Calculating the cost of a TS

[JimIg23]

DW and I have been running the numbers to see if buying another timeshare is really worth it. I have read a bunch of ways tuggers have calculated how much the weekly cost would be over 20 years. We are doing it differently, and I want people’s opinion to see if I am off base.

Let’s say we buy an Aruba Surf Club for 17k, with $525 in closing costs. MFs are $1027 per year (for this example). 20 years of MF (assuming a 4% increase every year) is $30,582. We figure the yearly/per night cost this way:

Cost of timeshare: 17,000
Closing costs: 525
MFs: 30,582
Total: 48,107
Divided by 20 yrs 2,405
Per day 343 per night

We are assuming our TS will be worth $1 in 20 years and that MFs rise an average of 4% per year. We do not factor in trading. Does this seem sound?

Thanks
Jim

 

[PerryM]

The missing key...

The key component with calculating the cost of a timeshare is its residual value; its resale value.
I use 10 years since things change so fast, even with timeshares that 10 years from now new inventions may make the resort obsolete – like flat screen LCD TVs that free up space in the room.

Anyway coming up with the residual value of a timeshare is hard to do. With Marriott’s you can assume a 5% increase per year of today’s resale value. Of course, inflation is 3% so basically the residual value of a Marriott is today’s price so your cost is but the MFs per year.

Wyndham would be an example of a worst case scenario with a resale value of just 15% of the developer’s. With a Wyndham I’d us a zero resale value and be luck to get a few bucks as a bonus.

I don’t believe in the Lost Opportunity Costs of the money invested since they are offset by the savings gotten with the timeshare versus renting the same exact timeshare – they net each other out.

Conclusion:
For a Marriott the cost for that timeshare is just the MF. For others it’s the MF + 1/10 the purchase price per year.

 

[london]

Value of Timehare Long Term

I agree with Perry's conclusion completely.

I would also use a 10 year life span.

 

[pfrass]

I believe you are neglecting to consider one thing. Assuming you paid cash for the Aruba week, there is money lost in the investment end of things. Most people don't keep the money in their mattresses, so it should be working for you in the form of interest or be invested in stock, mutual funds, etc. $17,000 at a 5% interest rate is $850 yearly. Don't forget that would compound over time as well. Consider the scenerio where one pays $35,000 for a new Marriott week from the developer. At 8% in the stock market (remember those days?) as a historical average, the first year alone would be $2,800 in "lost" monies. Compounded, that 35K would grow to more than $75,000 in ten years (assuming the 8% annually), given the principle was not touched.

If you did not pay cash, then your example must consider fees and interest spent on the mortgage.

 

[Steamboat Bill]

I also think a 10 year horizon is more realistic and your resale value will probably be about the same (or more) than your purchase price (if you buy resale).

Thus, you are artificially inflating the cost per night by assuming your timeshare will be worth $0

 

[MOXJO7282]

Also if you can split to use/rent half into 2 weeks you really increase your ROI. I've been doing that since I got into TSing 6 years ago, and it has paid off handsomely. Now my kids are getting older so using a 1 BDRM will only be acceptable for a year or two more, but I've done well in the meantime. After my kids are on their own LOs again will be utilized to the max.

Regards.
Joe

 

[cp73]

must also look at lost opportunity from your investment

pfrass was correct. You have to look at the lost opportunity cost of the $17525 you paid for it. If you invest that money and earn 8% per year you have lost $1402 per year it would have earned if you didn't purchase it. Your maintenance fees are $1027. Therefore your true cost is $2429 per year. This also assumes that at the end of time you can sell it for your original $17525. IF not you must factor that loss into the analysis.

I believe its really not easy to justify financially a timeshare purchase. People love them because they feel like they own a piece of something. Sure there are some exceptions to the rules but generally they dont pencil out to a wise purchase. In your case if you spend $347 a night each year for seven nights in a row vacation than its a push. You also really need to factor in all your II fees and trading fees.

