Author
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Topic: Should we exclude the purchase price when considering cost per point?
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boyblue TUG MemberPosts: 350 From: Nassau, Bahamas Registered: Jul 2003
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posted 01-27-2005 02:55
Because we buy resale and in most cases could sell for what we bought for, couldn't we just exclude purchase price in the cost per point calculation?IP: Logged |
Simoncc TUG MemberPosts: 176 From: Manchester, England own at Kilconquhar, Forest Hills,Dona Lola Registered: Jun 2003
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posted 01-27-2005 03:33
Not entirely because you are giving up the return, or income, you could have received from the capital in the meantime.Using one of my timeshares as an example, if I solely use the MF when assessing the cost per point then I get an annual cost of £0.004 per point. If I assume that I could have achieved a 7% pa return on the capital cost then this increases to an annual cost of £0.007. If you are assuming that the purchase and resale prices will be the same then you don't need to also factor in a capital loss. IP: Logged |
PerryM TUG MemberPosts: 1483 From: Ballwin, MO, Park Plaza in Park City; WorldMark &TrendWest; RCI Points; Windjammer tall ship; SA Registered: May 2002
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posted 01-27-2005 03:40
The way to look at the cost of a timeshare is over a 10 year period: Take the purchase price + 10 * the maintenance fee – resale price and divide all that by 10.E.g. Buy resale timeshare for $10,000 + 10 years * $550 per year – resale of $8,000 = $7,500. Take that and divide by 10 years = $750 per year cost. Now you can throw in inflation into this and the “lost opportunity cost” and come out with a larger number which means nothing more that $750 per year came out of your pocket. (If you accounted for all these magical costs with your last car – fine then do it here – if not leave all those MBA concepts out of this just like you left them out when considered the cost of purchasing your last car). OK, so what does an out of pocket cost of $750 mean? Was it a good decision or a bad decision? As you see you need to compare that $750 against something. The answer is rental rates! What would it of cost you to stay at the SAME EXACT unit this year? Simple, call the resort and find out what their “rental rack rate” is. This is the maximum amount the resort can charge for the unit per day. Multiply by 7 and you have the weekly charge to stay there. If you want to play travel agent and award yourself a 25% discount – fine do it. Ask the resort what the average cost is. If the rental rack rate is $250 a night for the same week you would have vacationed at this year * 7 = $1,750. My experience says that if the timeshare cost is HALF the cost or less of the rental rate owning a timeshare makes sense. For those of you who would reply “I could have stayed at a Motel 6” we are no longer comparing apples to apples but apples to lemons. Perry ------------------ Have snowboard - will travel [This message has been edited by PerryM (edited 01-27-2005).] IP: Logged |
Simoncc TUG MemberPosts: 176 From: Manchester, England own at Kilconquhar, Forest Hills,Dona Lola Registered: Jun 2003
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posted 01-27-2005 04:25
quote: Originally posted by PerryM: The way to look at the cost of a timeshare is over a 10 year period: Now you can throw in inflation into this and the “lost opportunity cost” and come out with a larger number which means nothing more that $750 per year came out of your pocket. (If you accounted for all these magical costs with your last car – fine then do it here – if not leave all those MBA concepts out of this just like you left them out when considered the cost of purchasing your last car).
Firstly, there is no absolute right or wrong way to make the calculation. In your example you have based the cost over 10 years which is fine but someone could equally argue that the cost should be spread over 5 years or 20 years. Also you are effectively just taking a guess at what the profit/loss figure on the eventual sale will be - how accurate can that be over 10 years? The difference between timeshare and car ownership is that paying every year as opposed to laying out capital upfront is a very viable alternative - it is what the overwhelming proportion of the population do all the time. I consider one of the main advantages of buying timeshare on the resale market is the big cost saving over time this makes to your holidays and including a 'lost opportunity' calculation highlights this. Whereas I get a warm glow from knowing this figure I am sure that many others couldn't care less!! IP: Logged |
BocaBum99 TUG MemberPosts: 1474 From: Registered: Jul 2004
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posted 01-27-2005 04:40
If you are at 90% sure you will be able to sell what you bought it for, then I would use 6% cost of capital in your calculation. In other words, if the upfront costs were $5000, then charge yourself $300/year ontop of your maintenance to estimate your real annual cost.If you expect the TS to depreciate, I would use a 5 year depreciation schedule. IP: Logged |
PerryM TUG MemberPosts: 1483 From: Ballwin, MO, Park Plaza in Park City; WorldMark &TrendWest; RCI Points; Windjammer tall ship; SA Registered: May 2002
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posted 01-27-2005 06:33
I use 10 years since I believe that’s the length of time financed timeshares (about 80% of the developers sales are financed) result in those timeshares being sold into the resale market. Also 10 years is enough for a new timeshare to lose its sparkle and newer ones that are more desirable and family vacation plans change in 10 years.I don’t like to throw in the lost opportunity cost since I have yet to meet a person on vacation that lives and breaths lost opportunity cost. They don’t consider it when they buy a snowmobile a boat an airplane a car or a second home. But somehow timeshares are to be judged with this standard that no one uses in any other part of their life. It also means that the lost opportunity cost can somehow be used to vacation – I can’t remember the last time we met someone boasting about their vacation was paid for with lost opportunity costs! All the MBA wobbly gook is fine for corporations whose money could be spent buying a tractor trailer or a new office building – not vacations. But that’s just me.
