Lazy Man and Money

Marriott Vacation Club: Scam or Not?

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On Friday of last week, I went into detail about the decision that brought a timeshare into our lives.

I had noted that in 2000 when I first looked into a Marriott Aruba timeshare it was around $14,000. In late 2004, it was $19,000.

This lead me to conclude, these things only go up and up. My future wife bought in at the $19,000 price.

So when my wife and I were on our Maui vacation, we decided to take in a timeshare presentation to see what they had to show now. For this we were compensated with $95 in gift certificates that we could use at the hotel. I’ll get into more of the pitch later, but they told us something interesting…

… our timeshare’s value was $33,640

Considering that until about 6 months ago the performance of the stock market from 2004 was flat, this is a pretty fantastic gain, right? Of course!

So the value of these timeshares always go up. Measured from the my $14,000 estimate it cost in 2000, it has gone up 11.7%. Measured from 2004, it was 11%.

Did I find an investment that goes up 11% long term (okay 12 years), even despite recessions?

Perhaps not so much. Let’s dig deeper…

Marriott’s Destination Club Points

A couple of years ago, Marriott got a fantastic idea to make timeshare ownership more confusing. They put all the properties in a trust and create a point system. Every location and type of room would have a point value associated with it. Our 1-week, 2-bedroom timeshare at the Aruba Surf Club was valued as being worth 3075 points. Those that join this point system (and own the property that we do) can use those 3075 points in various ways. It might buy 4-weeks in Kansas (if Marriott had a timeshare there) as the points at the mythical place would likely be cheap. Those points could be traded for a 3-day stay in Maui as the resort we stayed at cost 7000 points a week. (No offense Marriott in Maui, but your accomidations should be valued at 20% less than Aruba, not over a 100% more.)

If you’ve followed me thus far, let’s go a little further. If you owned somewhere else and wanted to trade for the same timeshare that we own through this point system, you’d have to give up 3,500 points. The difference between the 3,075 points that Marriott is awarding us and the 3,500 that they’ll charge other people seems to be called the “skim” in timeshare lingo. In my view that 425 points per 3075 points (a 13.8% margin) is a rather large “skim.” However, I’ve read about others which seem to be as high as 25%. You can review the prices of what Marriott charges here (PDF) (i.e. the 3,500) number. Getting the value of what you previously owned is a little more difficult. Fortunately, this person has compiled a pretty good list. This gives you the 3,075 number for existing owners that Marriott doesn’t publicize too much.

With the Destination Club Points system, Marriott has decided to do away with selling weeks at a timeshare. You can only points. You want to stay at the 2-bedroom timeshare at the Aruba Surf Club for a week like we can? That’s going to cost you 3,500 points (see above), so you have to buy 3,500 points.

How much does a point cost? It has changed over time. Marriott doesn’t seem to post the point history, but in looking through various forums, I think I’ve comprised some decent data:

  • 8/26/2010 – the price per point was $9.20 (Source)
  • 3/19/2011 – the price per point was $10.22 (Source)
  • 2/15/2012 – the price per point was $10.94 (I’m reporting this first-hand from my own presenation.)

When we went into the timeshare presentation there was a handy graph showing these price changes, specifically pointing out that prices have gone up 19% since they’ve switched over to the point system (which is roughly 18 months ago).

The implied message was clear. If you want in, you better buy now, because with the way prices are going up you’ll just pay more later. The salesman was even more direct saying (paraphrased) “If you are ever thinking of expanding your Marriott ownership, the time is now.”

It occurred to me that the price per point is whatever Marriott wants to make it. They set it at whatever they want and it seems like it is calculated to increase around 11% per year. What’s really interesting to me though, is how Marriott is able to continue to raise prices consistently and still make sales. Perhaps people are buying in with the belief that it an appreciating investment.

It seems to be an appreciating investment only in the minds of Marriott. If you do an search for Marriott Timeshares in Aruba on Ebay, there are a number of places listed for around $8,000 to $10,000. That’s quite a gap from the $33,640 that our place is supposedly worth. It seems to be a gap that is only wider and wider.