Can you currently rent a week for less than $2429? Maybe not a prime week but I bet you could easily get one for less then that. The way the maintenance fees keep escalating each year in proportion to room rental rates it never quite becomes a bargain. Thats always one of the selling points the salesperson tells you. You lock in your room cost each year. But you really dont due to the escalating maintenance fees.

 

[JimIg23]

Thanks for the thoughts. I havent factored in loss of capital because we did not finance and I gave up on thinking about loss of capital after being married with children Although I have considered others, I am sticking with Marriotts. Everyone on the boards is fairly confident Marriott's TS will retain their resale value so that is something to change my equation with and 10 years is also a good idea.... Now to convince DW......

 

[PerryM]

Lost Opportunity Costs are meaningless and confusing...

Lost Opportunity Cost is just HALF the story – when you buy a timeshare it generates what I call “Found Opportunity Income”. You can’t just ignore this new income stream and this offsets and most of the time is greater than the lost opportunity cost. Basically these are imaginary numbers that look good on paper but about as useful as taking into account a full moon.

Buying a timeshare makes a lot of sense if it is cheaper than renting the same exact timeshare – that’s the ONLY test that makes sense.

Let me give an example of how Lost Opportunity Costs mean nothing:
A Platinum Ski week at Summit Watch costs $28,000 resale and about $47,000 from Marriott

You can rent a 2BR Villa at Summit Watch from Marriott for $789 per night during President’s Week (Week 7). I could rent the same unit on RedWeek for $3,900 for the week. Is this a good deal? Will those evil Lost Opportunity Costs turn this into a living nightmare?

First of all, most folks use a 5% rate of return. That’s just a made up number and Uncle Sam wants his taste of 25% but let’s say you can generate 5% per year from your money.

So the question is:
Spend $28,000 and spend President’s Week skiing at Park City or make 5% or $1,400 and dream of all that Lost Opportunity.

Well the solution is simple – just ignore Lost Opportunity since it’s dwarfed by my Found Opportunity:

If we use a rental rate from Marriott of $789 per night that’s $5,523 and the local taxes in Park City are 11% or a total cost of $6,131 out of pocket. You can argue that the RedWeek unit for $3,900 is a much better deal. You decide how much to spend.

Now that $1,400 of Lost Opportunity Cost is going to do what for me? Well I need at least $3,900 to stay at Summit Watch and at 5% that means I need to have $78,000 in the bank making 5%. So now I need to come up with $50,000 more money?

Now for my Found Opportunity Income:
For $28,000 and a MF of about $1,000 I get to rent out my week for $3,900 or make $2,900 in cold hard cash versus the mythical Lost Opportunity Cost of $1,400 – I made an “Opportunity Profit” of $1,500 on this timeshare! Oh, I can't wait to spend that money. Of course I never did go on vacation but its a kick to dream of imaginary income.

I do this for 10 years and sell the Summit Watch for exactly what it cost me in today’s dollars. Marriotts' go up 5% on retail/resale price each year and inflation is 3% so my purchase of $28,000 will be worth $43,437 in 10 years and I’ve not lost a penny on the investment.

Conclusion:
What the heck did Lost Opportunity Costs tell me? Nothing!

The ONLY decision that makes any kind of sense is to compare timeshare ownership with renting the same exact week – it should be much cheaper.


P.S.
Bookmark this post for future reference when, yet again, Lost Opportunity Costs will somehow make a difference.

 

[tompk]

So based on the lost opportunity numbers mentioned above by cp73, if I can get 2 or 3 weeks usage out of my one week of ownership via lockoff and/or an accomodation certificate, and I purchased resale, then perhpas there really is no lost opportunity, just 2 or 3 excellent vacations.

 

[cp73]

Reponse to Perry

I wish I didn't have to work today so I could repond to your comments. I will tonight though!!!

 

[kjd]

Lost opportunity costs?

It sounds like you guys should have bought Marriott stock instead of a TS. Could you also factor in the equision if I didn't have a good time on the vacation? What if I had terrible golf scores? What if the weather was bad?

Lost opportunity costs are just smoke. Anyway, stocks and real estate investments always go up don't they? There is no loss.

