Why you should never buy into a vacation club timeshare

I couple weeks ago I had the pleasure to attend, for the second time, a Marriot vacation club sales pitch. Unlike many of the people who end up buying, I had done a little bit of research into the subject and I was looking forward to an interesting discussion. While the sales pitch is scheduled to go on for 90 minutes, I do not think any of mine lasted more than 30.

Timeshares, in general, are a fantastic business for the developers and promoters. They are not supposed to be a great deal for consumers. Maybe that is why I kept hearing them being refered to as “lifestyle choices”, whatever that means.

Unless you are filthy rich and the prospect of dropping US$45,000 at one moment of weakness (the setting is quite nice and the sales people try their best to convince you to join an elite group) is the equivalent of spending a week of vacation without the blink of an eye, you must approach this decision as what it is: a strictly financial one.

First of all, you must be within the group that plans to spend about US$250 at least a night for at least a week to even consider this. If this is not the case, this would be a good time to tell the sales person you can’t afford that kind of luxury, as much as you want to be part of a very special club. At that point you will be bombarded with guilt-inflicting statements to the point that you will feel that saving for your kids’education is a low-class goal, when you should be planning of sipping cocktails with your kind under a nice gazebo soaking the last rays of sun at an exclusive reception in a slice of paradise.

Well, once you agree that yes, you can afford those at-least-US$250 hotel nights, you will be asked why not get it all over with and just make those nights yours, now. After all, by paying in advance you avoid the hassle of having to join the crowds on booking or agoda sniffing good deals, because you will be afforded the best deal, any time you want, at a place you own.

Well, unless you ask, you won’t be told that you “own” it for only 40 years. That’s right. After 40 years it is gone…. But so what? 40 years is a long time! Think of all those guys that bought in 20 years ago and paid just US$ 5,000. They are still enjoying the US$ 250 a night rooms! In fact, the pitch goes, if you were to spend US$250 a night for a week over 40 years, your investment would have totally been amortized! Plus, you won’t be able to get that room 20 years later for US$250! Which is true…

20 years later, you probably do not want to get in that room. Rooms get old, hotels need to be renovated, even rebuilt. Some times unpredictable disasters happen, like a Tsunami. And all of this costs money, lots of money. Now, unless you ask, nobody is going to tell you that you are the one who is going to pay for this. You, and all your buddies in the exclusive Marriot vacation club. It’s called Maintenance Fees, but if you make a fuss about them you will be made to feel like that guy being invited to a country club and wondering if he will be able to afford paying the valet parking.

Maintenance fees can and will kill you, or at least make you very upset. They are expected to be about US$1,000 a year! This is when you get that quizzical look from the sales guy: “do you really expect to buy a Porsche and not maintain it?” I have to say that these guys can be quite funny. They have their lines very well studied. This is why you need to be prepared…

No, really, US$1,000 a year over 40 years is US$ 40,000. That right there has just doubled your US$45,000 “investment.” But wait, didn’t we say that 20 years from now you won’t be able to get such a nice room for US$ 250? Oh yeah…inflation! That’s right. 20 years from now, your management fee is going to be US$2-3K. At least. And this is something your friendly sales person who drinks only Evian won’t tell you: the management fees can go up any time for any reason with no limits, at the discretion of management. So, if you hear on the news that the Phuket Marriot hotel has been devatastated by a Tsunami get ready: it is going to cost you…

Many of the blogs I read had essentialy the same conclusion: “I wish I had never bought it.” That’s right, because once you buy it, you ain’t gonna be able to get rid of it. Selling a timeshare is like selling sand in the beach. The market is flooded with them, and even if you find a buyer, Marriot has the right of first refusal. It means they can chose to buy from you before you sell it to anyone else, pretty much at the price they say is “fair market value.” Not such a good deal, huh?

So, I explained to my sales person that I would be indeed ready to drop those US$45,000 right there, right then, but not for a lousy week a year – for 3 months a year. He almost fell over. Of course, I explained to him, “otherwise it makes absolutely no financial sense!” Here is when I hear again that this is not something you buy as an investment, bla bla bla.

But I am serious. You can earn probably a steady and safe 5% return on your $45,000 a year, which gives you about $2,250.Put the $1,000 management fee a year aside (adjusted by inflation) and that will take care of the inflation cost on your US$250 a night room. Guess what! At the end of 40 years, you still have your US$45,000! That’s right. It cost you nothing. Well, other than the time value of money, but what is time for a special person like you?

Now, while you should never buy a timeshare, you should definitely go on a sales pitch. It gets you 3 nights at a very nice resort with airport transfer included and you only need to spend 90 minutes (30 if you are prepared) at a nice hall chatting with a very friendly sales person and enjoying a free capuccino.