I know I’m liberal with my use of the word “scam” especially with the MLMs that I occasionally write about. However, this does seem to be a scam by definition, right?

A Decision to Buy into a Timeshare

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A couple of days ago, I gave some details about our Maui vacation. However, one point that I glossed over was that my wife and I own a timeshare.

Yep, one of those things that the financial professionals tell you never to buy.

I don’t know if I’ve written the back-story to how the timeshare came into our lives, but I think its an interesting story and I hope that someone will learn something.

In early 2004, I experienced a month of unprecedented success. The technology bust was starting to end, and I got a software engineering job with a company filled with people who I had worked with very successfully before. Soon after, I started a very interesting woman. I knew it had potential when she felt the same way about Derek Jeter that I do. (Hey we’re both Bostonians!) We had been dating for about 6 weeks when a buddy of mine said to me, “Hey the wife and I have the 2 bedroom timeshare in Aruba reserved for late October. It’s too much space for the two of us, perhaps you’d like to come along with your new girlfriend?” I knew it was a little early to ask about vacation plans, but late October was still a good 5 months away. I decided to cautiously approach this woman I had been dating about it, with the idea of, “Hey this offer is clearly contingent on us being together at the time. However, at that point we’ll have dated 6 months and it isn’t so weird.” My friend understood from the outset that it was going to be difficult for us to commit then and there, but he left it as an open invitation.

Fast forward to around July/August timefame and we realized it was time to book the tickets.

The woman I was dating wasn’t sure what to make of Aruba. She had heard stories about some places in the Caribbean that aren’t as flattering when you leave the resort (I’ve heard this about Jamaica a few times.) However, Aruba surprised her as just being a great place. It was clean, good beaches, the Marriott where we were staying had a great pool. The weather was fantastic the entire time. Pretty much everyone was from New York or Boston. There were enough Bostonians that we dubbed it, “South, South Boston.” It was a homerun of a vacation.

The vacation was going so well, that my girlfriend and I went to the timeshare presentation. They usually give you around $100 in gift certificates for a local restaurant for an hour of your time. That seemed like a good to me so we took it. (Note: this will be analyzed in more detail in a future post.) It was a “WE” because even though my girlfriend and I each earned a good income at the time, they gear the offers to couples… and they heavily prefer them to be married.

We took in the information about the timeshare and, as salesmen are paid to do, they made a good case for timeshare ownership. As we were just dating each of absorbed the information differently. After the technology bust, I didn’t have the disposable income for it. However, I had been to the same presentation 4 years earlier with another friend and the property was around $14,000. This time it was $19,000. This made me feel like I was missing out on a good investment which lead me to think that the $19,000 price wasn’t too bad and the property would only be worth more in the future.

My girlfriend, on the other hand, was in a different economic situation. As a pharmacist, she didn’t go through a technology bust as I had. In fact, her position with the military had quite a bit of job security as well as 6 weeks of vacation. She also had gotten a recent promotion. When you think about it, she was close to the ideal candidate to buy a timeshare. She had the vacation time to use it an the money to buy it. I supported it because it made sense to me.

The question was, “Is it a smart decision to buy a timeshare?” There’s a big stigma against buying timeshares. I think that investors in the 80’s got in and were burned. However, with huge companies like the Marriott offering deeded timeshares, it looks more interesting.

In the end, my girlfriend made the call to buy the timeshare.

Slightly more than one year later, my girlfriend and I were on another trip to the Caribbean. The marketing in airports on trips to the Caribbean pitch their jewelry (perhaps in an attempt to appeal to people avoiding use tax). My girlfriend jokingly put those advertisements on my lap a couple of times as a not-so-subtle hint. What she didn’t know is that each time she slapped my lap, she hit the engagement ring that I was carrying.

That girlfriend became my wife. And with that we have a timeshare.

Was it a wise decision? In 2004 (years before I would start Lazy Man and Money), it seemed like an appropriate choice. In upcoming posts, we’ll break it down in more detail.