 

[jlwquilter]

I'll jump in here and make a fool of myself (no surprsie there).

I don't sweat the loss opportunity cost for the simple reason that the $$ always seems to get spent on something all too soon anyway.

I don't factor in lost opportunity costs when I decide to buy this house vs. that house for $X more. Nor when I am buying a car or maybe deciding I should buy a moped and save even more! How about lost opportunity cost on having steak vs. a bowl of soup or eating in?

The experiences and memories that are the true value of a vacation can not be quantified. We can run fantasy figures until doomsday and it still comes down to this:

Buy a TS if you want to and can afford it. If you are stuck in financially justifying it, then something else is holding you back and examine THAT reason. Run whatever numbers make you happy and then buy or don't buy... you are going to do what you WANT to do in the end anyway.

This from a person who did exactly the type of number crunching above for her first TS purchase and there's a thread here to prove it !

Have fun running the numbers and arguing about what should and should not be considered in the financial equation. Go at it boys!

 

[Steamboat Bill]

NO matter what method you use to justify or not justify a timeshare purchase, Perry is correct, that the cost per night/week of buying should be cheaper than renting from Marriott, eBay, VRBO, etc.

In regards to Marriott SummitWatch, here are a few more comments.

A normal 2 BDR ski week is $30k and week 51/52/7 is probably $35-40k RESALE and much more if you buy directly from Marriott. The annual dues is close to $1,000 per year. If you want to buy a mud bronze week, the same unit can be bought for $1,500 from Marriott.

Rental rates from Marriott for 51/52 is about $800 per night total, or close to $6000 for the week. eBay and VRBO and redweek rentals are in the $3-4k range.

Thus, if you want to go skiing, BUYING a timeshare is a good deal. But if you trade this week for a summer week in Orlando, it may not be such a good deal.

You must first determine your true cost per night of buying before you can determine the true found opportunity costs of not renting. I personally think you need to factor in a 5% lost opportunity cost of the purchase (investment) as this is NOT a $500 purchase. 5% is a fair rate.

$30k purchase = $1500 lost opportunity + $1,000 annual dues = $2,500 per week.

Thus, your found opportunity money could be as high as $3,500 if you consistantly rent from Marriott or as low as $1,000 if you rent from an owner.

That is why I BOUGHT a Westgate Canyons ski week....it made sense for my family because we ski every year and I was tired of paying $3-5k per week of rental.

You will always be able to sell a Marriott ski week for $25-30k in today's dollar as they are in DEMAND.

 

[PerryM]

NO matter what method you use to justify or not justify a timeshare purchase, Perry is correct, that the cost per night/week of buying should be cheaper than renting from Marriott, eBay, VRBO, etc.

In regards to Marriott SummitWatch, here are a few more comments.

A normal 2 BDR ski week is $30k and week 51/52/7 is probably $35-40k RESALE and much more if you buy directly from Marriott. The annual dues is close to $1,000 per year. If you want to buy a mud bronze week, the same unit can be bought for $1,500 from Marriott.

Rental rates from Marriott for 51/52 is about $800 per night total, or close to $6000 for the week. eBay and VRBO and redweek rentals are in the $3-4k range.

Thus, if you want to go skiing, BUYING a timeshare is a good deal. But if you trade this week for a summer week in Orlando, it may not be such a good deal.

You must first determine your true cost per night of buying before you can determine the true found opportunity costs of not renting. I personally think you need to factor in a 5% lost opportunity cost of the purchase (investment) as this is NOT a $500 purchase. 5% is a fair rate.

$30k purchase = $1500 lost opportunity + $1,000 annual dues = $2,500 per week.

Thus, your found opportunity money could be as high as $3,500 if you consistantly rent from Marriott or as low as $1,000 if you rent from an owner.

That is why I BOUGHT a Westgate Canyons ski week....it made sense for my family because we ski every year and I was tired of paying $3-5k per week of rental.

You will always be able to sell a Marriott ski week for $25-30k in today's dollar as they are in DEMAND.

Week 7 at Summit Watch is just a plain old Platinum week, a great reason to buy at Summit Watch if you want that week.

