Business Case for buying SDO for exchanging with Starwood

[Pmuppet]

Hello,
I am considering buying a 2bd unit at SDO for the primary purpose of trading with II (mainly the Hawaii starwood properties). Although, some years we would probably use the unit for Spring Training as our family enjoys that as well.

The question i have is about my math assumptions needed for my business case. If we banked a two bedroom lockout with II, we could trade it for EITHER two weeks in a one bedroom unit OR one week in a two bedroom unit, correct?

So the cost breakdown would look like this (rounded to simplify the calculations).

Maintenance fees for two bedroom SDO: $1,000 (rounded)
II annual fee: $70
II exchange fee (for one week in Hawaii): $140
II exchange fee (for one week in Hawaii): $140

Total cost for one bedroom in hawaii for two weeks is $1,350 or $675/week.
Total cost for a two bedroom unit in Hawaii for only one week would be $1,210 (only have one II exchange so it cost less).


Are my calculations correct or am i missing something? Any insight is appreciated as i want to make sure i understand all the facts before i buy real property.

 

[DeniseM]

Hello,
I am considering buying a 2bd unit at SDO for the primary purpose of trading with II (mainly the Hawaii starwood properties). Although, some years we would probably use the unit for Spring Training as our family enjoys that as well.

The question i have is about my math assumptions needed for my business case. If we banked a two bedroom lockout with II, we could trade it for EITHER two weeks in a one bedroom unit OR one week in a two bedroom unit, correct?

YES - as long as you are flexible about when you travel. In general, you can't exchange for holidays.

So the cost breakdown would look like this (rounded to simplify the calculations).

Maintenance fees for two bedroom SDO: [$986] [not rounded]
II annual fee: [$44.50]
II exchange fee (for one bedroom in Hawaii): [$114]
II exchange fee (for [TWO] bedroom in Hawaii): [$114]

Total cost for one bedroom in hawaii for two weeks is [$1,258.5 or $629.25/week.]
Total cost for a two bedroom unit in Hawaii for only one week would be [$1,145]

Are my calculations correct or am i missing something? Any insight is appreciated as i want to make sure i understand all the facts before i buy real property.

A couple of your figures are a little high - see my figures in brackets.

1) You can almost always get your II membership at half price - 2 years for the price of 1. ($44.50 yr.)
2) You get a discount on the exchange fee for Starwood to Starwood trades so the exchange fee is $114:

Exchanges made Online-
Domestic - $149

(You get a $35 discount when you request a Starwood to Starwood exchange - but if there are non-Starwood TS's on the same request, you not get the discount, even if you eventually trade for a Starwood resort.)

 

[gnorth16]

A starwood to starwood exchange is slightly less, $114, I believe. I am very happy with SDO as a trader. All of my exchanges have been instant trades, all one BR's trading up to two or three BR's.

 

[Ridewithme38]

From a business prospective it makes no sense to buy SDO to exchange with II since II doesn't allow rental of its units...there is no 'profit' in it for the business only continued expenses...From a Personal Perspective, based on just vacation enjoyment, its a great deal

 

[kenie]

Our 3 weeks at WKORN next January/February will end up costing us under $1k total, plus airfare.
3 - 1bdr SDO units exchanged for 3 - 2bedroom WKORN units.

The $500, 2 bdr eoy unit we bought last summer came with 2 unused mystery deposits that we put to good use...

 

[Pmuppet]

Good point on business cases

From a business prospective it makes no sense to buy SDO to exchange with II since II doesn't allow rental of its units...there is no 'profit' in it for the business only continued expenses...From a Personal Perspective, based on just vacation enjoyment, its a great deal

Sorry, i wasnt too clear. I was doing a business case on my personal travel. It wasnt a business case on whether to buy to rent the unit for profit.

I have no intention of renting the unit. The only time i may "rent" the unit would be to close family and friends if we find ourselves with extra vacations that we cant use (and instead of letting them go to waste, we might give them to friends for the cost of of the II trade $119).

Not sure that would happen, but a possible scenario.

I do business cases on nearly every substantial purchase i make (i am a financial analyst, can you tell).

 

[DeniseM]

Just so you know, II prohibits any kind of reimbursement when you gift someone an exchange, so you want to make sure your friends understand the situation, and don't announce the great rental deal they got, while at the resort.

