The pre-conditions for Timeshare Reform may have arrived

[BocaBum99 Super Moderator Find all posts View Profile Close BocaBum99]

I've believed from the very first day I discovered the resale market that the Timeshare Industry needs massive reform. I've wondered how long, given the easy access to information available on the internet, that the Resort Developers could continue their sales and marketing strategy of luring in guests with gifts and closing them hard while they are there for 200-300% over the instrinsic value of the timeshare as measured by the resale market for the same unit type. I think that most of the distortions in the timeshare market exist because of that one strategy.

Now that credit has dried up, it's very difficult to consumate a large purchase by turning the sale into a monthly payment or equivalent trips to McDonald's on a monthly basis.

The resort developers have to target cash buyers to make their numbers. How many people are willing to part with cash in this economy without doing some due diligence? If it's not enough to make their numbers, Resort Developers may need massive reform to their sales and marketing plans. They must sell real value instead of dream value.

So, two things have to happen to reform the industry. First, the cost of sales and marketing must be reduced by 60% or more. Instead of 50% cost of sales and marketing, it needs to be reduced to about 20%. That right there will enable resort developers to dramatically reduce their prices from current levels.

Second, maintenance fees need to be dramatically reduced as well. Many developers are trying to keep up their revenues by dramatically increase maintenance fees. What that will ultimately lead to is people defaulting on their maintenance fee payments and foreclosures. What all resorts ought to do is create a rental program and target maintenance fees to be 1/2 of the rental rates they can get for every season of the year. In this way, investors will be more willing to pick up the timeshares for $1 or more on eBay. After all, if they did, they would be able to get a fantastic return on their capital. As long as maintenance fees are as high as rental rates, nobody will purchase those timeshares off of eBay. We are pretty far off from this day. But, it could happen.

It will be an interesting year to see what actually plays out. If the developers try to preserve the old model or if they try to adjust to the new realities of tight credit and more educated consumers.

[JLB Please excuse me, I'm a Dick. Not a moron just a Dick Find all posts View Profile Close JLB]

How did it arrive, by private jet or commercial airline?

[timeos2 Senior Member Find all posts View Profile Close timeos2]

Maintnenance is a different

Second, maintenance fees need to be dramatically reduced as well. Many developers are trying to keep up their revenues by dramatically increase maintenance fees. What that will ultimately lead to is people defaulting on their maintenance fee payments and foreclosures. What all resorts ought to do is create a rental program and target maintenance fees to be 1/2 of the rental rates they can get for every season of the year. In this way, investors will be more willing to pick up the timeshares for $1 or more on eBay. After all, if they did, they would be able to get a fantastic return on their capital. As long as maintenance fees are as high as rental rates, nobody will purchase those timeshares off of eBay. We are pretty far off from this day. But, it could happen.

Part A I think you're right on. The rental/maintenance fee part B makes no sense. There is no relationship between what a week can rent for and what it costs to operate and perhaps even more importantly renovate and improve a resort. Timeshare resorts are not setup to appeal to renters and aren't stripped down to basics as a hotel/motel would be. In fact many are designed to equal or exceed what a home or upscale apartment would offer. They are not inexpensive to operate and very costly to renovate/upgrade even compared to a private home. The value is in the owners experience and continued desire to return to the resort - not in what a one time visitor would be willing to pay as rent. The real problem with maintenance fees is the unfair distribution to low value time equal to the fees paid by higher value times. Except for the very few areas with near year round demand that model more than any other causes defaults on annual fees once the ownrs figure out they aren't getting equal value and are subsidizing the high value time owners.

Pure points with fees based on the number of points assigned helps fix that issue as do some of the more creative Associations who have embraced the "leased" or RTU points idea but most continue, for various reasons including State laws, charging all weeks the same and having understandable issues keeping owners current in the low value times.

This downturn may help correct both the fee and retail/resale problems but past hard times haven't been able to do it. Maybe the ease of information flow now will finally turn the tide (and none too soon).

