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On another thread, there was a discussion about overbuilt areas for timeshares. I have done a ton of research in this area and I can provide perhaps a new insight into timesharing that hasn't really been expressed much on TSF. That is that the word "overbuilt" in timesharing and the concept of "supply and demand" are used too loosely and mask what is really going on. Some new insights may help timesharing owners to view their timeshare portfolios in a different way going forward. Or at least hedge their bets to protect themselves against new risks.
Let me explain.
First, the conventional wisdom on TSF is that many areas such as Orlando, Branson and Williamsburg are so "overbuilt" that the supply of timeshares in those areas far outstrips demand and therefore people should avoid buying those timeshares at all cost. Look at the recent threads on TUG warning a newbie against buying in Orlando. Those responses reflect the conventional wisdom of timesharing that places such as Orlando make no sense to own. Well, that is the conclusion that a timeshare exchanger would make based on their experience in using RCI and II. If they think about timesharing differently, they would draw a totally different conclusion.
It is true that in areas such as Orlando that the supply of timeshares is greater than the exchange demand. But, we should note that that is only from an exchange point of view. That's because developers, who control the supply of timeshares in a region have NO incentive to balance supply and demand from an exchange point of view. They only need to find uneducated consumers who will stay on their promotional tours in that tourist area so that they can sell them on the dream of exchanging and not informing them of the realities of exchanging. So, there is an imbalance in exchanging in these so called "overbuilt areas.
However, those resort areas have tremendous accommodation demand for travellers in general. And, when given a choice between staying in one or two hotel rooms or a timeshare, the average family would choose to stay in a timeshare instead, especially if it is the same price or a lot lower. They just need to be made aware of the opportunities, try it once or twice and they become hooked.... forever.
The real underlying supply and demand for an area is based on the equivalent rental value and accommodations in general. That is the TRUE market value. Not it's exchange value. It's exchange value is based just on where developers happened to chose to put timeshares. These artificial limits created a tremendous distortion in the market. That's where rentals come into play. The real cross over trades in timesharing are not from points to weeks, they are from depositing into exchange companies to simply renting on rental sites such as Redweek, myresortnetwork, ebay, bidshares, and vacationtimesharerentals. And, it is happening in increasing numbers. Timeshare rentals are growing at a much faster pace than exchange volume and will continue to do so for the foreseeable future. RCI and II efforts in this area will only increase this trend, not slow it.
So, a different way to think about so called overbuilt areas is in terms of the strength of the rental market, the level of the maintenance fees and the cost of buying it. In these overbuilt areas, there are a lot of people who want to dump their timeshares for next to nothing. That creates the opportunity for people to generate a high return on invested capital. Since the rental markets are so strong, if you just find timeshares with a history of low maintenance fees, relatively high rental rates and cheap price, 10-15% return is easy. 25% is not uncommon. By way of example, if you could buy a $1000 timeshare with a $450 maintenance fee and rent it for $700, your gross return on invested capital is 25%. Try that with a $30,000 Marriott with a $1000 maintenance fee. To generate 25% return on capital, you would need to rent that Marriott for $8500. I don't know of too many Marriotts that will rent for $8500.
On a slightly different, but related topic, I often time say that weeks exchange only makes sense if you can trade up significantly. That's since RCI and II fees are so high, that you are overpaying if you don't get a significant trade up. In other words, you put something cheap in and take out something expensive out. Some will argue that supply and demand dictates the value of a timeshare interval. I will say that's only because the timeshare exchange market is so out of balance that the market is distorted and creates these trade up opportunities.
That's only possible NOT because the so called market has decided that those areas are more valuable. Rather, its simply an artifact of an inefficient system that has no incentive of balancing supply and demand.
Here is how this last concept manifests itself. Take a strong trader from let's say North Carolina. Low cost, low maintenance fees and they trade up to great resorts like Marriotts and Disney's. I'll bet that very few of those owners have ever been able to do direct exchanges with a Marriott or DVC owner. At least not on a consistent basis. That's because the real trade value isn't there. It only exists in timesharing since supply and demand is so out of whack with reality. Alternatively, if these owners just rented their week, there is no way they could rent the weeks into which they are exchanging. These are possible only due to the inefficient supply of exchange intervals in timesharing.
So, the big picture conclusion that I will make is this. If timesharing exchange stays like it has in the weeks system, then the "overbuilt" areas will remain overbuilt areas and trade ups will remain a viable strategy long term. However, if point systems and rentals become predominant, then those areas such as Orlando, Branson and Williamsburg will have ever increasing value and it will make sense to buy them for steals and simply rent them for profit and use the profits to rent other timeshares like Marriotts, Disney's, Westin's, etc. And, those resorts where weeks owners traditionally have traded up will begin to weaken over time until their true value becomes more self evident.
