Products with the highest depreciation! Timeshares make the list!

[LannyPC]

I wouldnt say it lost 100% of value day 1.
Id say people overpaid for something that was worth 1$.
thats really not a matter of depreciation.
Would seem more like Additional Paid in Capital if it was a corporate stock.
Overpaying for something that is worth less.
They can only do this due to lack of knowledge before the purchase.

I totally agree! A TS bought at the developer sale, IMHO, is not worth the tens of thousands of dollars that the buyer paid. It's just that the sales person/people convinced the buyer to pay tens of thousands of dollars for it. And one reason for this is that the buyer "[lacks]...knowledge before the purchase".

 

[wmgjr]

I totally agree! A TS bought at the developer sale, IMHO, is not worth the tens of thousands of dollars that the buyer paid. It's just that the sales person/people convinced the buyer to pay tens of thousands of dollars for it. And one reason for this is that the buyer "[lacks]...knowledge before the purchase".

Yup and I think being able to finance something attracts a lot of people to overspend.

 

[sdhakala7]

For one thing, technically, it's not "the maintenance fees of developers [that] are often too high". The developer doesn't set the MFs. It's the HOA. That little technicality aside, yes the high MFs, when they exceed what can easily be recovered via rental, generally makes these TSs worthless and sometimes worth less than zero.

Actually, the developers set the fees and control the HOAs as long as they are active. The HOA is really in name only. I have not seen a full financial statement or proxy from my timeshare HOA is years even in my one cheap timeshare with no active developer. It is completely unlike the HOA where I live and where we have transparency and vote on and off members over time.

 

[sdhakala7]

right. and another measure of FMV for reference is wholesale cost.
retail products are marked up so someone is overpaying because they didnt get the wholesale or manufacturing price.
I know alot of people who have owned and let go of their timeshares over the years.
Most because they just didnt know how to use them.
IMO exchange companies is where the real value of timeshare lies.
Especially for people who can travel more often.
I Wonder if the reputation of timeshare will ever change enough to increase resale values.
As more people work remote, younger people prioritize travel.
Or the learning curve flattens. I also hear a lot of people say they dont have time nor care to learn all of the ins and outs.

True and that is part of what I was discussing from an appraisal standpoint. The value of a timeshare is really a fraction of what you pay for it both in terms of intrinsic and fair value concepts due to aggressive marketing and limited information leading to inflated "retail" prices paid by most buyers. If you look at condo and fractional interest real estate ownership, there is a bit of overpaying in the initial phases but never the extent of the ridiculous overpricing relative to cost of development and construction we see in time shares.
That being said, if exchange companies and timeshare resorts worked together in the best interests of owners and did not overbuild in some markets, then the revalue of timeshares would likely increase substantially and, also, HOA fees would likely decrease, but I do not know if the economics would ever quite work out for developers unless hotels and resorts sold fractional interests in rooms and units as part of a financing and ran the remaining units of the resort as a normal resort with rental of units otherwise (which does happen in some less common instances). I just do not see how one week, even in "red" time, should demand $1500 or more in annual fees.

 

[wmgjr]

True and that is part of what I was discussing from an appraisal standpoint. The value of a timeshare is really a fraction of what you pay for it both in terms of intrinsic and fair value concepts due to aggressive marketing and limited information leading to inflated "retail" prices paid by most buyers. If you look at condo and fractional interest real estate ownership, there is a bit of overpaying in the initial phases but never the extent of the ridiculous overpricing relative to cost of development and construction we see in time shares.
That being said, if exchange companies and timeshare resorts worked together in the best interests of owners and did not overbuild in some markets, then the revalue of timeshares would likely increase substantially and, also, HOA fees would likely decrease, but I do not know if the economics would ever quite work out for developers unless hotels and resorts sold fractional interests in rooms and units as part of a financing and ran the remaining units of the resort as a normal resort with rental of units otherwise (which does happen in some less common instances). I just do not see how one week, even in "red" time, should demand $1500 or more in annual fees.

well I rarely compare timeshare to real estate even in the same market.
The ongoing fees just arent the same.
one is run as a resort (high service emphasis) is run as permanent access to the location with limited cost shared by owners but most ownership costs being individualized.
With timeshare, most costs for the entire ownership, maintenance and usage is shared not individualized.
Where you lose some cost savings at an individual level but gain collective buying buyer as a group.