Perry P.S. If you throw in the 14.9% developer financing that 80% of their sales are financed with that’s $18,574 in interest in 10 years on a $20,000 timeshare. Add that $1,858 per year to all the calculations and financing a timeshare MAKES NO SENSE! ------------------ Have snowboard - will travel [This message has been edited by PerryM (edited 01-27-2005).] IP: Logged |
dcwcce TUG MemberPosts: 247 From: On an Airplane Registered: Aug 2003
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posted 02-20-2005 08:18
quote: Originally posted by PerryM:
I don’t like to throw in the lost opportunity cost since I have yet to meet a person on vacation that lives and breaths lost opportunity cost. They don’t consider it when they buy a snowmobile a boat an airplane a car or a second home. But somehow timeshares are to be judged with this standard that no one uses in any other part of their life.
All but the second home are guranteed to depreciate leaving no chance to cover the lost opportunity cost with appreciation. But all of those are discretionary purchases and they are bought for fn not investment. The time share econmoics used by the sales industry omits any discussion usually of the 14 % interest and opportunity cost. It get's discussed here since the TUG resale buyers are basing the purchase value based on "total" alternative cost of vacation accomodations and only willing to pay a premium for a few types of properties Then trying to explain past the marketing hype to a disillusioned buyer that their condo they couldn't afford when they put the down payment on their master card is only worth a small amount more than the annual maintenace fee multiplied by 5 or ten. ------------------ It's been 89 minutes where's my free gift dcw_ts@yahoo.com IP: Logged |
BocaBum99 TUG MemberPosts: 1474 From: Registered: Jul 2004
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posted 02-20-2005 09:10
quote: Originally posted by PerryM: I use 10 years since I believe that’s the length of time financed timeshares (about 80% of the developers sales are financed) result in those timeshares being sold into the resale market. Also 10 years is enough for a new timeshare to lose its sparkle and newer ones that are more desirable and family vacation plans change in 10 years.I don’t like to throw in the lost opportunity cost since I have yet to meet a person on vacation that lives and breaths lost opportunity cost. They don’t consider it when they buy a snowmobile a boat an airplane a car or a second home. But somehow timeshares are to be judged with this standard that no one uses in any other part of their life. It also means that the lost opportunity cost can somehow be used to vacation – I can’t remember the last time we met someone boasting about their vacation was paid for with lost opportunity costs! All the MBA wobbly gook is fine for corporations whose money could be spent buying a tractor trailer or a new office building – not vacations. But that’s just me.
Perry P.S. If you throw in the 14.9% developer financing that 80% of their sales are financed with that’s $18,574 in interest in 10 years on a $20,000 timeshare. Add that $1,858 per year to all the calculations and financing a timeshare MAKES NO SENSE!
Perry,
Since you are the primary advocate for the Timeshare Portfolio, I am surprise that the only asset class you use for timeshares are as "luxury items." Luxury items are like cars or boats where someone buys it and the only costs are those to own and operate it. We have already jointly established that there are 2 other asset classes that certain timeshares fit. Timeshares can also be alternatives to hotel lodging and investment opportunities. Anyone who is truly a timeshare connoisseur should have timeshares that have all 3 timeshare classes in their portfolio. IP: Logged |
Hoc TUG VolunteerPosts: 4789 From: Huntington Beach, CA Owner: Club La Pension, New Orleans; Nob Hill Inn, S. F.; Pueblo Bonito, Mazatlan; Allen House, London; Custom House, Boston Registered: Jan 2001
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posted 02-20-2005 09:48
Given the state of the timeshare resale market, you need to presume that you will not get any appreciable return on your sale of a timeshare beyond what it will cost to sell it. Therefore, you need to assume that your net recovery after selling your timeshare is $0. So, yes, you have to figure in your purchase price in determining your cost per point.------------------ Those are my principles. And if you don't like them, well, I have others. IP: Logged |
BocaBum99 TUG MemberPosts: 1474 From: Registered: Jul 2004
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posted 02-20-2005 09:53
quote: Originally posted by Hoc: Given the state of the timeshare resale market, you need to presume that you will not get any appreciable return on your sale of a timeshare beyond what it will cost to sell it. Therefore, you need to assume that your net recovery after selling your timeshare is $0. So, yes, you have to figure in your purchase price in determining your cost per point.
This is not universally true. There are many Tuggers who buy and sell timeshares for a profit regularly. If you were right, none of them would exist. Most timeshares have a residual value of some amount. The key is to buy below its market value and then sell it at market rate. In fact, I have learned one technique to reduce maintenance fees and total cost of ownership of a timeshare using this principle. IP: Logged |