An Open Letter to the Timeshare Industry

[bnoble]

Perry, you've got a very rational set of arguments. I think the only possible reason why you might be wrong is this:

I think the developers will always seek the "I'm on vacation impulse buyer" as their bread and butter.

In other words, the market that the developers sell into isn't rational. As long as there is a big enough "irrational market" to sell into, the current model can continue.

For example, I can't tell you how many people I know who are otherwise smart but still can't figure out anything to do with the time-value of money, opportunity costs, etc. As long as even college-educated folks are largely financially illiterate, there are plenty of fish in the barrel.

 

[joestein]

Perry,

Didn't you purchase a week or two of the the penthouse unit at The Tower at Planet Hollywood from Westgate recently for around 100K? You said this would be an investment which would increase in value significantly over the next few years.

Meanwhile, in the OP you said that this "bubble" you are predicting to burst (which I don't agree with by the way), was something you predicted over 2 years ago.

These statements don't jive with each other. If I am wrong, please correct me and link us to the thread concerning your Hollywood Tower purchase.

Joe

 

[PerryM]

The same things happened in the glory days of mortgage. Money was flowing, bonuses being paid, incentives galore, business lunches and all that other fun stuff. All of this to just to keep up with the volume and get units through the system. Efficiency was the last thing on peoples mind, you didn't have time to improve the process as you barely had time to keep up with what work you had to do.

Those days are long gone and the belt tightening has happened long ago. The same thing happens in any industry in crisis. The same will happen in the TS industry, but I bet when those glory days return the same cycle will happen all over again. The mortgage industry may have learned a lesson, but lessons are soon forgotten and if huge volumes and great times once again fall upon the mortgage industry it would likely happen there again too.

Absolutely correct - after the Timeshare Bubble bursts and consolidation of one TS company buying another and many just going out of business the tendency will be to go back to the "Good 'ol days" of today.

Which TS company will be the first to announce merger plans with others? Which will close their doors one night and just leave town? Who knows.

Like I said 7 years ago or so:

"The timeshare industry ONLY exists because ignorant consumers make foolish decisions".

(If that bothers you how about: "The timeshare industry needs folks to pay for over bloated timeshares on a daily basis").

How long the TS industry continues to find consumers willing to pay ever higher TS prices and have the means to get unsnarled into a huge loan is the question.

 

[PerryM]

Perry,

Didn't you purchase a week or two of the the penthouse unit at The Tower at Planet Hollywood from Westgate recently for around 100K? You said this would be an investment which would increase in value significantly over the next few years.

Meanwhile, in the OP you said that this "bubble" you are predicting to burst (which I don't agree with by the way), was something you predicted over 2 years ago.

These statements don't jive with each other. If I am wrong, please correct me and link us to the thread concerning your Hollywood Tower purchase.

Joe

Like I said we stand pat on our timeshare purchases. We buy them to take vacations, rent them out, exchange them, and gift them to others.

In the case of ph we are gifting the week-52 14 person penthouse to our son and hopefully he will have 40 years of fantastic vacations. I just hope Westgate survives what is about to hit the TS industry.

To those of you into flipping TS - good luck.

As to my prediction of the Timeshare Bubble bursting - I've never forecasted when it will happen. However, I can't think of a better time for the TS industry to be slapped upside the head as right now.

At some point the underlying real estate value has to impact the TS industry. If they have suffered an overall 25% reduction in real estate value how in the world can they demand a price increase this next Friday? They can only float this balloon so long before it hits reality.

P.S.
Bubbles bursting is not just a negative event, it can be positive too. Imagine picking up a fantastic TS for 10 cents on the dollar versus 50 cents on the dollar.

P.P.S.
One final thought - to those of us here that share our experiences and what we actually did we can NOT be held responsible for an insane government's actions interfering with the free markets. The mess we are in right now can, and will, be traced right back to the federal government's stupid actions. I am NOT responsible for the federal government's policies.

Bloated and inefficient organizations are not limited to the TS industry. Don't hold me responsible for what our federal government inflicts upon us.

 

[RahRah]

At some point the underlying real estate value has to impact the TS industry. If they have suffered an overall 25% reduction in real estate value how in the world can they demand a price increase this next Friday? They can only float this balloon so long before it hits reality.

Except that timeshare costs/value have never been aligned with reality. Case in point, buy from a developer a unit that costs, let's say $15,000 for the week in a 2-bedroom unit....with 50 weeks a year to sell, that unit is "valued" to be worth $750,000 if it's annualized, if you consider 52 weeks sales potential then it's $780,000....if that 2-bedroom is in Orlando - you can buy a decent 2-bedroom condo, with ammenities like pools, for $50,000 - own all 52-weeks, furnish it for $10,000, get the tax deductions, and have "maintenance fees" very similar to cost of a timeshare week...and enjoy it for less money over time, be able to rent weeks out if it's not your home and be able to sell it later too! Timeshare is not a reality based "value" if you buy from the developer....heck, in some cases it's hard to justify some resale purchases too!

One thing in real estate that I've learned is very true - your property is only worth what someone will pay for it. It doesn't matter what you paid, what the bank says it's worth or what your neighbor got for their property -- yours is only worth what someone can and will pay for it....and resale of timeshare weeks is cheap because folks realize what the "true value" of a week is, and it's significantly less than the developer decides to sell weeks at.

 

[PerryM]

Men with green eye shades control all this...