 

[Pmuppet]

Our 3 weeks at WKORN next January/February will end up costing us under $1k total, plus airfare.
3 - 1bdr SDO units exchanged for 3 - 2bedroom WKORN units.

The $500, 2 bdr eoy unit we bought last summer came with 2 unused mystery deposits that we put to good use...

So, you bought a eoy unit ay SDO summer of 2011 and you already have confirmed exchanges at WKORN for multiple weeks in jan 2013?

I understand you got a little lucky about having some mystery units available to trade, but that sounds like a great deal.

How long did it take before you had your confirmed wek at WKORN? I am concerned about how long it takes to get a trade confirmed.

Thanks this is great information.

 

[Pmuppet]

Just so you know, II prohibits any kind of reimbursement when you gift someone an exchange, so you want to make sure your friends understand the situation, and don't announce the great rental deal they got, while at the resort.

Thanks for the heads up. I was thinking that friends/family could cover the II exchange fee and that would be in compliance. Definitely would look at it more before we did gift it to ensure we are following the rules accordingly.

We probably will just say, here is your Xmas present for the next couple years and avoid the risk. Cause i would feel horrible if a family member had to turn around and spend $400/night for last minute accomadations cause i was to cheap to not suck up the fee of $119.

Thanks again everyone. This site rocks!

 

[DeniseM]

Thanks for the heads up. I was thinking that friends/family could cover the II exchange fee and that would be in compliance. Definitely would look at it more before we did gift it to ensure we are following the rules accordingly.

I don't care if you follow the rules - just be careful!

As far as how long it takes to get a trade, the best practice is to put in your request 12 mos. or more in advance, so it's in place before the deposits are made - thus, it's normal for the exchange to take awhile to come through.

When you get a chance, read the II FAQ at the top of the Starwood forum.

 

[DavidnRobin]

As a financial analyst (you not me) - you may not have considered all of the scenarios if you are concluding that it is profitable versus the risks (instrisic and extrinsic)
... to be blunt and... IMO

 

[VacationForever]

The main thing is how flexible you are with the dates. Starwood does bulk deposits several times a year but the school holiday weeks and winter seson week are rarely seen. If you are flexible then you can get great trades. Also do remember that Starwood-II reserves the right to change trading power etc.

 

[kenie]

So, you bought a eoy unit ay SDO summer of 2011 and you already have confirmed exchanges at WKORN for multiple weeks in jan 2013?

I understand you got a little lucky about having some mystery units available to trade, but that sounds like a great deal.

How long did it take before you had your confirmed wek at WKORN? I am concerned about how long it takes to get a trade confirmed.

Thanks this is great information.

We were not planning on going to Hawaii in 2013. I work graveyard shift and happened to check on-line just after Westin did the bulk deposit last week. I was lucky enough to have the units already deposited with Interval, so I was able to do an instant exchange on-line for the 2 bedroom units.
This is where the SDO's shine because of the Starwood to Starwood priority in Interval.

If our plan works out, we will do exchange requests and try to trade to Hawaii every 2nd year. This would give us 2 years to fill our request.

 

[sjuhawk_jd]

...I do business cases on nearly every substantial purchase i make (i am a financial analyst, can you tell).

Please put all of your scenarios and calculations on a powerpoint presentation with charts and graphs, most of us here are very visual learners :hysterical:

 

[pacman]

Are my calculations correct or am i missing something? Any insight is appreciated as i want to make sure i understand all the facts before i buy real property.

You should really also be adding the opportunity cost of your investment I add 5% of the cost, as this is really what you are giving up when you pay out the funds for the purchase price. For SDO, at a purchase price of about $2k, this is not significant ($100), but should be included in your calculation.

pacman

 

[Beefnot]

I watched a couple SDOs go for sub-$500 late last year.

 

[Pmuppet]

I agree with you pacman except for timeshares, i use a 20% cost of capital return rate. i use a high rate of return to price these properties cause they are very risky, imo. Rules become more unfavorable over time, the quality of the units tend to get worse every year as they depreciate, assessments occur, II could devalue the SDO eliminating its trading power, fraud/theft are not uncommon (CFO, and other members of our whistler board stole over $600k from our association), liquidation can be difficult. That is why i expect a 20% ROI.

I am pretty risk adverse, and the thing that scares me most about timeshare rentals is the owner you are renting from has all the power. I believe people are generally good and dont purposely screw people over. I also am a pretty good judge of people and if i have sense any red flags i move on to the next property rental.