[JimF Junior Member Find all posts View Profile Close JimF]

Indeed. On our recent vacation in Maui, we went to the developers presentation at Kaanapali Beach Club (Diamond). The product, at least on the surface, seems quite appealing. But not having time to finish the due diligence (especially after they plopped the 100+ pages of disclosure information on our laps), and the knowledge that, overall, real estate is a buyers market, but you have exactly zero leverage in this negotiating arena, made it an easy decision to pass for now.

We actually did sign the documents, but Hawaii has 7-day recission, and we rescinded in time. I now have a copy of all the documents, and am pounding through them at my leisure. Diamond called me over the weekend in a (IMO) desperate attempt to get us to let them keep the deposit.

We are interested in the product, but not willing to be pressured into a decision. I'm looking forward to learning the business. Like you said, the internet provides a wealth of information that developers must REALLY not want you to have....

Jim

[BocaBum99 Super Moderator Find all posts View Profile Close BocaBum99]

Part A I think you're right on. The rental/maintenance fee part B makes no sense. There is no relationship between what a week can rent for and what it costs to operate and perhaps even more importantly renovate and improve a resort. Timeshare resorts are not setup to appeal to renters and aren't stripped down to basics as a hotel/motel would be. In fact many are designed to equal or exceed what a home or upscale apartment would offer. They are not inexpensive to operate and very costly to renovate/upgrade even compared to a private home. The value is in the owners experience and continued desire to return to the resort - not in what a one time visitor would be willing to pay as rent. The real problem with maintenance fees is the unfair distribution to low value time equal to the fees paid by higher value times. Except for the very few areas with near year round demand that model more than any other causes defaults on annual fees once the ownrs figure out they aren't getting equal value and are subsidizing the high value time owners.

Pure points with fees based on the number of points assigned helps fix that issue as do some of the more creative Associations who have embraced the "leased" or RTU points idea but most continue, for various reasons including State laws, charging all weeks the same and having understandable issues keeping owners current in the low value times.

This downturn may help correct both the fee and retail/resale problems but past hard times haven't been able to do it. Maybe the ease of information flow now will finally turn the tide (and none too soon).

They can cut back on amenities and other services. There is no reason why a timeshare resort must operate with a higher expense rate than a hotel in the local area that provides daily housekeeping services. If a hotel can make a profit at the rental rates with 70% occupancy, so can a timeshare resort that has no embedded capital cost and/or underlying leases from the land holding company.

If this is flawed logic, please indicate where it is. What fees do timeshare resorts have that local hotels don't?

[timeos2 Senior Member Find all posts View Profile Close timeos2]

They can cut back on amenities and other services. There is no reason why a timeshare resort must operate with a higher expense rate than a hotel in the local area that provides daily housekeeping services. If a hotel can make a profit at the rental rates with 70% occupancy, so can a timeshare resort that has no embedded capital cost and/or underlying leases from the land holding company.

If this is flawed logic, please indicate where it is. What fees do timeshare resorts have that local hotels don't?

How many hotel have 3 bedrooms, one or even two kitchens in every unit along with dishes, entertainment equipment and appliances as you would find in an upscale, fully equipped home? How many have all that to clean on at least a weekly basis? And do it thoroughly, not just wipe the glasses as we all saw on those hotel videos? Add in the same need as a hotel to handle check in/out that a condo doesn't have plus the requirement to have a fully furnished (and it had better be clean and new) apartment of 1800 square feet or more in many cases - no hotel has that in every room. Maybe a suite or two (at which the daily rent will dwarf the weekly timeshare fees).

The expectations of a timeshare owner or guest is completely different than a hotel. Isn't that why we prefer them?

[JLB Please excuse me, I'm a Dick. Not a moron just a Dick Find all posts View Profile Close JLB]

As you know, since it has been said so many times for so many years, vice versa . . . there are expectations of hotel guests that timeshares do not provide, and that is why they prefer them.

Some people do not like to be strapped with household duties while on vacation . . . cooking, cleaning, taking out the trash.

That reminds me, I hope I kept the house clean enough while DW was in Nashville . . . and today is trash day.

The expectations of a timeshare owner or guest is completely different than a hotel. Isn't that why we prefer them?

[Jya-Ning Silver Contributor Find all posts View Profile Close Jya-Ning]

After 911, the hotel occupancy rate has being around 62% over 1 year span, and most of the hotel chain survived, so by same token, I will expect the TS can operate within that range of income if everything is equal.

