Buying from Developer. Biggest TS fraud?

[frank808]

Although there are ups and downs, the impression I get from DVC owners is that most (if not all) purchases (including resale) have INCREASED in value. This is because of limited locations, limited supply relative to demand. While I haven't found a survey, there is plenty of anecdotal evidence:

DVC Resale During COVID

Hello! My Wife and I were looking into DVC before COVID hit. I was set on buying direct but now with the costs of resale contracts dropping, it seems to make more sense to buy one of those existing contracts. We would be first time buyers. If you buy resale, what are the restrictions regarding...

tugbbs.com

(Would love some DVC owners to weigh in on their experience. I also don't know how maintenance fees compare to renting.)

The RTU aspect is also like a lease benefit. Although it is a long exit, there is eventually an end to the contract. You don't have to wait for someone to die, or pay money for a deedback. If someone wants out earlier they can sell and get at least their principal back. Some get more.

How many DVC owners come on TUG saying they are stuck and need to walk? (I have yet to encounter one).

I bought direct at Villas of Grand California in 2009 @ $85 a point minus incentives (list was $95 minus black friday incentives). In 2012 I bought direct Villas of Grand Floridian @ $145. Current resale on both of these are more than what I paid direct. Bought Saratoga Springs in 2009 during recession for $35 a point (rented out 2 years of maintenance free points). Have been very happy with my DVC purchases as I can sell them for more than I bought them for. My Marriott Grand Residence quartershares have increased in resale value also (could sell for 4x what I paid). Not only DVC has gone up but MVC has also appreciated nicely. There are probably others besides those two.

 

[FlowMan]

Basically the initial contracts for any TS project pay for the entirety of it. That most likely even includes RTU contracts as well.

Any subsequent resale at the asset management level is basically gravy. Outside resale basically keeps the yearly cash flow running.

Compare that to "normal" projects where a return is typically expected roughly half way into an expected life cycle. Hotels make a profit without the need to "sell" ownership.

Anyway, there's no fraud going on, just fleecing.

A 30 year RTU that costs 50,000USD and 1,000USD/yr would translate to (without interest) $2,667/yr for the week or $381 per night comparison. If you can stay there cheaper than that rack rate you're getting fleeced. You're most likely getting fleeced.

Resale, if you purchase that same contract half way in for $5,000 that then makes your annual weeks cost $1,333 or $190 per night. Not horrible and is in line with the current average expedia cost of $220 per night in Orlando that I'm seeing... but it locks you into vacationing with only one group and their locations or else you start eating away at the "savings" pretty quickly.

 

[theo]

<snip> Anyway, there's no fraud going on, just fleecing. <snip>

This is a succinct, astute and absolutely correct summary of the timeshare developer sales process. Well said!

 

[remowidget]

I think calling this fraud is very harsh. If the developers hadn't built the timeshares and sold them at retail, there would be no resales.

I purchased 3 platinum lockoff weeks at Lagunamar almost 10 years ago for just over $100k. Would I have been better off buying resale? Probably, but that doesn't mean I was scammed.

My favorite place to stay is Lagunamar and it costs us about $70 a night night to stay in a one bedroom in gold season. If I had bought resale, I'd be paying about $120 a night. Does that make every hotel in the world that charges more than $120 a night for less than a one bedroom villa a fraud? I think not.

If I had spent $100k on a motorhome ten years ago, I'm sure I would have spent more in storage, maintenance, and places to stay than I have spent on maintenance fees. It would be worth very little now. So are Motorhome sales fraud?

I've lost more than $100k in depreciation on automobiles in the last 10 years. Are all auto manufacturers fraud? Hardly any 10 year old cars are maintained as well as Lagunamar.

Furniture is virtually worthless after 10 years, so it must be fraud too. What about carpet, etc.

What about eating out. Spending $15 on a plate of spaghetti at Olive Garden when you can make it at home for maybe $3 has to be fraud too, right? Not to mention the scammers expect you to pay extra to have it brought to your table. Total fraud. Why isn't delivery to your table included in the list price.

We are at Lagunamar today and went to presentation yesterday, so this has been on my mind. If over the last 10 years we have stayed 5 weeks a year at a benefit of only $200 a night over our $70 maintenance fees, we are about at our break even point. Not counting time value of money and interest before we paid off our ownership. The simple fact is we have on average stayed more than five weeks and gotten more than $200 in value over our maintenance fees per night. This year for example, we stayed 3 weeks in a one bedroom in January, our two daughters each stayed 2 weeks in a studio, and we are back for 4 weeks in a one bedroom. Our $5k ish maintenance fees buys us 10 weeks in a one bedroom in gold season.

Then there are less direct things we have benefitted from. Before purchase, I was spending a lot of money on credit cards giving rewards. The four of us went to Oahu for 10 nights with air fare and rental car covered by a ton of low value points. We thought it was incredible. After our purchase, we found the SPG credit card with much more valuable points. Since then we have stayed about 400 nights in SPG and then Marriott hotels. We have rarely paid for airline tickets because of points as well. Could I have done this without our purchase, absolutely. Would I have, probably not.

