What the Destination Club industry needs to do:

[PerryM]

Buy condos/resorts around the country/world and deposit the deeds into a Master Trust which is 100% paid for by cash and owned by the members of the Club.

Sell Points in this club which cover the cost of buying the condos and marketing expenses. Buy as many Points as you need for your vacation needs.

Allow the members to not only use the condos in the Club but 3,500 more resorts around the world.

Allow members to sell their memberships anytime they want and to anyone they want and for any amount of money they can get.

Holy cow, I just described WorldMark and I already own a bunch of Points (credits) – I’m a DC owner and didn’t even know it.

 

[PerryM]

Oops; I could be wrong...

I must correct my prior post – DC’s don’t:

1) Have the deeds to the condos/homes owned by the members
2) Allow you to sell your membership anytime you want to anyone and for any amount of money you can get
3) Have written real estate laws to protect me

So maybe I don’t own a DC? Hmmm I’ll have to think about this more.

What is this great thing I own then? Oh I remember, it's a timeshare.

 

[huestous]

Regardless of the glossies and the spiel, I can't get excited about shelling out cash for thin air. I'd much rather rent.

 

[PerryM]

Would Charles Ponzi buy a DC membership?

Charles Ponzi (Link: Ponzi ) had a great idea – allow early folks to profit from the late comers.

I am NOT suggesting that the DC industry is a Ponzi scheme; however there are similarities that one should consider:

1) The earlier you start the more you profit from the folks who come late
2) There really isn’t any real thing involved – just an illusion of something
3) 6 – 8 new folks are needed for you to reap a reward from their investment
4) If new folks don’t join you can’t get out of your “investment”

I’d put DC’s in the same league with our U.S. Social Security Administration – too good to be true?

Again, I’m not suggesting that the DC industry is a giant Ponzi Scheme but there are some sobering similarities to consider. Their industry needs to address the simple fact that the only safety net for their member's money is the fast talking salesrep on the phone and the paperwork that they cooked up to start this scheme.

I guess I’d put DC’s in the General Scheme Category – no real estate laws to protect the consumer, no third party insurance (like title insurance) to shift risk to – just the scheme the DC Club cooked up to make their investors rich using other folks money. Now I’m not suggesting that DC’s don’t actually give you something in return for your membership fee – usage of their investors condos/homes while you pay for them and pay the ongoing MFs.

Now if anyone can convince me to move DCs from the Scheme Category to something else, please present your arguments I’m all ears.

But to answer my own question – I don’t think Charles Ponzi would buy a DC membership (If still alive). He would, however, I think, start one.

 

[PerryM]

Maybe I should start a DC?

You know, the more I think about DCs the more I like the idea of getting 6 – 8 folks together to buy me a condo in Park City and then pay all the MF’s on it. It doesn’t cost me a penny and they get usage of my condo for a while. Heck, I could use it if some weeks aren't used.

Then when I’ve got enough appreciation I’d sell it and I’m not sure I’d give them any money back. I guess it depends on the paperwork I cooked up to convince them to buy me a condo. But I'm a good guy and I'd give them 80 cents on the dollar they invested with me.

But heck, if I can find 6 – 8 folks to buy me one condo, there must be more folks to buy me a second one, then a third one, ….

Is this a great country or what?

P.S.
Of course while my friends use my condo, I’ll take out huge loans on MY fully paid deeds and start to play Pork Belly Futures – I hear there is real money there.

 

[Jya-Ning]

:hysterical:

Jya-Ning

 

[ira g]

Perry- Your sarcasm has a substantial portion of reality. We also looked at HCC. The price looked good, but the security behind the concept was nil. As an MBA with over 35 years experience, I have a hard time justifying the numbers in the long run. Think we will stay with our inexpensive TS and rent if we can't get the appropriate exchanges. VRBO seems to be a better alternative, with our funds staying fully invested.

 

[Steamboat Bill]

Charles Ponzi (Link: Ponzi ) had a great idea – allow early folks to profit from the late comers.