 

[tonyg]

Hotel pricing has gone up so much that timeshares now often present a cheaper and better alternative for vacationing. I have only bought from the developer once and I rescinded that a couple of days later. Few timeshares keep much of their value lately. There was a time when Marriott was in that group but their maintenance fee increases have led to high losses in value and unhappy owners that want out. Disney seems to be the only one I can think of that isn't selling resale for a big cost drop and I have yet to run into an unhappy owner.

 

[Arusso]

I thought cars lost a high percentage, but we just traded in a 10 year old Mazda CX-5 and got 50% of the original sticker price.

Yep. That CX-5 is valued and demand exceeds supply. Same thing happened with my 15 year old Subaru WRX. Life has taught me that whatever monetary value something has is generally determined by what someone else is willing to pay for it. There are factors beyond the control of the owner that influence the cost of an item or service. In a regulated capitalist society, we are witness to this every day.

IMO, the main reason a TS purchase, regardless of "ownership" structure, has such an abysmal residual value is the fact that the industry does not seem to be interested in establishing a robust resale market. In fact up until relatively recently, deedback or surrender policies were sporadic or did not exist at all.

If and when the industry decides to support the product it sells post-sale, this situation will persist. The industry will recast its current business plan as other lodging options are available to consumers with no capital outlay and no long-term commitment.

 

[LannyPC]

Yep. That CX-5 is valued and demand exceeds supply. Same thing happened with my 15 year old Subaru WRX. Life has taught me that whatever monetary value something has is generally determined by what someone else is willing to pay for it. There are factors beyond the control of the owner that influence the cost of an item or service. In a regulated capitalist society, we are witness to this every day.

Yes, the simple law of supply-and-demand. In the TS industry, there is an over supply of TSs without the demand to keep up. Hence, low resale prices, sometimes below zero.

Where the trick is in these developer sales presentations is that they convince potential buyers that the demand is way exceeding the supply and that the demand-to-supply ratio is only going to get more pronounced, hence driving the value of today's purchase higher and higher.

 

[dmurray007]

I have been a business appraiser for 35 years. There is a large discount for lack of marketable and due to distressed sales in the resale market fior many fractional investment interests when there is no formal public market and limited information. So, it is not surprising that timeshare units would lose a lot of value immediately after retail purchase. However, timeshare are a good example of an overstimulated and, thus, overpriced retail market and depressed and inefficient resale market.

The issue with timeshare interests is that they are rarely intrinsically worth what you pay for them when buying retail in a sales presentation. Often 50% or more of what you pay is the cost of sales and marketing and associated overhead. Only about 20% to 25% if that is in the cost value of the pro rata share of the unit.
If this were an efficient and informed market, timeshare interests would lose about half their value after purchase due to limited information and markets for timeshares. But, right now and really since 2008, we see many timeshare interests losing nearly all of their value even without resale retrictions because the maintenance fees of developers are often too high, buyers overpay during sales presentations, and the resale market is depressed and not efficient due to subsequent distressed sales and buyers' remorse.

The resale market is more of a distressed sale market, where discounts are standard and expected. That is true even when the owners own the units and now control the resort, which is seen less often and found more in smaller or older resorts.

Perhaps the worst, HICV points without deeds are largely worthless in resale due to restrictions on transfer and high annual maintenance fees, which have grown far faster than inflation.

In the 1990s, it was not uncommon for the quality and better known timeshares to be worth 25% or more of the retail selling price for "red" weeks at desired and less oversold destinations. Units with points sold for more due to greater flexibility of points and fungibility but still at a steep discount. Still, many even "red" week timeshare units sold at 10% to 15% of retail and white or blue weeks often were sold for nominal amounts or zero, even though in theory they all had a greater intrinsic value. That was when I bought my 2 units after finding TUG and doing reserach, after rescinding a retail purchass. That discount from intrinsic value was due to market inefficiency, distressed sales, and lack of generated resale demand relative to retail promotion.

Like that term "fungibility"

 

[TUGBrian]

oops, newsletter link was gorked up today so anyone looking for the HGVC thread, its here:

Does [HGV] Max include RCI membership as part of the ownership? Bluegreen owner asking.

Bluegreen sales weasels are telling people at update/sales meetings that they are going to lose RCi access thru BG (paid in our club dues) unless they join Max. Is there an RCI membership included with Max membership?

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