Except that timeshare costs/value have never been aligned with reality. Case in point, buy from a developer a unit that costs, let's say $15,000 for the week in a 2-bedroom unit....with 50 weeks a year to sell, that unit is "valued" to be worth $750,000 if it's annualized, if you consider 52 weeks sales potential then it's $780,000....if that 2-bedroom is in Orlando - you can buy a decent 2-bedroom condo, with ammenities like pools, for $50,000 - own all 52-weeks, furnish it for $10,000, get the tax deductions, and have "maintenance fees" very similar to cost of a timeshare week...and enjoy it for less money over time, be able to rent weeks out if it's not your home and be able to sell it later too! Timeshare is not a reality based "value" if you buy from the developer....heck, in some cases it's hard to justify some resale purchases too!

One thing in real estate that I've learned is very true - your property is only worth what someone will pay for it. It doesn't matter what you paid, what the bank says it's worth or what your neighbor got for their property -- yours is only worth what someone can and will pay for it....and resale of timeshare weeks is cheap because folks realize what the "true value" of a week is, and it's significantly less than the developer decides to sell weeks at.

The following is my 8 year analysis of the timeshare market:

I believe that ALL timeshare developers base their sales prices on a multiple of actual real estate value. I can’t prove it but that’s my conclusion doing dozens of in-depth analysis of Marriott, Starwood, Wyndham, WorldMark, and Westgate. However it’s my estimate alone.

The reason is simple, the developer must approach lending institutions who don’t deal in smoke and mirrors but what the appraised value of the underlying condo is worth. That’s my main premise.

The 4 to 1 (sales price to acquisition cost) is general and can be 5 to 1 or more but I’ve not found any TS developer less than the 4 to 1.

So the lending institutions are going to demand an appraisal before they hand over money. This then makes sense to multiply for demanding net profit, gross profit and finally sales prices. Granted you normally can’t just take 1/52 of the appraised value of the condo for a week – you need to apply formulas which reflect demand for those weeks.

Those same banks are now getting appraisals 25% below what they were using for lending purposes and are going to demand something more - higher interest rates or just not lending anywhere near what the developer is charging.


However, everyone is entitled to their own guess how all this works. Mine is above.

P.S.
The loans made to the actual consumer are probably a signature loan but the banks need to ground all this in some sort of reality.

 

[PerryM]

Happy Thanksgiving..

Well this is my prediction now and time will tell if I'm right or wrong. Thanks for a lively discussion.

As the OP I'm unsubscribing and moving on to other projects.

If you wish to continue please be my guest.

Happy Thanksgiving everyone.

 

[bnoble]

I think we just got drive-by'd.

 

[joestein]

I think we just got drive-by'd.

Nothing new with Perry. He makes statements all the time, and never really backs it up when challanged (see my earlier post in this thread, you would think that he is a candidate in a presidential debate the way he avoids the question). I found the Planet Hollywood Tower thread, but Perry didn't like the responses he got from everybody, so he deleted all his messages in the thread.

Joe

 

[AwayWeGo]

Lasting Contribution.

I found the Planet Hollywood Tower thread, but Perry didn't like the responses he got from everybody, so he deleted all his messages in the thread.

True. And that led to an operational change in TUG-BBS. Now contributors have only 48 hours or so to revise & extend (or delete) their TUG-BBS entries, thanks to that Planet Hollywood Tower episode.

Is this a great country or what ?

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​

 

[CaliDave]

I don't really take Perry's predictions too seriously.
He gave us the "mark my words, we do not have a real estate bubble" speech a couple years ago.

We argued about the last housing recession and how my house went down 30%.. guess what? This time its down close to 50% and its not over yet.

I see timeshare prices plummeting and will keep getting worse.
Marriott Waiohai EOY was selling resale 18 months ago for $12K, then 6 months ago for $10K.. last ebay sale was for $8K.

If Perry thought the prices would plummet, I don't see why he'd spend $100K for something for his kids future? Wouldn't it be better to have the kids put off the Vegas vacations for a couple years and buy the Penthouse for $50K or less? You can take some pretty nice vacations for that $50K savings.

 

[Transit]

Before you dismiss Perry's post as a rant there is alot in it that may hold true. The direction that TS developers will be heading is going to be toward a rough road and there will be changes. To what extent is speculation at this point. Perry's PH tower deal is his own and he was entitled to his opinon weather it was a mistake or not. He layed his cards on the table and discussed it openly with whoever listened and got heat for what alot of folks thought was a bad deal. Bill also got heat for the HCC mess. People's opinons here are not set guidlines to buying. Everyone has to deal with their personal risk tolorence involved with these luxury purchases. Perry has no risk in PH anymore as he gifted PH to his son.

 

[joestein]

I think it is great that people express their opinions and ideas. I think it is even better when we can post with a little passion to make things more interesting.

BUT.... if you subscribe to this theory, answer the questions posed and back up your responses. As long as no one is being mean-sprited.

I left my previous post, because this is not the first time, nor was Planet Hollywood Tower the first time that Perry does this act of his.

Joe

 

[x3 skier]

T Now contributors have only 48 hours or so to revise & extend (or delete) their TUG-BBS entries, .......

Is this a great country or what ?

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​

Wish that were true for Congress! I always like when any remarks from the floor (or elsewhere) are started with "I wish to revise and extend my remarks as necessary" to which the presiding officer responds, "So Ordered".

Cheers

 

[AwayWeGo]

If You Like The P.T.A. You'll Love Congress.

Wish that were true for Congress! I always like when any remarks from the floor (or elsewhere) are started with "I wish to revise and extend my remarks as necessary" to which the presiding officer responds, "So Ordered".

I'm not sure this is still the way it's done, but for the longest time it was, "Mr. Speaker, I request unanimous consent to revise & extend my remarks & to add extraneous material."

"Without objection, it is so ordered."

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​

 

[x3 skier]

I'm not sure this is still the way it's done, but for the longest time it was, "Mr. Speaker, I request unanimous consent to revise & extend my remarks & to add extraneous material."

"Without objection, it is so ordered."

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​

More accurate and this counts as revising and extending my remarks.

Cheers