I am NOT suggesting that the DC industry is a Ponzi scheme; however there are similarities that one should consider:

1) The earlier you start the more you profit from the folks who come late
2) There really isn’t any real thing involved – just an illusion of something
3) 6 – 8 new folks are needed for you to reap a reward from their investment
4) If new folks don’t join you can’t get out of your “investment”

Although I am not defender of the Destination Club industry...I am very satisified with my decision to buy the lowest priced DC out there...High Country Club.

I originally began to consider Exclusive Resorts, but their fees scared me and I would have to join at the $325,000 level so I could get a holiday week. I feel my HCC membership at $30,000 provides me with a close second to the ER expereince and the 1/11 price made it a no brainer to me to join.

As someone who lives in Boca Raton, Florida (the world's headquartes for Ponzi scams) I respectfully disagree with your comparison. Yes, the DC industry for the early adopters (people who first join) seems to be too good to be true. But if you consider Exclusive Resorts (a mature market with 2,500 members...mainly millionaires) their cost adjusted price of $1,400 per night is not too good to be true (IMHO). This is simply their sustanable business model and it works very well.

Early DC members don't PROFIT like a Ponzi scam as they really don't get any money back or get any real tangable profits...they simply are locking in a less cost per night basis for the same accomidations than a late joining member. These properties, after all are $1-4 million properties. Some clubs have offered the first 50 members an opportunity to have their buy-in fee adjusted with each price increase...but the industry standard is only a 80% rebate.

DC's certanly offer MUCH more than an illusion of something....they offer pre-paid vacations at million dollar showcase properties that would normally rent for more than you pay with your membership. If you read Steve Case (AOL founder and ER part-owner) reasons why he invested in ER, it was because of his dissapointment in renting houses via VRBO and was unsatisified with the inconsistant quality and accomidations....and he is a billionaire.

6-8 new DC members = one new property....what is ponzi about that? That is simple math...more members = more cash = more properties purchased for ALL members to enjoy. Ponzi would take the new members money and funnel some back to the early investors to make an illusion of an artifical profit....now that was a scam....the DC industry is NOT doing anything illegal, immoral, or unethical.

The last point about requiring new folks to join before you can get out of your “investment” is partially true. However, every golf club (or social hotel resort) I have every considered joining has a similar requirement. The 5-star Boca Raton resort and club charges $50,000 membership and has a 5:1 ratio....ouch...and nobody acuses them of running a Ponzi scam.

 

[vacationtime1]

6-8 new DC members = one new property....what is ponzi about that?

Well, . . . 6-8 new DC members each paying $40,000 equals something between $240,000 and $320,000, a sum insufficient for the developer to buy the million dollar property that the developer promised to those 6-8 new members. Simple math suggests that this is not sustainable.

This may work in the short term using mortgages, creative finance, or some similar means. But in the long term, the developer must eventually find 6-8 new members who are each willing to pay $200,000+ per share (to average out those who bought cheaply), or no one will have what they were promised (a 1/6 or 1/8 interest in a million dollar property free and clear). Because no one has a deed, someone must lose.

This may not technically be a Ponzi scheme because no one is taking cash out (only cheap vacations at the outset -- which won't be so cheap if the deal implodes in a few years). But I'm with PerryM and others; this business model is too risky for me.

 

[Steamboat Bill]

Here we go again…..there are many posts about the HCC business model, you can search and read those….I am not an owner or insider…just a happy camper.

I am NOT at liberty to post info from their business plan…you can request that after signing a non-disclosure from HCC.

Let's step back and compare HCC to the industry standard Exclusive Resorts. I don't think anyone will challenge the management team at ER and their success in the DC industry. I would even venture to say that ER blows away the timeshare industry in customer satisfaction and customer loyality.

The difference with HCC is that they are new and focusing on properties that are 1/4 the value of ER.

ER charges $425,000 membership fee (80% refundable) plus $29,900 MF for 45 nights usage.

