Timeshares: Don't Believe The Hype

Last week, I received a phone call from an Australian fellow representing a holiday resort company . He alleged that my wife and I had just 'won' $1,000 worth of free holiday travel.

Like most great offers containing financial incentives , I thought there must be strings attached.
And sure enough there were lots of strings. This fellow told us, that in order to claim this 'prize' we had to attend a 90 minute presentation at a local hotel. He also repeatedly asked if our combined income was over $45,000. He stated that we did not have to purchase anything and we'd be under no pressure [cough cough]. He also promised us refreshments , not to mention the chance to enter another 'competition prize draw'. We even had a woman from the same outfit phone us the next night and ask what our income was again.

Anyway, we turned up at this hotel at 5:30 pm on Thursday night last week and we were greeted by bouncer-sized guys, who promptly shepherded us into this conference room ... and locked us in!

To cut a long story short their proposal was:

• That we purchase these credits from [company name censored] that entitle us to stay at selected hotels, condos or apartments in different locations around the world. The company is in the business of constructing more of these resorts.
  
• The cost of 12,000 credits which would have entitled us to stay for 2-3 weeks in a holiday resort would have cost us $29,560.
• The presenter tried to convince us, that we would be doing a disservice to ourselves and our families, if we didn't accept their offer.
• They were offering us financial terms of $240 per month, plus 12 - 17% interest.
• There was also an annual maintenance fee of $850 odd dollars (which was also prone to increase every year due to inflation - of course).
• We would be referred to as 'owners'. Our money would be placed in a trust fund (separate to the building/maintenance fund).
  

The advantage of this offer was:

• Using your credits, you could stay at one of these selected 5 star resorts, and not worry about paying the nightly room rate per couple or whatever.

The disadvantages of this offer (or reading between the lines, what they try to avoid telling you):

• You would have to pay for your own travel, food, room service, housekeeping, tax and any other holiday related charges.
• You would still need to pay top-up charges for rooms during peak season school holidays, Saturday nights, public holidays etc.
• You would be competing against every other 'owner' out there for available spaces during different parts of the year.
• The Company has the right to determine what resorts/rooms are available or not available.
  
• They can foreclose on your loan, if you are unable to keep up payments.
• The rates for their resorts are over priced, therefore you are making a 'perceived' saving only.
• You would be trying to pay off their loan plus maintenance fees, while simultaneously attempting to budget for a domestic or overseas holiday.
• Servicing a timeshare will dry up your savings.
• Holidays will be more expensive.
  

To cut the crap, I asked the fellow conducting the presentation:

• Where do you get the capital from to build these resorts?, to which he muttered, "From the people." (Protected trust *cough cough* ... yeah right ... NOT!)
• If I lost my income, would my contribution be protected? to which the salesman replied, "Yes, it will be frozen until your situation improves". (Yeah right! I have read many horror stories on the Net of people who have had their timeshares foreclosed. Cut the crap guys!)

Beware the psychological warfare:

• These guys could dance rings around your average used car salesperson.
• They tell you that the presentation is for 90 minutes - we escaped after 2 hours (I have read stories on the Web of people being stuck in the presentation for over 6 hours!).
• In addition to the group presentation, you are allocated a one-on-one session with a salesperson, who's sole intention is to wear you down slowly, with his unrelenting pressure until your head is in a spin.
• If one spouse is almost inclined to think about the offer they will step up the pressure on that spouse's partner.
• There were no food/refreshments - but they did offer us a coffee during their attempted process of getting us to sign.
• Don't believe everything they say, some of it is half truths, some of their garble is not truthful at all.
• They ask you such ridiculous questions as, "Who likes holidays?"
• They tried the following tactic on me: "Come on, purchase our 'Premier' package. If you don't sign today, you will only be eligible for our standard package at a later date (Yeah right!).
  