Smart timesharers will become the new slum lords for vacation accommodations and not shy away from the so called overbuilt areas of today.
Let me explain.
First, the conventional wisdom on TSF is that many areas such as Orlando, Branson and Williamsburg are so "overbuilt" that the supply of timeshares in those areas far outstrips demand and therefore people should avoid buying those timeshares at all cost. Look at the recent threads on TUG warning a newbie against buying in Orlando. Those responses reflect the conventional wisdom of timesharing that places such as Orlando make no sense to own. Well, that is the conclusion that a timeshare exchanger would make based on their experience in using RCI and II. If they think about timesharing differently, they would draw a totally different conclusion.
It is true that in areas such as Orlando that the supply of timeshares is greater than the exchange demand. But, we should note that that is only from an exchange point of view. That's because developers, who control the supply of timeshares in a region have NO incentive to balance supply and demand from an exchange point of view. They only need to find uneducated consumers who will stay on their promotional tours in that tourist area so that they can sell them on the dream of exchanging and not informing them of the realities of exchanging. So, there is an imbalance in exchanging in these so called "overbuilt areas.
However, those resort areas have tremendous accommodation demand for travellers in general. And, when given a choice between staying in one or two hotel rooms or a timeshare, the average family would choose to stay in a timeshare instead, especially if it is the same price or a lot lower. They just need to be made aware of the opportunities, try it once or twice and they become hooked.... forever.
The real underlying supply and demand for an area is based on the equivalent rental value and accommodations in general. That is the TRUE market value. Not it's exchange value. It's exchange value is based just on where developers happened to chose to put timeshares. These artificial limits created a tremendous distortion in the market. That's where rentals come into play. The real cross over trades in timesharing are not from points to weeks, they are from depositing into exchange companies to simply renting on rental sites such as Redweek, myresortnetwork, ebay, bidshares, and vacationtimesharerentals. And, it is happening in increasing numbers. Timeshare rentals are growing at a much faster pace than exchange volume and will continue to do so for the foreseeable future. RCI and II efforts in this area will only increase this trend, not slow it.
So, a different way to think about so called overbuilt areas is in terms of the strength of the rental market, the level of the maintenance fees and the cost of buying it. In these overbuilt areas, there are a lot of people who want to dump their timeshares for next to nothing. That creates the opportunity for people to generate a high return on invested capital. Since the rental markets are so strong, if you just find timeshares with a history of low maintenance fees, relatively high rental rates and cheap price, 10-15% return is easy. 25% is not uncommon. By way of example, if you could buy a $1000 timeshare with a $450 maintenance fee and rent it for $700, your gross return on invested capital is 25%. Try that with a $30,000 Marriott with a $1000 maintenance fee. To generate 25% return on capital, you would need to rent that Marriott for $8500. I don't know of too many Marriotts that will rent for $8500.
On a slightly different, but related topic, I often time say that weeks exchange only makes sense if you can trade up significantly. That's since RCI and II fees are so high, that you are overpaying if you don't get a significant trade up. In other words, you put something cheap in and take out something expensive out. Some will argue that supply and demand dictates the value of a timeshare interval. I will say that's only because the timeshare exchange market is so out of balance that the market is distorted and creates these trade up opportunities.
That's only possible NOT because the so called market has decided that those areas are more valuable. Rather, its simply an artifact of an inefficient system that has no incentive of balancing supply and demand.
Here is how this last concept manifests itself. Take a strong trader from let's say North Carolina. Low cost, low maintenance fees and they trade up to great resorts like Marriotts and Disney's. I'll bet that very few of those owners have ever been able to do direct exchanges with a Marriott or DVC owner. At least not on a consistent basis. That's because the real trade value isn't there. It only exists in timesharing since supply and demand is so out of whack with reality. Alternatively, if these owners just rented their week, there is no way they could rent the weeks into which they are exchanging. These are possible only due to the inefficient supply of exchange intervals in timesharing.
So, the big picture conclusion that I will make is this. If timesharing exchange stays like it has in the weeks system, then the "overbuilt" areas will remain overbuilt areas and trade ups will remain a viable strategy long term. However, if point systems and rentals become predominant, then those areas such as Orlando, Branson and Williamsburg will have ever increasing value and it will make sense to buy them for steals and simply rent them for profit and use the profits to rent other timeshares like Marriotts, Disney's, Westin's, etc. And, those resorts where weeks owners traditionally have traded up will begin to weaken over time until their true value becomes more self evident.
Smart timesharers will become the new slum lords for vacation accommodations and not shy away from the so called overbuilt areas of today.
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