My First Timeshare Presentation
Last week my wife and I celebrated our fourth wedding anniversary in Colorado. After checking the weather back home, she suggested we extend the trip through the weekend. I agreed.
I found a great deal at the base of a resort that was on our way back. The catch: "you agree to take a 90-minute tour of the resort."
I assumed we'd learn something about the mountain, the town, that sort of thing. But I wasn't naive enough to think there wouldn't be a hard sell waiting at the end of it. Plus I thought it might be good content. It did not disappoint.
The first misnomer was their use of the word "tour."
tour, verb
1: to make a tour of
2: to present (something, such as a theatrical production) on a tour
— Merriam-Webster
I was hoping for the former. We got the latter. There was technically a 5-minute tour. The rest was a pure sales presentation in a cubicle. Thankfully it was raining that afternoon.
The Pitch
The setup was simple. You're going to travel in the future, right? And the cost of vacations only goes up. So wouldn't it make sense to prepay the next 30 years at today's prices?
They even had a future value calculator to walk us through the numbers. Our rep told us vacation inflation runs at 15%, then said she'd use 10% instead to be conservative. So generous. Here was one of the more egregious examples to set the anchor.
Plenty of problems with that. Most notably, we don't spend $2,000 a night in today's dollars, and I don't believe travel is inflating at 10% a year, let alone 15%.
But even if it were, they want the money up front. So the true cost difference would be vacation inflation vs investment rate of return. Historically, the market has outpaced inflation, including CPI's index for lodging away from home.
So I rebuilt their model.
Column one is their slide. Seven nights a year at two grand a night, compounded at 10% for three decades, and you arrive at a $2.3 million future value.
Column two drops the inflation. Not because prices stay flat, but because as stated above, the money you'd give them today can be invested instead. Worst case, over 30 years, I'm assuming inflation and returns roughly cancel out.
Column three fixes the usage. The product they eventually offered was a week every other year, so the true comparison is 3.5 nights annually, not seven.
Column four fixes the rate. We don't spend $2,000 a night. Something in the $400 range in the peak season is closer to what we'd actually book, and that's being generous. Run those numbers, 3.5 nights a year at $400 across 30 years, and the most we'd be willing to pay today is $42,000.
Their quoted cost for their smallest room, every other year, in the shoulder season: ~$85,000 but we need to act fast!
What They Don’t Say
Start with the financing. Banks won't touch them. So the developer finances it in-house, and the rate they quoted us was 15.2%. Their alternative, offered casually, was that many people pull the money from a home equity line. Anecdotal of course, not their financial advice.
After some research, I learned they have little resale value. Often the developer repurchases them for pennies on the dollar in an effort to resell on their own terms and keep prices artificially high.
A few other points breezed over or failed to mention:
- The maintenance fee rises 3 to 8% a year
- There can be special assessments on top of that
- There’s a fee for everything else too: releasing your week, booking at another property, and on down the list.
- Resale value is near zero
- You’re mostly buying the pitch, nothing is even built yet
- Contracts frequently run in perpetuity (sold as a benefit!)
- Verbal promises are unenforceable
- Points for traveling elsewhere get devalued
- The rescission window is typically 3 to 10 days
- The price is negotiable. Makes you wonder what the value really is
- You can always upgrade. You can never downgrade.
The Bait and Switch, and the Closes
At the very end came the offer. A week every other year, at a discount, if we signed today, on a property that won't be ready for a couple of years.
The whole time, I could hear other couples getting pitched. You could hear the objections and requisite handling of said objection (any objection), over and over, always some variation of "okay, but just to make sure I've done my due diligence."
I had already dismissed and outright rejected the product well before the offer, yet still there were some funny last-ditch efforts.
“You can put $13,000 on a credit card, right?” Well yes, but I'm not going to.
“Would you be interested if we gave it to you for free?” No, probably not.
“A lot of financial advisors have bought these.” A lot of doctors smoke, too. (My wife almost laughed at that one)
Some people in that room were there for hours being sold something they didn't want or need. I don't think they were naive or incompetent. They were walked through a carefully curated and misleading pitch, backed by a great deal of sales psychology, engineered for a one-time pressure close.
Sleeping on it and reviewing the contract were not part of the sales process. It reminds me of the product sales people calling themselves "financial advisors." A reminder that most things worthwhile are bought, not sold.
Knowing what I now know, I need to go back mic'd up undercover for a local news channel.
If anyone has ideas on what I should get my wife for our fifth anniversary, please let me know. So far I'm thinking:
- A free steak dinner to discuss "Retirement Readiness"
- A cruise put on by a life insurance or annuity sales organization
Until next time, stay the course.
Joe Ward, CFP®, RICP®, TPCP®