The bottom line is we decided we wanted to travel and stay in nice places. Have we done that? Absolutely. Have I always been happy with our purchase? Absolutely not. There were some years when our business was slow that I wished we had not. However, even in the slow years we traveled at very little out of pocket cost because our places to stay and flights were covered by points and options. Would I be typing this from Lagunamar overlooking the caribbean right now if we hadn't purchased our ownership? Probably not. We would have stopped travelling when the downturn happened and probably wouldn't have started up again. I am still tight on money because of the downturn. For example I'll probably never buy another new car for me.

The key is to use and enjoy whatever you buy, because most things go down in value over time. If you don't use and enjoy it, it doesn't necessarily mean you were scammed into the purchase. Especially with Vistana. I have been to a lot of sales presentations and have not been to one I thought was even medium pressure. If you don't believe me, go to a Vidanta presentation.

 

[Susan2]

I read some years ago in an industry publication that the percentage of the construction costs to the final timeshare price was 47%, and that the cost of marketing was 48%. (I assumed that the other 5% was profit.) It seems to me that anytime you have marketing costs that high of a percentage of the final cost, you are going to get a lot of high-pressure -- and scamming -- tactics.

If the cost were better related to the value, it seems to me that there would be fewer problems all around. The problem lies in the sales people convincing people (often without real facts) that this purchase is a good idea. Once of the most notorious issues is calculating the "cost" of hotel vacations versus owning a timeshare -- without calculating the cost of the maintenance fees. (I remember one unsavory salesman trying to tell me that the maintenance fees should be "added back in" to the value of the timeshare, because the "timeshare would be worth more" because of the annual maintenance fees!)

I think there should be some regulation about what claims timeshare sales people are allowed to make, and what they are not. I LOVE timesharing. I think it's the greatest way to vacation. But that doesn't mean that timeshare sales people say things that are accurate. That's something that IMO should be regulated.

 

[Gypsy65]

If everyone bought $1 timeshares what do you think would happen to the resorts?

Do you think you will have those lush landscaped properties to tell your friends about?
Do you not think if all they had was $1 TS that your maintenance fees would skyrocket?

I get a kick out of all who say how wonderful their TS visits are and yet want everyone to only get the same thing for a buck

I get the whole sales thing and believe the resale market will eventually go up as more and more resorts are making the resale buys have less perks

If what I buy from a developer can be sold with the same benefits I bought into then eventually the resale market will rise with it

Right now we have too many old weeks type units etc around
Once this gets cleared out then a change should take place

But a lot of people want that gift then complain and complain

 

[remowidget]

I understand and appreciate all the replies. Lot of valid points are made. Here is question :
- why so many TS owners get ripped by new home developers. If this is a legit biz, why that is the case. People are not having same level of complaints when they buy homes. Realtors are help in good regard but TS salesman are not. Both end result is ownership of real estate.
TS sales relies on high pressure tactics as they know if the buyer gets time to think, find out, they will not be able to make the sale.

I know most will accept this a fact of life. All I am saying is some control on TS sales process can help in reducing the victims. If there is true need for the product (TS) let it done more ethically. Let the market forces control the supply, demand and pricing not pressure sales. Just being idealistic I guess.

I don't hold Realtors in high esteem. They kind of have a monopoly on the market.

 

[Patri]

I don't hold Realtors in high esteem. They kind of have a monopoly on the market.

Not really. More and more buyers and sellers deal with each other directly.

 

[Susan2]

Gypsy 65 asks: If everyone bought $1 timeshares what do you think would happen to the resorts?

Actually, not much. Once the construction costs have been recouped, the HOAs manage the resorts. They operate their budgets based on maintenance fees only. The buy-in cost is irrelevant. Sometimes they get money for resales units, but often only for their members who are selling their resorts. Sometimes, when they have a lot of deedbacks and resale units, they partner with a marketing company. But they get (or keep) very little from the sales price.

 

[pedro47]

Forty years ago there was no timeshare resort resell. The majority of the timeshare resorts were brand new resorts. Your only choice was to buy from a developer.

 

[boraxo]

It is not a fraud but it is preying on the uninformed consumer. Many businesses rely on this model including many new and used vehicle dealerships and others. Many (including myself) were massively ripped off by the real estate and mortgage industry until much needed disclosure reforms were implemented.

It is also the result of general public's inability to do simple math. Almost every presentation (it must be in the timeshare sales bible) has a section where you are asked to estimate the cost of your hotel rooms and then the timeshare guy runs the numbers to show you how much you "save" with a timeshare v. hotel over 30 years or whatever. Except that the salesperson never includes the time value of money on your initial investment. None seem to appreciate when we "correct" their math or when we show how much we can save buying resale. Or when we explain that the unit will never be able to trade for Maui in the summer.

I have no regrets that I have attended maybe two dozen presentations without purchasing a unit. My only regret is not purchasing a Hyatt resale unit years ago as it would have definitely saved me some money v. staying at the Hyatt hotel next door. But you live and learn.