Lost Opportunity Cost makes zero sense when exchanging.

I've taken our Gold Summit Watch and exchanged into Maui many times. That week cost me $5,500 to buy and a MF of $1,000.

The Maui Ocean Club costs $35k resale and $58k from Marriott, and a MF about $1,400.

I will be at the Maui Ocean Club in a 2BR this President's week with a combo exchange from II and RedWeek. Redweek has a bunch listed for about $2,800 (lots of competition) - that's half of what I paid for the Gold Summit Watch!

Lost Opportunity Cost, to me, is meaningless - it's how much less it costs you to stay at a fabulous resort than renting. That's the trick.

 

[derb]

The real trick is not to pay 17K for a 3K property.

 

[rickandcindy23]

Well, I think you are all over-analyzing.

You're going to take a vacation, anyway, so timeshare is just a better place to stay. AND, I would never, ever pay $17K for a timeshare, anyway, and I would bet I will get a vacation or two to Aruba in a Marriott with a week I paid $1.00 for on eBay.

 

[PerryM]

The real trick is not to pay 17K for a 3K property.

If Ma and Pa would just do a 10 year forecast of that timeshare they just bought for $35k from the developer and will pay 13.99% interest for 10 years and have that $35k mushroom to $53,425 the timeshare industry would implode.

Throw in a resale worth an average of 50% and that 1 week will cost Ma and Pa $35,925 throw in 10 vacations at $850 MF or $8,500 for a total of $44,425 for 10 vacations or $4,442.50 a vacation.

This will ALWAYS cost more than renting the same exact week; don’t finance a timeshare!

This is ALL the analysis that is needed to determine if a timeshare is worth buying. One can easily make the decision that buying ANY timeshare resale if perfectly ok. I’m sure there are a few examples where this might be wrong but those are going to be so few as to not worry about them.


Buy resale unless the developer's sale can be proven to be better (fat chance but there are some owners really into Marriott Reward Points and Starwood points, etc)

The above analysis is for using the timeshare at the resort. Since about 50% of all usage is exchanges this must be taken into account too.

P.S.
I honestly don't see where the Lost Opportunity Cost has any impact on the decision to buy or not buy. Just use this same analysis for a fractional, whole ownership, Destination Club, etc.

Ownership/membership must be cheaper than renting since ownership/membership has more risk to it than renting. Taking risks is how you make money investing/speculating.

 

[ajlm33]

Another factor in the equation

Don't forget to add into the purchase equation the value of the incentive MR points (I assume a Marriott purchase) if you buy from the developer. You don't get these when you purchase resale and they could be worth at least $3K give or take. Then there is also the "found opportunity" of the vacations booked by using the MR package deals vs booking separately with these points.

You could also justify adding the value of these MR incentive points to the resale purchase price as just another "lost opportunity" cost, if you choose. But then again, that would be fuzzy math, wouldn't it?

I think I have a headache trying to figure this all out. Guess I'll just go check my countdown calendar until my next vacation....

 

[kjd]

Ma and Pa

Perry: Did this ever cross your mind? Ma and Pa are rich and want the convenience of working through Marriott and the advantage of turning in their unit and getting MR points in return. If you're are just getting by financially then I might agree with some of your logic. You should't buy a TS and maybe vacation near home. However, the average Marriott TS buyer's income is somewhere between $75,000 and 200,000 per year. These folks didn't accumulate wealth because they were stupid. Many of them have a 7 figure net worth.

Ma and Pa may never intend to sell their TS. They could care less about resale values. They just want to be sure of having a nice vacation. In the future they will pass it on to their children along with some cash for them to enjoy during their lifetime. Your perceptions and motives are not everyone's.

 

[PerryM]

Perry: Did this ever cross your mind? Ma and Pa are rich and want the convenience of working through Marriott and the advantage of turning in their unit and getting MR points in return. If you're are just getting by financially then I might agree with some of your logic. You should't buy a TS and maybe vacation near home. However, the average Marriott TS buyer's income is somewhere between $75,000 and 200,000 per year. These folks didn't accumulate wealth because they were stupid. Many of them have a 7 figure net worth.

