In today's video, we're talking about vacation clubs. Now everyone loves vacations, for sure! I recently went through a pitch on investing in a real estate vacation club. And I'll tell you about my experience. I'll also tell you why I think this is probably one of the worst investments you can make.
Of course, everyone loves vacations, and you've probably seen some of the advertisements to join vacation clubs. Usually, you'll get to stay at the property at a super reduced rate, If you're willing to go listen to their pitch about the vacation club. Well, I did just that. And I'll tell you about my experience here today.
Vacation Club or Timeshare?
These are very similar to timeshares. In fact, they pretty much are timeshares. But unlike the timeshares back from the eighties or nineties, what's different is that these are often done on a point system. So it offers you more flexibility. You don't have to have just a specific week at a specific property. Instead, it's based on a point system and you're able to use your points each year to stay at many, many different properties and pick your own weeks. So it does offer you a lot more flexibility than those timeshares that your parents may have seen. But is it worth it?
Is it worth it?
I think it's just about one of the worst investments you can make. In fact, I wouldn't call it an investment at all. Here's how the pitch went.
First, we got to see a room in the resort. In fact, it was an entire suite and it was high-end. It was fantastic. Certainly, a place that I would like to stay on vacation. Then we started talking. They got me dreaming about what type of vacations I'd like to take, where I'd want to take them. They asked me about what my ultimate vacation would be, and I've always wanted to take a cruise in the Mediterranean. Sure enough, they had a cruise in their vacation package. They also had resorts that they showed me that looked tremendous in all of the common vacation spots. So it seems like a great fit. Now we started getting to some numbers.
How many vacation weeks a year would I like to take? And how much do I typically spend on lodging? Well, we came out with four weeks would be great. $150 a night seemed about right. Now, if we look at that over the next 10 years, that's $42,000. Sure enough, the next step was for them to show what it would cost to join the vacation club. It was $42,000! And their pitch is that it is $42,000 I was going to spend anyway in the next 10 years for vacations. And if I buy into the vacation club, I not only get those vacations for the next 10 years, but I get them forever after, because I'm an owner in the vacation club. They even said I would have a deed. Now let's look at some of the key selling points and I'll tell you why I think is an absolute train wreck of an investment!
Problem #1: What do you really get?
The first thing is... What are you really getting? So for the $42,000, I was getting 20,000 points. This I was told was enough for four weeks of vacation a year. When I asked how much, how many points, the particular room that I had just looked at was they said, "Oh, well, that's a special room". That one is 20,000 points for one week. So what do you think those rooms look like that for 20,000 points gets you four weeks? Well, I think you can guess. You'll probably want to upgrade! They also pointed out that I don't need to use all 20,000 points each year. I can save them up. So if I want that 20,000 point room next year, I can not use my points this year, roll them forward to next year and use them to get the room next year. Of course, there's only a few hundred dollars administration fees to do that.
Problem #2: Fees
So that got me to ask the question, "Are there any other fees?" Well, yes, many of the resorts will have a resort fee to pay for the pool and things like that while you stay there, but it's a nominal fee, just a few hundred dollars usually But there is also this maintenance fee. That maintenance fee is probably the biggest nightmare of the whole thing! The maintenance fee would be $1,600 a year. $1,600 would go a long way to funding some vacations without having to be involved with a vacation club at all. But the real kicker on this maintenance fee is that there are no controls in place. These fees can and will go up every year. And you have absolutely no say in that. They also pointed out that the vacation club could be willed to my children. And I'm thinking... My children don't want to be saddled with huge maintenance fees every year.
You're an owner, so doesn't it go up in value?
But if I don't want to give it to my children, they told me that, unlike those timeshares that are hard to get rid of that you've heard of from decades ago, they have a full office dedicated to reselling the vacation club to others in the future if I just want to sell it. Now, they'll do that for a commission. And do you think that you'd ever get back your original investment? I doubt it!
Reason #3: Upfront cost
The final thing that I don't like about this investment, which is probably the most obvious is the big upfront cost. So $42,000 upfront. If I were to take that $42,000 and invest it and get a 10% return, that's $4,200 a year. That alone would fund my vacations in perpetuity. And I could go where I want when I want. No crazy maintenance fees every year, no burden of figuring out how to use the points and where exactly to go and which resorts I can and can't stay at. It's just freedom to vacation.
How I fund vacations
But where can you get an investment with cashflow like that? Well, I invest in real estate syndications. That is where a sponsor sources and manages a real estate investment for you and a group of investors. Now, as my passive real estate syndication investments make money that money shows up in my bank account. It's my vacation fund! No work to do. Just trying to figure out where my next vacation will be. If you would like to learn more about real estate syndications, grab my free eBook below.
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