HCC charges $50,000 membership fee (80% refundable) plus $8,400 MF for 45 nights usage and will raise the fee to $60,000 on May 1, 2007. They have already raised prices twice and appear to do this every 6-9 months.

If you perform simple math and divide ER fees by 1/4, this should give you the FUTURE mature pricing model for HCC.

Future estimate (IMHO and not verified with HCC) I would guess the following:
HCC future price = $100,000 membership fee (80% refundable) plus $9,000 MF for 45 nights usage.

If there are 8 members per each new property, then HCC will collect $800,000 to buy a house that costs between $850,000 and $1m and will get $72,000 in MF each year.

Thus, the current pricing model for HCC is a teaser rate and will benefit the early members…just like it was possible to join ER for $195,000 in 2003 and they now charge $425,000.

In the future, as HCC raises their prices….the business will get more sustainable and profitable.

 

[smbrannan]

Great discussion folks. This has really helped me to understand the nature of these various beasts.

And the end of the day, though, I think the difference between DCs and timeshare/fractionals is just one of owning versus renting.

Some people rent their homes for their entire lives, and are quite happy. Others want to own.

Renters usually spend less on accomodation than owners, but they have to deal with landlords, who might not always be there when they need them. Same with DC members.

Ownership has more potential for financial upside than renting. But it requires greater financial investment.

I'd be worried about a rental scheme (i.e. a DC) that costs as much as ownership. The sharing of risks and rewards would be out of whack. Yet it sounds like this is the planned end state business model for most DCs.

So maybe Steamboat Bill is right. If you just want to rent access to nice resort homes, better get in on a well managed DC before it achieves critical mass. (And by the way, the initial costs of the DC are nothing more than prepaid rent).

 

[caribbeansun]

You don't need access to their business plan to know they are leveraging the heck out of these properties and MF's are going towards the loan payments because well where else are the funds going to come from?

You know that they are going to take a profit from the properties they purchase because it makes business sense - might that just maybe be oh I don't know 20% which is why they only allow an 80% return of capital on resignation. Even if it's 15% with a 5% commission it really doesn't matter.

The model implodes when the sales curve flattens out or starts to decline because there aren't enough people coming into the model to fund the actual repairs that are required to the properties they own.

A reasonably well known standard is 8% of capital cost for mf's - HCC says they buy properties for $800k so that would equate to $64,000. Current annual dues for 8 members would be $8,400 x 8 = $67,200 BUT we know that they are at a minimum of 50% leverage - $400,000 x 6%=$24,000 which means there is a short fall of roughly $20,800 annually. Their publically available information indicates that they won't do special assessments and only increase mf's by CPI+2%.

If that sales curve doesn't keep going they will be in trouble pretty quickly - something will have to give.

It's actually kind of funny since it's so easy to fall into the trap of thinking of this as an investment - it's not. My bottom line is that I'm going to likely share one of the group plans with 5 others so my outlay will be $10k for one week a year which I really don't mind risking. Even at $20k I'd be tempted to take a shot at it but I suspect that's my limit.

Here we go again…..there are many posts about the HCC business model, you can search and read those….I am not an owner or insider…just a happy camper.

I am NOT at liberty to post info from their business plan…you can request that after signing a non-disclosure from HCC.

 

[kylii]

Sighhhhhh

Perry, Perry, Perry

DCs are not investments, they are clubs.

I joined HCC to join a club, like a country club. I wanted someone else to research the location and the resort. I just get to pick from the list of available places and in HCC there are ALWAYS openings somewhere (Just checked Spring Break and Breckenridge is still available) I joined HCC because if I lose $20,000 it won't break me (It won't be pleasant, but it wouldn't send me into bankruptcy). I can't say the same for $200,000 though NO ONE in the DC industry has lost that since another DC picked up the Tanner & Haley members.

The fact that I could get out March 1 and make $12,000 is nice, but it is kind of like home equity. It's there, but not really tangible and it could be gone the next day (just ask my relatives in New Orleans). And I want to stay in HCC so the $$ are moot to me.

