When owning is not better...
I feel like I've been exposed to ownership a fair bit by owning my own home and car. I know the benefits and draw backs of it all. What drives me crazy is when sales people equate owning to always being better than renting... yes, renting will never build you any equity; but depending on how much it will cost to purchase the item you wish to rent vs the costs of renting there are many instances when renting can be better than owning.
A friend of mine won a trip to San Diego, all he had to do was go to a timeshare presentation and he got a free trip for him and 1 guest. We went to the timeshare presentation tonight and I must admit they do a good job of selling it. They make it sound like you are going to be saving all this money and get to stay at all these really cool resorts (they always corrected me when I called them hotels). It's a very high pressure type of deal, you have to decide on the spot, no time to think about the offer that they are making you. It has to be because if you ever went and ran the numbers you would never go for the deal.
The presentation was by a company called Windmark which appears to be pretty much an outlet for Wyndham to sell their resorts to. They own 62 properties around the country and a few foreign locations and give you the option to buy additional days at discounted prices. They also have an "out of network" plan where you pay a base fee and give up some of your nights at "in network" hotels to stay at other hotels that are not owned by Windmark. It basically boils down to a room that sleeps 2 (1 bed) is available for about 14 days at a cost of $30,000.00 up front (they offer financing over 10 years at 14.4%) and $75.00/mo in maintenance fees. The number of nights you have available depends on where you want to go and when but this seems to be the average. During the sales pitch they are continually pressuring you that for smart money the only way to go is through their time shares. They were doing a good job selling it too because I kept finding myself thinking, "maybe I would like to do something like this." I continually had to tell myself anyone who wants you to make a decision immediately and is using the types of sales tactics that they were is hiding something. So I resisted the temptation and turned down their one-time offer.
When I got home, out of curiosity I decided to run the numbers and see if it was a better deal. So I took the $408/month for 10 years plus the $75.00/month maintenance fee and invested the money at a hypothetical interest rate of 10.4% (the market average over the last 75 years). I then subtracted out 14 nights of hotel costs at a rate of $200.00 a night. I increased both the hotel rental and maintenance fees annually by 3% to keep up with inflation. Basically if after 45 years (when I turn 70) the value in the account is 0 dollars either decision would have been equally financially advantageous, if the account has money in it the time share was a bad deal, if it has negative dollars in the account then the time share was a good deal.... what do you think the final value of the account was after 45 years of vacations? If you said positive in the extreme you would have been right, by not going with the time share option and investing the money instead you would have accumulated 1.6 MILLION dollars in addition to paying for 14 days of hotels every year for the last 45 years. That's a lot of money to be throwing away.
The long and short of it is that in no way is owning a timeshare at those rates better than renting a hotel room. It doesn't matter that you own it forever, what do you think that your kids would rather be inheriting a timeshare, or 1.6 million dollars of cold, hard cash?
I wish I would have had those numbers available to show the sales guy. I wonder what he would have said?
Posted on September 21, 2007 1:36 AM | Permalink
