pricing, almost 3 years of annual fees using the modeling summarized above with the $100,000/$8,500 costs valid at the time of the initial post.

I'll have to dust off the abacus and go back over my analysis. A few points:

1) Lost opportunity costs
I've never been a big proponent of lost opportunity costs since I never use them myself. If I buy something I never consider keeping the money in the bank and somehow enjoying 5% of it as a replacement to whatever I'm investing in. Some folks say they do - I've just never bumped into someone who really does thiS.

2) Inflation:
Inflation is another one of those things that everyone talks about but really never seems to rear it's ugly head. I assume a historic average of 3% in some of my calculations but since I invest in the DJIA (Diamond Trusts DIA) which generate 13.3% each year on the average I never feel the effects of inflation. If your job doesn't keep up with inflation or your fixed income streams don't then you do have a problem. I don't assume everyone has that problem - that's just my experience with inflation. (A rising tide lifts all boats - inflation is a measure of human greed and it affects everything so it really nets out).


So, in many of my analysis I will pay some lip service to the 2 above items but I never seem to be bothered by them and I don't think most folks base car purchases or 2nd home purchases or other large luxury purchases based upon them.

However, if it means a lot to someone, go ahead and worry about them.


I really posted this Free DC with tongue-n-cheek and just did it to alert other folks of something they might find interesting.