 

[PerryM]

One person's frivolous expenditure is another's investment

Kylii,

Of course they are Clubs, that’s their name - Destination Clubs.

If spending $50k - $ 1M based upon the sweet talking’s of a salesrep over the phone with no consumer protection and secret inner workings is fine with you, then by all means buy a membership in any DC you want.

To those of us who want to do due diligence and sleep at night the DC industry has many short comings in the way they are designed and operate.

Just like the stock market has ups and downs and the real estate market has ups and downs, so will the DC have ups and downs. It would not take much to totally shut down the entire DC industry – that simple little clause “2 in/1 out” is a guarantee that there will never be a run on their Club. They built in capture system that prevents panic selling – you can’t get out if you want unless 2 more NEW members join.

As to investments – I take virtually ANY purchase as an investment. Just bought a new HP laptop – spent 6 hours of research before we invested money in that thing. I’m an investor – it’s what I do for a living. I normally relish in the fact that many folks never do due diligence – all the folks who buy full price from the timeshare developer and I then get to buy from them at pennies on the dollar.

Sadly I can’t do this with DCs; I can’t buy a membership from another member – why? Why can’t the free market work with DCs? If someone can’t come up with a great answer then that should set off alarm bells.

There are just so many alarm bells going off at once in the DC universe that I’m going deaf.

 

[Steamboat Bill]

I think the best analogy to Destnation Clubs are Private Golf Clubs or Private Resort Memberships.

Most people are familiar with these and the DCs are set up in a similar fashion.

There are hundreds of thousands of members out there....a few go bust, but most thrive and the members do not own the clubs or even know all the secrets of how they run.

I agree with many of the "red flags" that Perry states....but I still decided to join....why?

Because the reward FAR outweight the risk.

HCC is a blessing to me and my family as we would never join a DC if it cost us $200-$500k or even $1m unless we hit the lottery....but with HCC....they are really going after a sweet spot in competing with the high end timeshares.

I am amazed at how many TUGers bought at Harborside Atlantis or Platinum Plus Ski weeks or Hawaii....these properties are about $50k!!!!! Additionally, many TUGers are paying well over $1000 per year in MF.

I WISH I had all the answers for Perry....but I do not...the only thing I can do is post my glowing reviews of HCC properties and locations and be glad I joined when the prices were low.

It is funny Perry spent 6 hours researching computers to buy a HP laptop....I own about 4 laptops and I ONLY buy HP laptops as I think they are the BEST. We also both love The Canyons....one day...I hope he joins HCC...even thought he will probably figure out a way to beat me in reserving the exact week and location I wanted.

As I posted before...HCC is virgin terratory now....I am not sure they will like it when a bunch of seasoned TUGers start to master their system.

 

[PerryM]

Bulls, Bears, and Pigs

I'm a Pig at heart when it comes to investing, however most of the time I am a Bull or a Bear.

There are two topics really being discussed here:

1) Due Diligence
2) Risk Tolerance

Due Diligence:
I’ve chronicled the hurtles I faced and so does everyone trying to do your due diligence. Hopefully the DC industry will be a lot more forthcoming in the future.

Risk Tolerance:
I freely admit that if I had been exposed to HCC 2 weeks earlier back in July of 2006 I’d have bought a membership for $30k and the most important factor 80% of FUTURE membership fees. I would not lose a second sleeping at night, the risk/reward ratio was such that the pig in my DNA would have gotten the best of me. Due Diligence would have taken a back seat to greed.

That scenario does not exist today, nor when I stumbled on HCC and such the risk/reward demands that I validate the purchase with Due Diligence.

To others here, that risk/reward ratio may indicate that the current prices allows the greed side of us to ignore the Due Diligence side. The folks paying $200k have the same decision to make; some consider $200k the same as $2,000 (they have gotten used to moving the decimal point 2 places to the left) and would not lose a seconds sleep blowing $200k.

So I’ve already decided to wait on all DCs until I can find a risk/reward ratio that doesn’t have me worrying about the money invested; either the Pig in me takes over or the Accountant. Right now, I'm Bearish on DCs given the Due Diligence I can do with the risk/reward ratios I'm comfortable with.