Be prepared and be alert:

• This is sucker marketing, don't get suckered in.
• Leave your cash, cheque book and credit cards at home
• The $1,000 prize is basically vouchers that entitle you to discounts at the Company's overpriced resorts. You need to spend over a $1,000 to get a $1,000 sort of thing. Since the prices are over inflated, your saving is again perceived only. Plus the vouchers also appear to be another way to lure you to more of these "90 minute" presentations.
  
• Some of their offers of credits can exceed a price of $50,000 (People sell these timeshares on EBay for a tenth of the value, just so that can get out of paying the maintenance fee and other obligations. They usually would have incurred a massive financial loss by that stage).
• They may not not let you view the contract prior to signing it . I didn't see it, but I wasn't intending to sign it anyway.
  

They didn't like it when I told them:

• I could stay at various places in Europe, SE Asia or Aussie for rates that were way cheaper than what they were proposing.
• I told them that I would rather have a mortgage for my own home, rather than a mortgage for the right to access a holiday home occasionally.
• I referred to this as an offer to buy timeshares. The guy on the phone said in a terse tone that these were not timeshares (They are. The only difference between now and what was popular in the eighties is that you are purchasing a time slot for various resorts, as opposed to a timeshare week or two at a particular resort).

Remember:

• Plan your own holiday, shop online and look around for bargains, it's always cheaper that way.
• If you really want timeshares, then purchase them at an online auction for a fraction of the developer's price. Don't forget, you will still have to service the yearly maintenance fee.
  
• If you do get suckered in, there is a clause to rescind the agreement for period of a few days only, could be 5 to 10 days, maybe more, depending on where you live. My research, since our presentation has revealed that these guys will avoid mentioning or showing you the clause for rescinding the agreement at all costs. Once the cooling off period has expired, you are trapped in an iron clad agreement. You have to be willing to incur a massive financial loss in the range of tens of thousands when selling timeshares. The developer may even invoke a penalty clause in some cases.

I'm just glad we never signed.

Are We Heading For An Economic Depression?

This is a complex matter, so I will approach the topic with this analogy:

In early days, folk would frequently use gold or silver as hard currency. The downside being that gold or silver is awfully heavy to lug around.

For convenience, a person would ask a goldsmith to look after that person's hard currency. The goldsmith would then issue the 'investor' with a paper receipt. The goldsmith would then wait for someone else, who was in need of some gold or silver, to turn up on his doorstep. The goldsmith would then lend the gold or silver he'd obtained from the investor to the borrower and charge them interest.

Furthermore, the goldsmith would then think, "Hang on a minute, I could make even more gold or silver out of this scheme." Subsequently, another person wanting 'a loan' would turn up and the goldsmith would issue this 'borrower' with a paper receipt in lieu of hard currency, and also charge them interest. Furthermore, he would similarly issue yet another paper receipt to a third borrower in much the same manner.

Now the first borrower who obtained the hard gold and silver would use it to purchase a horse and cart. This would enable the borrower to travel from village to village in order to sell his corn. Unfortunately, The horse slips on a wet embankment, breaks a leg and destroys the cart.

This borrower, now unable to sell his corn, has no idea how he can pay the interest due to the goldsmith (never mind the actual loan).

The other two borrowers have their wheat crops destroyed by a storm and an accompanying flood.

The investor, who lost his roof in the storm, now wants some of his gold from the goldsmith to pay for roof repairs.

So what have we got now?

We have one greedy goldsmith, who was charging interest on currency he never owned.

We have one investor and three borrowers, who are now virtually broke.

The investor is chasing the goldsmith for return of his investment(along with interest) and the goldsmith is chasing the borrowers for payment plus interest. However, there is no gold or silver to be found amongst any of these folk.

In the United States, there are banks that have actually lent up to 40,000 times their capital value to borrowers! During times of prosperity, banks and financial institutions are so enthusiastic about lending us money they don't actually have. These lenders need to be start being more proactive in avoiding over saturated lending. This would allow for a softer impact on people and business during economic dips.

