Timeshares vs. Destination Clubs, Fractionals, etc.

[Cookie121]

Don't use condohotelcenter.com

I have had a bad experience with condohotelcenter.com website and do not recommend anyone use their services.

They may offer something as free, but have hidden costs. I also found the owner to be very rude and unprofessional.

 

[caribbeansun]

It's certainly an interesting if not risk free model that HCC is working under.

Having them leverage the properties essentially allows the members to leverage their ownership which they otherwise wouldn't be able to do since they have no right to the underlying properties.

The members get a lower entry point, the developer seems to possibly pocket the equity built up over time which are being paid for by the members - not saying this isn't okay given that the developer is assuming the risk there needs to be some reward.

It seems to me that the alternative is to purchase one of the more expensive DC's at say $200,000 - borrow personally the extra $100,000+ and make the payments yourself and keep the 80% of the $100,000+ loan after it's paid off.

This model puts your initial capital at risk in some respects more than the other clubs but then again you have less at risk so that's perhaps an acceptable trade off.

I'm ususally not adverse to the use of leverage but for some reason it bothers me in this scenario. I think the piece that causes the concern is that this model depends heavily on continuing sales whereas the debt free models mean there are much lower potential overheads to be covered off by the members.

What does appeal to me is the fact that they are forcing a bundle of services on you ie. concierge, travel planning, etc that they have had to build a support team to provide and as a result compound into the annual fees.

I'll have to give this some more thought before commenting further.

 

[PerryM]

DC's are just too immature for our consideration at this time

I, personally, love the idea of Destination Clubs (DC) – they offer the advantages of timeshares, hassle free ownership, and real estate appreciation (only 1 out of 25 do this now).

Because there are no consumer protections built in, they are ripe for abuse and just incompetence. When the founding DC is in bankruptcy court that should be all the warning consumers need to realize that the entire industry could implode in a short period of time.

We will consider a DC if:

• 100% equity based – ALL membership fees are used to buy real estate that deed goes into a master trust – NO renting and those rents must be paid from yearly maintenance fees.

• Master trust under the control of an independent entity like a bank trust department – safeguards keep the management team from getting to those deeds unless a vote of the membership authorizes it.

• 80% - 90% returned when a member leaves and that is based on the CURRENT net worth of the deeds in the master trust. This allows for real estate appreciation.

• Maintenance Fees fixed at 8% - 10% of the current membership cost which is based on the new units cost.

• 2 in 1 out for selling your membership back to the DC, if this can't be done within 6 months then automatic liquidation of the DC occurs - no one wants to buy in anymore.

• 100% of the liquidation value of the deeds in the master trust would be disbursed to existing members if certain triggers are tripped – like a bankruptcy, unethical management tactics, etc.

• Independent CPA firms do yearly audit and report to the membership.

• A HOA is established that runs the DC and hires the management company.

• Consumer protection laws aimed at DC to insure all the above takes place

I doubt that we will be buying a DC within 5 year since the industry is headed down a completely different path. Only one, Bellehavens, has equity ownership but even that doesn’t have safeguards to protect the members from an out-of-control management team.

Until then, timeshares, fractionals, and condo-hotels seem to meet our vacation/retirement needs.

Conclusion:
DCs are just too immature as an investment - speculation better describes the current state of DCs.

 

[Steamboat Bill]

This thread and the previous thread by PerryM a few months ago really got me thinking about HCC, so I called them to ask a bunch of questions. I have NOT signed a NDA or received the detailed reports like travelguy has.

I spoke for over one hour with Heath Kirschner, VP of Sales and I was very impressed with the information he shared with me.

I will post more info as I organize all my paper notes, but here is my early impressions:

1. The High Country Club is the REAL DEAL and I predict they will soon (within 18-24 months) become the #2 largest DC in the world. This is only my guess, but they are already #4 and are growing fast.

2. The gold standard for the DC industry is Exclusive Resorts (the #1 player), but their minimal buy-in is $225,000 and $10,500 MF for 15 day use and that is for a "handicaped" membership (no holidays). If you have $425,000 and $27,500 for 45 day use, this is definately the club for you.

3. Comparing ER and HCC, the ER buys properties in the $3-4 million range while HCC buys in the $800k range. This translates into a lower fees for HCC, while maintaining wonderful properties. Thus, HCC are using a similar business model as ER, but focusing on properties that cost 1/4 the ones ER is going after. In addition, ALL MEMBERSHIPS in HCC are treated as EQUALS. Unlike ER, thre is no discrimination with HCC between membership categories.

4. I believe the HCC is rewarding the early adopters and have already raised prices by 100% and cut a few nice features. One year ago, the affiliate membership cost $15,000, plus $4200 MF, and had a equity plan to refund 80% of the CURRENT price. Current prices are $30,000, plus $4800, and a non equity that refunds 80% of your buy-in price. Thus, the earliest 50 members have already made a $9,000 PROFIT if they sell now. I am sure the prices will increase about every 6 months or so as membership grows.

5. The only bad news is that they will NOT honor the price PerryM negoiated a few months ago....bummer.

6. I received a temporary p/w and there are many resorts still available during the ski season and a few even for christmas and new years. When I checked for June-August, 2007, there was a TON of properties available. They are planing on adding 7-9 properties by the end of the year and this will reduce the number of members per house dramatically.

I will post more in a day or two as I organize the info....

