The $3.7 million Hotel Room

Hi Scott,

We recently went to an investment seminar where we were offered a chance to buy into a vacation club with international resort group called Wyndham. There are a number of different options, but the one we are looking at is the mid-range offer: we pay $22,146 upfront (financed at an interest rate of 13.15% over five years), plus a $746 annual levy. That entitles us to ‘7,000 credits’, which equates to 12 nights’ accommodation in their hotels, every year, for a lifetime. What are your thoughts?

Jess

Hi Jess

I thought timeshare died out in the 80s, along with windsurfing, mullets, and Reef Oil coconut tanning lotion … but apparently not.

Let’s get one thing clear: this is an investment like a Shane Warne commemorative ashtray is an investment. And the only thing ‘mid-range’ about this offer is the hotel room you’ll be staying at (with the bolted-to-the-floor TV).

I spent an hour of my life that I’ll never get back reading through the Wyndham product disclosure statement (PDS), and by the end of it I seriously wanted to swig some coconut oil.

To the numbers!

After five years you’ll have paid $34,066.

Yet it gets worse. Much. Much. Worse. The real rub of the coconut is that annual fee. The PDS states that you’re signing a legally binding contract that commits you to pay the $746 annual fee until … wait for it … 2080.

**** Regardless of whether you actually use a hotel.

** And the annual fee can be increased every year. Based on a 2% increase (the PDS states they can go as high as 5%, or CPI), the total cost of this timeshare will be $122,909.

*** And there’s all sorts of restrictions around when you can book rooms, and additional fees you’ll be slugged.

Let me put in another way:

If you’d invested $22,146 plus $746 a year over the same period into a share fund, you’d end up with $3.7 million in your back pocket. Yes, you wouldn’t get the benefit of staying in the hotels over the 62 years, but at least you’d have used your coconut.

Postscript:

Wyndham Vacation Clubs Asia Pacific kindly provided me with the following quote, which I’ve edited for length:

“We note this is an investment column, however Club membership is never promoted as an investment choice, but rather a lifestyle product providing a number of benefits to its members each year for the life of the Club.”

It may not be promoted as an investment choice, but it is a ‘managed investment scheme’ that involves entering into a 62-year contract with no termination clause.

However, they are right about their ‘benefits’. Some of these timeshare outfits lure holiday-goers with free tickets to Wet’n’Wild just to get them to sit through their pitch.

And those who sign up get completely hosed, and end up wet and wild: a quick look on Gumtree shows people selling their $22,146 upfront timeshare payment for $10,000.

** ‘Negotiable.’

Scott