In 1928- 1929, during the run up to the Great Depression, the issues facing the United States weren't too far removed from what they are facing now (massive government/business/ personal debt, deflating property prices, banks foreclosing on mortgage and business loans, workers being laid off, car prices plummeting, consumer spending and confidence diving and the value of the U.S. dollar pushing the currency markets off balance). All we need now, are people, nervous about losing their homes or businesses, pulling their money out of Wall Street, which will in turn cause more financial ruin for businesses and banks.

Unfortunately, whenever the U.S. (being the world's largest economy) coughs and splutters, many other nations end up catching a cold.

With the global economy being more integrated than ever, whatever happens to large economies overseas, will have a greater bearing on what happens here in New Zealand, especially since we are so reliant on our exports in agriculture and tourism. Our agricultural products are fetching good prices overseas, due to high food prices. Unfortunately, because of international pricing, it is becoming harder for the average Kiwi family to budget for food prices that have inflated 28 percent in the last year! Ironic, given that we produce more than we could eat nationally. Thus, consumers are cutting back, and the owner of the average family restaurant is struggling ('Eating out' is one of the first sacrifices consumers make, in times of economic decline).

The current food pricing situation appears to be driven by increasing demand in China and India, but also by the diversion of food crops (particularly U.S. cornfields) for the production of bio-fuels. This is ironic, given that the oil prices are also contributing to food price rises through the increased cost of transportation.

In the 1930's, the Great Depression, brought on what could retrospectively be called international trade wars. An example of this was when the United States, desperate for cash, slapped tariffs on imports. Canada, who was a big exporter to the United States, retaliated by slapping on tariffs on all imported U.S. goods. What saved Canada from absolute ruin was the fact that Britain offered Canada, a preferential trade deal (India, Australia, New Zealand and the rest of the British Commonwealth were part of this deal as well). Canada' s production levels still fell to almost 50 per cent ... and Canada's unemployment rate shot to 30 percent by 1932.

It wasn't until armament and mobilisation ramped up leading into World War II, that many nations were able to shake off the effects of high unemployment and low productivity, albeit that prosperity did not eventuate for many until well after the war and the associated rationing had ended.

As a side note, the Soviet Union was virtually immune to the effects of the 1930's economic shambles, due to the fact that it's economy operated in isolation. After the 1919-1920 revolution and civil war, the U.S.S.R. enjoyed continued industrial expansion that continued for decades. The U.S.S.R eventually struck it's nadir in 1990.

With housing, food and oil prices being so high, it is only a matter of time before international deflationary pressure is brought to bear on these products, squeezing the margins of many producers. Meanwhile, people and businesses will continue to struggle with the increased costs.

Developing nations are already feeling severe effects from rising food prices, with an even greater threat of starvation looming over many countries on the African continent. Fuel prices obviously exacerbate food prices even more, through the increased cost of transportation.

Another potentially nasty side affect of rising food prices, is the increased likelihood of riots across the world and even the overthrow of governments. The Prime Minister of Haiti has already lost his job, due to high food prices.

The Great Depression of the 1930's lead to the election of extreme governments in many nations. Some were Socialist left wing and others were far right. Governments with extreme policies had a tendency to send some nations down rocky paths during the 1930's 1940's. However I think I could blab on for hours on this one, so I'll stop here.

In short we need to remember what happened during the 1930's, and initiate strategies to avoid a repeat of what is essentially a nightmare scenario. We need to consciously moderate borrowing and thus avoid a run on banks and financial institutions, during times of crisis. We need to save money. We need to stop living of our credit cards and create financial plans to pay off our debts. We need to view housing as a steady investment and not a quickfire cash crop. We should look at reducing/removing tax on essential items such as food. We should have an alternative plan thought out, in case the global market collapses (e.g. sell and produce more for the domestic economy).

Please note, I am not an economist, I am an economic layman!

Thanks for reading.