 

[travelguy]

High Country Club Availability

At the advice of MJS, I got a temporary pass to the HCC reservation system to review availability. Like Steamboat Bill, I found plenty of availability.

Here are some examples of availability:

Ski properties
Jan – 16 weeks available
Feb – 7 weeks available (3 on President’s week!!)
Mar – 8 weeks available

Playa del Carmen, Mexico
Jan to May – 5 weeks available
Fall/Winter 2007 – totally available

Waikoloa, Hawaii
Jan to May – 3 weeks available
Fall/Winter 2007 – totally available

New properties
There are also many new properties that will become available for use within the next 90 days. These additional properties should increase capacity to the point where availability should not be a problem at all.

Aspen/Snowmass, Colorado
Winter Park, Colorado
Deer Valley, Utah
Hilton Head, South Carolina
New York, New York
Nuevo Vallarta, Mexico
Orlando, Florida
Rosemary Beach, Florida
Stowe, Vermont
Turks & Caicos, BVI

It’s interesting to note that HCC intends to have special reservation options for the New York property that will allow 3 day or 4 day reservations instead of a full week. They will also allow reserving 2 consecutive weeks at the Tuscany properties for an extended trip to Europe.

HCC says most properties do not get booked until approximately 6 months prior. Note that the HCC availability is better that the clubs and exchange companies that I’m currently using (Hilton Grand Vacation Club, RCI and SFX)!

And as I’ve said before, as a timeshare guy, I’m much better at advanced travel planning and reservations than the average DC member. I know that I’ll get the reservations that I want.

You can contact HCC and get a pass to review the reservations system for yourself.

 

[caribbeansun]

[FONT=&quot]Deleted and move to separate thread found here
[/FONT]

 

[Steamboat Bill]

I think some of the confusion about Destination Clubs like High Country Club is that they are different from owning real estate and owning a timeshare.

Think of DCs as a membership to a gated golf club or fancy hotel resort. You pay an initiation fee, yearly fees, and then get to use the club facilities. You do NOT own the club property, you just get to use it.

Therefore, comparing a DC to a TS or a condo will lead to false conclusions.

I have been investigating several DCs and think they represent the next "great thing" in travel.

Here is some data for HCC

8 members per house x $50,000 = $400,000.

8 members MF x $8400 = $67,200 per year

They are buying $800,000 houses. If they put $300,000 down and finance $500,000 @ 6%, the yearly fees are about $30,000, add in taxes of $10,000, cleaning fees. HOA, etc and the yearly cost is about $60,000.

Thus, this business model can work. Once the house is paid off, or even sold, I assume the profits go to the owners of the DC, not the members, as long as another (possible less expensive) property is added.

 

[travelguy]

I have been investigating several DCs and think they represent the next "great thing" in travel.

I agree with your statement although I would add the words "affordable luxury".

DCs are the next "great thing" in affordable luxury travel!

 

[PerryM]

Buying a Marriott from Marriott makes more sense (Cents)

Perhaps there needs to be two different types of Destination Clubs (DC), one for equity and one for non-equity which I’ll just call lease. Right now 95% of DCs are DC-Lease, only BelleHavens is DC-equity.

I’ve described in detail how a DC-equity would work, what about a DC-lease, how would it work:

The membership fee would be 100% applied towards buying 50% of a condo/home up front. In the case of HCC their $800,000 unit means that $400,000 is paid for with cash and the maintenance fees (MF) service the debt on the remaining $400,000 loan. The bank will take the $400,000 paid as collateral and if the club defaults - bye-bye condo/home.

When a member wants out, the 2 in/1 out rule applies and 80% of the ORIGINAL membership fee is returned.

A conventional 30 year mortgage on $400,000 at 7% is $2,662 per month for 30 years, at that time the unit belongs to the club. $2,662 * 12 = $31,944 per year for debt service.

If 10 members split the $400,000 then that is $40,000 membership fee, of which 80% must be returned when the member leaves or $32,000 must be semi-liquid to pay exiting members. Each member gets 5 weeks of usage per year.

If we use the standard 8% of the current membership fee that means that $3,200 per member per year * 10 members = $32,000 in MFs.

Well we have a problem since $31,944 is required to service the loan. Hence HCC charges $8,400 on the $50,000 membership fee which is 16.8% and that makes sense since 8% is needed to make the mortgage payments and 8% for running the club and making the management company a profit.

Well $8,400 for 5 weeks of usage is $1,680 per week in MF of which half goes to paying the mortgage leaving $840 per week – this is right in line with a Marriott timeshare.

But wait, $840 per week of your annual dues goes to someone else to pay off a loan that you have nothing to do with, but are held responsible if a default occurs. 30 years is a LONG time and if management should make a few mistakes, the mortgage must be paid or it will be liquidated and the HCC documents indicate that only 60% of the original membership fee is available for distribution back to the members - that's a MAXIMUM of 60% in the best case scenario - which bankruptcy could result in just a fraction of this.

I just don’t like the idea that my MFs are being used to pay off half the original value of a condo for the Principals in the DC. Throw in 5% appreciation (each year compounding) for 30 years ($400,000 becomes $1,646,454) and we’re talking about a lot of profit for that management company and I’m paying for it and ultimately held responsible for it, yet I get no financial benefit from it.

Heck, I’d rather buy a new Marriott, at pre-construction pricing, and make out like a bandit compared to the same money in a DC.

To me, the DC-equity model sounds much safer and equitable than the DC-lease model that HCC favors. (If I were in their shoes I’d favor it too)