P.S.
To those whose risk/reward ratio has you a member of a DC – congratulations. However, the Due Diligence aspects of DC should have all of us united demanding more information and understanding how DCs work. I’m assuming that within a few years new DCs will pop up and we will once again have to decide:

Am I a Bull, Bear, or a Pig on this offering?

 

[Steamboat Bill]

I think all TUGers are pigs at heart....we want to get the best resale, best trade, best deal at the expense of some other sucker... Just do a search of the Marriott forum and everyone wants to know "Where can I buy the best and cheapest trader. They don't care if the numbers work or even if they have to buy a MUD week in Utah...they just want a great deal and want someone to tell them which one to buy....very lazy indeed!

According to Jim Cramer's, CNBC's Mad Money star, he has 25 investment rules to live by...and #1 rule is:

Bulls make money, bears make money, pigs get slaughtered.

According to Jim:

So often, when I bring this adage up, people ask me "How do you know when you are being a pig?" I know there's not supposed to be any stupid questions out there, but the answer is, frankly, you don't need me to tell you. If you weren't feeling piggish after that 4,000 on the Nasdaq, you needed a shrink, pronto.

Remember, my goal is to stay in the game. The people who got wiped out by the Nasdaq crash tended to be people who never took anything off the table, who never felt greedy, who got slaughtered by their own piggishness.

Unlike so many others I see and hear on television or read in articles, I have no regrets about liking the market during that period. To have avoided those 3,000 points would have been sinful. It would have been suicidal for a professional manager.

But it was my desire not to be a pig that kept me in the game in March and April of that year. That's why I remind people every day: Have you taken your profit? Have you booked anything? Or are you being a pig? Because you never know when things you own are going to crash. You never know when the market could be wiped out. You can't have certainty. At those times, you have only human nature to guide you.

I am NOT sure how DCs fit into Cramers' definition as they are NOT as liquid as stocks...but I think I am very BULLISH on the Destination Club industry and PIGGISH about joining HCC now that the price is cheap.

 

[PerryM]

A funny guy...

I think all TUGers are pigs at heart....we want to get the best resale, best trade, best deal at the expense of some other sucker... Just do a search of the Marriott forum and everyone wants to know "Where can I buy the best and cheapest trader. They don't care if the numbers work or even if they have to buy a MUD week in Utah...they just want a great deal and want someone to tell them which one to buy....very lazy indeed!

According to Jim Cramer's, CNBC's Mad Money star, he has 25 investment rules to live by...and #1 rule is:

Bulls make money, bears make money, pigs get slaughtered.

According to Jim:

So often, when I bring this adage up, people ask me "How do you know when you are being a pig?" I know there's not supposed to be any stupid questions out there, but the answer is, frankly, you don't need me to tell you. If you weren't feeling piggish after that 4,000 on the Nasdaq, you needed a shrink, pronto.

Remember, my goal is to stay in the game. The people who got wiped out by the Nasdaq crash tended to be people who never took anything off the table, who never felt greedy, who got slaughtered by their own piggishness.

Unlike so many others I see and hear on television or read in articles, I have no regrets about liking the market during that period. To have avoided those 3,000 points would have been sinful. It would have been suicidal for a professional manager.

But it was my desire not to be a pig that kept me in the game in March and April of that year. That's why I remind people every day: Have you taken your profit? Have you booked anything? Or are you being a pig? Because you never know when things you own are going to crash. You never know when the market could be wiped out. You can't have certainty. At those times, you have only human nature to guide you.

I am NOT sure how DCs fit into Cramers' definition as they are NOT as liquid as stocks...but I think I am very BULLISH on the Destination Club industry and PIGGISH about joining HCC now that the price is cheap.

Jim Cramer is a funny guy, but his investment advice is really questionable.

