Own vs Rent
I have been saying here for a long time that increasing maintenance fees and taxes destroy equity.
DannyM is not blowing smoke when he says prices can go to zero.
A buy vs rent computation for Starwood Hawaii resorts makes the case.
Those considering a secondary market timeshare purchase do not look to retail rental rates as the alternative. They are very likely aware of owner rentals which are substantially less than discounted retail rates from Priceline, Expedia, Hotels.com, etc.
Forget about the current economic downturn. In a "normal" economic climate the following assumptions are (I think) reasonable:
- Owner rental rates increase 5% per year.
- Fees increase at 8% annually. (historically true at any rate).
- Opportunity cost of the capital to purchase is 4%.
Using various market purchase prices, and associated rental rates for like units from myresortnetwork, the outcome is scary.
Without laboring the various graphs here, the buy vs rent lines cross between 5 and 7 years in the future. At that point the value of the timeshare is zero. The buyer would be financially ahead by renting.
Said differently, any savings the owner experiences by buying and paying the fees, rather than renting, is wiped out when the lines cross.
Of course, this view completely discounts the premium an owner places on priority access to the reservation system. A renter does not have that access. They must remain more flexible on reservation dates.
Also, not all buyers will view a purchase purely from this dry perspective. It remains an emotional buy for many.
One cannot completely ignore the current economy, however. This makes the financial outlook less optimistic that the assumptions above. Rental rates are decreasing, and fees have increased more rapidly.
Fact of the matter is that timeshare prices almost always drift lower with time. Why? Simplistically put, there are almost always more sellers than buyers. The current downturn only accelerated the decline. When the economy returns to a positive footing there will still be more sellers than buyers. The rare exceptions can be counted on the fingers of one hand. These are prime fixed ski weeks and a few fixed weeks at a couple of beach resorts. Even these have not been spared the ravages of the current economy.
One can argue that the buy vs rent assumptions I used are pessimistic. I truly hope so. But, even if wrong by a percent or two it does not change the outcome. Only the discount to the price a buyer is willing to pay.
All is not hopeless. But, it puts fee increases into some perspective.
It is essential to the preservation of owner equity that fees be bent back. Not an easy order. But, essential.
The obscene property tax increases on Maui timeshare resorts make matter more difficult. Rolling back maintenance fees will be difficult enough. If not successfully appealed these taxes will become the wild card that cannot be controlled. Maui has completely screwed timeshare owners. Its not just the additional $250/year in taxes. Its the lost equity. It now costs a Westin Maui owner $600 a week in property and TOT taxes alone to occupy a 2 bedroom unit.
