The Timeshare Death Spiral

The Timeshare Death Spiral

I’ve coined many phrases during my many years in the Timeshare Disposal business.  Here’s another one….' The Timeshare Death Spiral’.  This refers to the process by which a timeshare resort goes from being a lovely, manicured, well maintained vacation spot to a lifeless, mold infested, rat trap.  Let me explain.

When a resort is new it usually has a relatively low maintenance fee with low reserves.  The ‘reserves’ are the amount of money that the resort collects with the maintenance fee and squirrels away for major replacements in the future.  These are items like boiler replacements, air conditioning units, roofs, parking surfaces, pools, etc.   Someone figures out when in the future that item is expected to need to be replaced and how much it will cost.  Then they figure out how much money needs to be put away each year so that the money is available when that work needs to be done.  That money is collected in your maintenance fee and put into a special bank account dedicated specifically for these Future Reserve funds.

At the start of a timeshare regime, the developer usually runs the resort until such time as the sales are completed and the developer turns the place over to the timeshare owners to operate themselves via a board of directors.  Some resorts decide to hire an ‘in-house’ manager to run the day-to-day affairs while other resorts decide to hire a professional management company. In either case these managers want to keep their jobs.  Unfortunately, there will usually come a day when these managers must choose to make the ‘right’ decision and risk losing their jobs or make the ‘wrong’ decision in an attempt to keep their jobs.  Let me explain.

As time goes by and resorts get older it is natural that they will need more and more repairs, refurbishing, replacement, and updating.  All of these things cost money.  This is what the Reserve account is supposed to take care of.  If the money was collected properly over the years there is supposed to be sufficient funds in the Reserve account.  But in many cases there isn’t enough money.  Many things occur over the years that cause this shortfall, but the most common is poor management decisions.  You see, managers are accountable to the resort’s board of directors.  The board is accountable to all of the owners.  Maintenance fees are almost always a contentious issue (most people complain that their fees are too high and are always increasing at a ridiculous rate) and so the pressure is always high for managers and boards to keep costs down in order to keep maintenance fees as reasonable as possible.  Managers are always fearful of losing their jobs due to rising expenses, so it is very common for a manager to raid Reserve funds to pay for every-day expenses in an attempt to show the board that he is doing a great job keeping maintenance fees from increasing.  The manager is a hero (temporarily) and gets to keep his job for a while.  Of course the day comes when the resort needs a new roof and there is no money in the reserves.  The manager is fired but the board is forced to pass a hefty Special Assessment in order to replace the roof.  While most owners end up paying the assessment, some can’t afford it or just simply consider it the Straw-that-Broke-the-Camel’s-Back and refuse to pay the assessment as well as any future maintenance fees.  In other words they abandon their timeshare ownership.  This forces the board to dramatically raise maintenance fees to compensate for the sudden spike in owner defaults.  This dramatic hike in fees pushes even more owners to default, which forces the board to hike fees again, which causes even more defaults, and on and on and on it goes, year after year.  Until one day there are more owners in default than there are owners still paying their maintenance fees.  During this downward spiral the resort is forced to adopt an austerity policy.  Only the absolute essential services and repairs are allowed.  Perhaps the place is kept clean but carpets are allowed to get old, dingy and stained.  Cracked tiles are not replaced. Walls go unpainted even though they are desperately in need. Mattresses are not replaced when they become uncomfortable. You get the idea.  The whole place goes downhill and becomes obsolete. 

At this point the correct thing to do is to close down the Timeshare Regime, sell the property, and split the proceeds among the timeshare owners.  Because most timeshare resorts are located in popular vacation destinations, the property tends to be quite valuable which would usually bring a few thousand dollars to each owner.  The timeshare industry in the United States began in the 1960’s and started to take off in earnest in the 1970’s, there are many timeshare resorts that are more than forty years old around the nation.  So many of them are in terrible financial condition and simply too old and beaten up to be considered anything but obsolete.  Therefore we have begun to see Timeshare Regimes closing and selling, however it is not occurring as much as it should.

You see, while the ‘correct’ decision may be to close those Timeshare Regimes that have become obsolete, greedy management companies will do anything they can in order to prevent that from happening.  If these resorts do indeed close, the management company loses their contracts and the income they receive.  To prevent that from happening management companies will manipulate their boards and keep them from making that correct decision to close shop and sell the assets.  Instead, they continue to send out those maintenance invoices (along with those threatening letters to those that don’t pay up) and keep the resort limping along even though practically no one wants to vacation there any longer.  Eventually something will have to give.  Perhaps things will just get so bad that the health department will come in and close the place down, thus forcing the board to see clearly what their management company has been doing to them all these years. 

So, there you have it.  The Timeshare Death Spiral. 

The Ten-Year Cycle

In the late 1990’s, after being in the timeshare disposal business for several years and talking with thousands of timeshare owners desperate to get out from under the financial burden of owning an unwanted timeshare, I realized that a pattern had emerged.  It seems that virtually every single customer of ours, from the moment they decided they no longer wanted their timeshare to the moment they decided to pay us to dispose of it for them, went through the same process.   I wrote about it then and after many more thousands of customers later the premise still remains true to this day.  I call it ‘The Ten-Year Cycle’.  Let me explain.  It will probably sound familiar to you.