This has nothing to do with timeshares but since this is my thread I’ll give everyone the best stock market advice there is:

There is but ONE stock to invest in; it’s the DIA – that little stock represents the DOW. The DOW has a 100+ history of returning about 13% compounded return year after year. There is NO other stock that I’m aware of with that awesome record. This is the only stock you ever need to buy. I know it’s boring but it’s the best stock there is, you don't need a funny guy to tell you what to do or MBA's running a mutual fund.

No need to time the market – got some cash, just buy DIA and just never sell it.

At the end of 20 years 97% of all mutual funds and stocks can’t deep up with DIA, at the end of 30 years that’s 99.99% and there just isn’t statistics to go beyond that.

So which stock/mutual fund do you want to pick and bet that 30 years from now you will outdo DIA? The DIA is the stock market - all other stocks/mutual funds try to out fox it - they just can't in the long run; they make too many mistakes that destroy any short term gains.


Back to this thread:
In order to be Bullish you need to do Due Diligence which is very hard to do with DCs and/or you must have a high Risk/Reward ratio – you are willing to either accept huge risks or low rewards or both.

To be Bearish is simple – you can’t do Due Diligence and your Risk/Reward ratio is very low – you want less risk and/or more rewards.

To be Piggish is the simplest – let emotions drive your investments.

 

[Steamboat Bill]

Jim Cramer is a funny guy, but his investment advice is really questionable.

This has nothing to do with timeshares but since this is my thread I’ll give everyone the best stock market advice there is:

There is but ONE stock to invest in; it’s the DIA – that little stock represents the DOW. The DOW has a 100+ history of returning about 13% compounded return year after year. There is NO other stock that I’m aware of with that awesome record. This is the only stock you ever need to buy. I know it’s boring but it’s the best stock there is, you don't need a funny guy to tell you what to do or MBA's running a mutual fund.

No need to time the market – got some cash, just buy DIA and just never sell it.

At the end of 20 years 97% of all mutual funds and stocks can’t deep up with DIA, at the end of 30 years that’s 99.99% and there just isn’t statistics to go beyond that.

So which stock/mutual fund do you want to pick and bet that 30 years from now you will outdo DIA? The DIA is the stock market - all other stocks/mutual funds try to out fox it - they just can't in the long run; they make too many mistakes that destroy any short term gains.


Back to this thread:
In order to be Bullish you need to do Due Diligence which is very hard to do with DCs and/or you must have a high Risk/Reward ratio – you are willing to either accept huge risks or low rewards or both.

To be Bearish is simple – you can’t do Due Diligence and your Risk/Reward ratio is very low – you want less risk and/or more rewards.

To be Piggish is the simplest – let emotions drive your investments.

I agree with PerryM 110%...I mean 99%!!!

I actually like SPY better....the problem with DIA is that it ONLY tracks 30 stocks and the SPY tracks 500....thus, I think the S&P 500 is the better (more diversified) investment.

Either way...99% of all Wall Street Warriors can't beat the SPY or DIA over a 15 year peroid...why do people think they can do better...oink-oink!

I think he hit the nail on the head with his bull-bear-pig examples.

I will be leaving to Park City tomorrow (bringing my HP laptop with me) and going to the Grub steakhouse on Tuesday night. I will think of Perry while I am there!

 

[PerryM]

I agree with PerryM 110%...I mean 99%!!!

I actually like SPY better....the problem with DIA is that it ONLY tracks 30 stocks and the SPY tracks 500....thus, I think the S&P 500 is the better (more diversified) investment.

Either way...99% of all Wall Street Warriors can't beat the SPY or DIA over a 15 year peroid...why do people think they can do better...oink-oink!

I think he hit the nail on the head with his bull-bear-pig examples.

I will be leaving to Park City tomorrow (bringing my HP laptop with me) and going to the Grub steakhouse on Tuesday night. I will think of Perry while I am there!

Bill, great, you'll love their Beer Bread.

If you get a chance to check out the Park Plaza across the street try to check out a Mini-Suite, 1BR or 2BR unit. We love the place and it offers a cheap way to stay in PC.