What scares me is so easy for the owner to rent to you, put your name on the property, receive payment, then rerent it out removing you as the renter. The ease in which to do this is simple. What makes me feel good is i rarely, if ever, have heard of this happening. Considering the price some of these units rent for, i surprises me it doesnt happen more.

If i were to trade into a property with an exchange, this risk would not exist. I could rent via ebay for approximately the same price as i exchange for, but the value to me is the elimination of fraud.

Cause i figure i can find a property for $1,000. (excluding MF) I basically need two Hawaii trades and i break even, imo.

I still need to research my exit strategy though as i always have a few when buying property. I like the fact SDO sells for $1,000 routinely (means i may be able to give it away if i want to dump it), but i am nervous the value of SDO is in its exchange with starwood. If this goes away, the properties could be worthless. I suspect i could pay all fees including maintenance fees/closing costs to unload it, if necessary. Still need to research other options.

 

[DeniseM]

What scares me is so easy for the owner to rent to you, put your name on the property, receive payment, then rerent it out removing you as the renter. The ease in which to do this is simple. What makes me feel good is i rarely, if ever, have heard of this happening. Considering the price some of these units rent for, i surprises me it doesnt happen more.

Sure - it would be easy to do, but it's not logical to think that an owner would do this because:
1) They couldn't get away with it - they are the owner of record of the unit and extremely easy to track down.
2) They would ruin their reputation in the TS community and any opportunity to rent in the future.
3) This would be criminal behavior - you'd have to be an idiot to do such a thing for a one-time gain.
4) They would put their ownership in jeopardy - the resort is not going to just ignore it if they are caught in the middle of a rental scam.
5) It's very easy for the renter to verify if resv. is still in your name - it just takes a phone call.

When you rent from an owner, it's not like a Nigerian scammer who can disappear into the wood work. An owner would be on the hook for their behavior, which would make it extremely fool-hardy to try to get away with a rental scam, for such a low return, and a 100% chance of being caught.

 

[Ken555]

If you search TUG you'll find similar discussions on the longevity of the value of SDO. While it may continue to surprise us, SDO apparently still shines with trading and I don't see anything which may change this in the near future.

 

[Beefnot]

Sure - it would be easy to do, but it's not logical to think that an owner would do this because:
1) They couldn't get away with it - they are the owner of record of the unit and extremely easy to track down.
2) They would ruin their reputation in the TS community and any opportunity to rent in the future.
3) This would be criminal behavior - you'd have to be an idiot to do such a thing for a one-time gain.
4) They would put their ownership in jeopardy - the resort is not going to just ignore it if they are caught in the middle of a rental scam.
5) It's very easy for the renter to verify if resv. is still in your name - it just takes a phone call.

When you rent from an owner, it's not like a Nigerian scammer who can disappear into the wood work. An owner would be on the hook for their behavior, which would make it extremely fool-hardy to try to get away with a rental scam, for such a low return, and a 100% chance of being caught.

But again, there is a risk factor, albeit small, that forces a discount in renting from an owner vs. from the resort or exchange company. It is improbable, but not illogical.

 

[DavidnRobin]

Certainly better ways to invest money - with less risk and better returns.

 

[grgs]

Since Starwood is using the Interval preference as a sales tool, I don't see them taking it away altogether. What I can see happening is that the ability to trade up in size from a "lesser" resort (eg/ SDO, SBP) to a "higher" resort (eg/WKORV, Harborside) may become limited.

Even if that happens, trading a 1 bedroom SDO for a 1 bedroom WKORV would still be a great trade!

Glorian

 

[krj9999]

Also don't forget there is an upcoming refurbishment at SDO, and it remains unclear if a special assessment may be needed.

 

[lorenmd]

so it is totally okay if i gift away the studio portion of my wkorv II trade week? we are going in 6 weeks, and although i've thrown it out there to all my friends, none have jumped on it, so in about 4 weeks i will throw it out here. no point in having the studio side of it sit totally empty when someone could be using it.

 

[Beefnot]

so it is totally okay if i gift away the studio portion of my wkorv II trade week? we are going in 6 weeks, and although i've thrown it out there to all my friends, none have jumped on it, so in about 4 weeks i will throw it out here. no point in having the studio side of it sit totally empty when someone could be using it.

Wow, someone with a heart who would even consider helping out their fellow traveler. If no one takes you up, at least you tried. With more people like you, what a wonderful world this would be...