I can understand that you need more reserve funds since you have a bigger unit. And if you use the cost of build, most of room now no more than 2 to 3 times of hotel room., So I will expect the reservation funds will be no more than 4 times of comparsion hotel room (with a kitchen). On the other hand, hotel especially well run one will remodel more frequently than a TS. Also, hotel will have HK everyday, including throw out trash, change towels and make bed. TS don't. So I would not expect a TS HK fee more than double the hotel HK cost. Most hotels do including in their charge a free breakfest. TS does not.

I will tend to believe a 2 BD unit level can be maintain by 85% hotel room cost of compete hotel room cost even if the hotel is only effecient. I certainly can not expect my home will be maintain the same as hotel. And based on my exchange, I don't see any TS maintain at the same level as hotel. Most gold crown is at a level of motel 6 anyway.

Jya-Ning

[JLB Please excuse me, I'm a Dick. Not a moron just a Dick Find all posts View Profile Close JLB]

Recession . . . disappointing RCI settlement . . . massive layoffs.

All this has some clamoring for reform. Some are calling for government legal action.

I don't see that, any government kicking any business while they are down. They didn't (much) while they were up, so why while they are down?

The forces of the marketplace, the cumulative decisions made by consumers, and by the financial markets, will be what brings about change if there is to be any.

Of course the change could be in the form of grinding to a halt . . . going to heck in a handbag. That's what the early signs may be suggesting.

If the game was called now, with the chips laying exactly where they are, what would that mean for TS owners?

[Jya-Ning Silver Contributor Find all posts View Profile Close Jya-Ning]

I do believe they need to invent the way they sell the TS, and probably need to concentrate on making TS more open to generic public. And I believe in the end, point base one will trump week base one. Alas, I believe at this moment, they are more concertate to screen out the lead, so they can make a deal instead of 1 in 11 to 1 in 9 to something like 1 in 6 or 1 in 5.

I don't see a way of traditional week base system change their maintainence structure. And in the end, the difference between MF will and potential rent cost will be more for off seaon one in these resort. Or they have to run down these resorts to make MF look acceptable for those week's owner.

The newer one, with point base, maybe able to solve it.

Jya-Ning

[Jya-Ning Silver Contributor Find all posts View Profile Close Jya-Ning]

If the game was called now, with the chips laying exactly where they are, what would that mean for TS owners?

JMHO,

If assume all exchange companies went bankrupcy, and there is no reason to maintain TS in whatever way, eventually, the resort needs to be sold, and the proceed distribute to owners.

In these cases, the management company will behavor like class action lawyer, they will get a fat cut. Not sure if owner will end up like class action owner or not.

Jya-Ning

[timeos2 Senior Member Find all posts View Profile Close timeos2]

Maybe it would be best

If the game was called now, with the chips laying exactly where they are, what would that mean for TS owners?

Very little. Except for those resorts not even close to completion or sell out maybe a change in management - which in most cases wouldn't be a bad thing if the current management is still the developer. The resorts are owned/operated by the thousands of individual week/points holders.They don't need the developer anymore to operate and maintain their resort(s). If every developer disappeared tonight all it would do is stop new resorts (do we REALLY need more?) and little else provided the independent management companies survive.

[JLB Please excuse me, I'm a Dick. Not a moron just a Dick Find all posts View Profile Close JLB]

If things just stopped where they are now, with how many owners, 6 or 7 million (?), why would one assume the exchange companies would go bankrupt?

The same numbers of owners that now want to exchange still would, or fairly close.

Well, maybe minus those whose resorts fold, and Timeos says that's only the ones that should.

If assume all exchange companies went bankrupcy,

[ace1001 Junior Member Find all posts View Profile Close ace1001]

Now is the time for us all to buy stock in the company and exert pressure from there. Ace

[BocaBum99 Super Moderator Find all posts View Profile Close BocaBum99]

Now is the time for us all to buy stock in the company and exert pressure from there. Ace

Yeah, wouldn't it be great if we could use the retail value of our timeshares as collateral for a margin loan to purchase stock in the timeshare developers. That would be ironic.