Ma and Pa may never intend to sell their TS. They could care less about resale values. They just want to be sure of having a nice vacation. In the future they will pass it on to their children along with some cash for them to enjoy during their lifetime. Your perceptions and motives are not everyone's.

I'm a proponent of Ma and Pa buying from Marriott - I've made that statement many times here on TUG.

However, if Ma and Pa did do their due diligence, which they never do, they would come up with an eye opening conclusion - buying from the developer and paying 13.99% finance charges is a very very expensive way to vacation.

But, I do recommend folks buy from the developer (Marriott and a few others) on their FIRST purchase and to NOT finance that timeshare.

Timeshares 2 - ?? Should lean towards resales.

 

[Pit]

Opportunity cost is real. Ignore it at your own expense.

This will ALWAYS cost more than renting the same exact week; don’t finance a timeshare!

P.S.
I honestly don't see where the Lost Opportunity Cost has any impact on the decision to buy or not buy. Just use this same analysis for a fractional, whole ownership, Destination Club, etc.

I agree, in part. Don't finance a timeshare. By the same token, if you are not willing to pay interest on a loan, don't spend your hard earned cash and forego the investment income.

Whether you pay interest, or fail to collect interest, it's cash out of your pocket either way.

PS. By the way, the rental fees quoted in this thread are exagerated. There are Marriott rentals available at less than half of M/Fs. I previously posted an example, but it was removed by mods as advertising. It was not my listing, just an example. Anyway, they're out there, and you don't have to look far to find them. It took me all of 5 minutes.

 

[Pistolpete]

quit calculating and buy/vacation/enjoy life

pfrass was correct. You have to look at the lost opportunity cost of the $17525 you paid for it. If you invest that money and earn 8% per year you have lost $1402 per year it would have earned if you didn't purchase it. Your maintenance fees are $1027. Therefore your true cost is $2429 per year. This also assumes that at the end of time you can sell it for your original $17525. IF not you must factor that loss into the analysis.

I believe its really not easy to justify financially a timeshare purchase. People love them because they feel like they own a piece of something. Sure there are some exceptions to the rules but generally they dont pencil out to a wise purchase. In your case if you spend $347 a night each year for seven nights in a row vacation than its a push. You also really need to factor in all your II fees and trading fees.

Can you currently rent a week for less than $2429? Maybe not a prime week but I bet you could easily get one for less then that. The way the maintenance fees keep escalating each year in proportion to room rental rates it never quite becomes a bargain. Thats always one of the selling points the salesperson tells you. You lock in your room cost each year. But you really dont due to the escalating maintenance fees.

I have to agree w/ Chris. I consider myself obsessed w/ timesharing and also obsessed w/ investments. I would never consider my timeshares a smart investment. I simply own them to throw away money on wonderful family vacations. You can definately vacation cheaper w/ effort and planning. Don't buy if you find yourself overanalyzing the value of an expensive timeshare. There are too many available for a low initial price

 

[PerryM]

I have to agree w/ Chris. I consider myself obsessed w/ timesharing and also obsessed w/ investments. I would never consider my timeshares a smart investment. I simply own them to throw away money on wonderful family vacations. You can definately vacation cheaper w/ effort and planning. Don't buy if you find yourself overanalyzing the value of an expensive timeshare. There are too many available for a low initial price

We own 5 weeks at the Park Plaza in Park City UT. Bought them resale and they are currently worth more than when be bought them.

However, over the 5 years of ownership they are fully paid for with rental income. We use them and rent them and now are in a situation that they easily pay for the MFs and ALL our lift tickets and airline tickets every Christmas.

I strongly advise folks to look at a timeshare AS an investment and expect a lot from it – so much so that they completely pay for themselves, MFs, and ALL the costs of vacationing.

Simply look at the timeshare as an investment and NOT a pre-paid coupon book of reservations. It’s all about attitude.

 

[Pistolpete]

park plaza?

Where are you finding renters for Park Plaza?