The Ten-Year Cycle begins when a timeshare owner decides that they no longer have a use for their timeshare and therefore it is time to get rid of it.  The trials and tribulations plus the money they spend in trying to accomplish this takes an average of ten years (some more, some less, but the average is about ten years), culminating in their understanding that their timeshare is worthless and the only way to rid themselves of this dinosaur is to pay a company to take it from them (similar to paying the junkman to come and take away a junker car that has zero value).   I still find it amazing that we hear the same story today from almost every timeshare disposal customer.  The best way to describe the Ten-year Cycle is in story form. 

John and Jane are having breakfast one Sunday morning when John turns to Jane and says “I just paid the annual maintenance fee bill on our timeshare.  You know, we haven’t used it since the twins went off to college three years ago.  It’s costing us money every year, yet we don’t use it.  I’m thinking it might be time to sell it.  What do you think?”  Jane says to John, “I think you’re right.  We’re getting older and I just don’t see us using it again.”  John says to Jane, “OK then.  How does one go about selling a timeshare?”   Jane responds “I’m not really sure.  But I do remember the salesman telling us that the timeshare is like any other real estate.   So, why don’t we just call our real estate agent and give him the listing?”  “Great idea”, says John.  “What do you think we should ask for it?”  Jane mulls that one over and says “Well, we purchased it about twenty years ago for $15,000.  Property values in that area have doubled in that time so let’s see if we can get $30,000 for it”.   John calls their neighbor Frank, who happens to be a successful local Realtor and asks Frank if he would like to list their timeshare for sale.  After about five minutes John thanks Frank and hangs up the phone.  Turning to Jane, John says “Frank told me that real estate agents don’t list timeshares because they don’t sell.  He said that even if they did happen to find a buyer for our timeshare the commission on a $30,000 sale would only be a few hundred dollars.  It’s just not worth their time and effort.  He suggested that we try advertising it ourselves but warned me that there isn’t much of a resale market for timeshares.”  Jane says “Well, that can’t be true of our timeshare.  It sits right on the beach in Fort Lauderdale, one of the world’s most desirable vacation destinations.   The resort is beautiful and the area is always bustling with vacationers.  I’m sure that if we offer it at a good value people will be fighting over it.  Let’s just figure out where to advertise it.”  “OK”, John says.  “How ‘bout we put an ad in our local newspaper?  We’ll ask for only $25,000 to get rid of it quick.”  So on Monday morning John and Jane spend $75 placing an advertisement in their local newspaper.  As the week goes on John and Jane are busy with work and errands and chores.  They completely forget about the advertisement simply because they don’t get a single call about it.  In fact, they don’t even think about their timeshare again until the following year when the maintenance fee bill comes again.  John turns to Jane once again over Sunday brunch and says “I just paid another maintenance fee for our timeshare.  It seems that we completely forgot about the darn thing after we put that ad in the paper last year.  I’m surprised we didn’t get any calls.”  Jane responds “Why don’t we try a larger newspaper and lower the asking price to $20,000?  That ought to do it.”  So the next morning they spend $500 on a three line ad in the newspaper that is circulated throughout their state.  Can you guess what happened?  That’s right.  No calls.  John and Jane spent their days busy as usual and forgot all about their timeshare until the next maintenance fee bill arrived a year later.  This pattern continued.  Over the next few years they graduated to placing an advertisement in the New York Times (very expensive) and dropping the price hoping just to recoup their purchase price of $15,000.  When that didn’t work they tried a few internet sites, they made up flyers and passed them out at their jobs, Jane even put one of the flyers up on the community bulletin board at their local supermarket.  With each year that passed they lowered the asking price, the whole time not understanding why they weren’t getting bombarded with buyers for such a fantastic vacation property. As each year passed they were also getting more and more frustrated by having to pay ever increasing maintenance fees and special assessments.  Finally, one Sunday morning over breakfast John turned to Jane and said “I did a little math last night.  I added up the money we’ve spent on the timeshare since the last time we used it.  Maintenance fees alone over the past ten years have cost us over $8,000.  We’ve had three special assessment during that time totaling over $2,000.  We’ve spent over $4,000 in advertisements trying to sell it.  That comes to over $14,000 in the past ten years alone and we haven’t used it once in all that time.  If we continue to own this timeshare for another ten years we’re going to spend at least that much again and I’m not even factoring in the usual hefty increases in maintenance fees.”  John took a deep breath and continued.  “I know we’ve been lowering our asking price again and again, but I think it’s time we bit the bullet and just offer to give it away for free to anyone that will take it.”  Jane agreed.  To their surprise they couldn’t even give it away.  They tried friends and relatives.  They put it on a few internet sites.  They even tried a couple of charitable organizations and were shocked when they were told “Thanks, but no thanks”.   Desperation started to set in.  They were getting up there in years and both were worried that if they still owned this timeshare when they passed away, their children and grandchildren would be forced to inherit their burden.  Finally, one day they decided to respond to an advertisement they’d seen touting a solution to their timeshare problem.  They attended a one-hour seminar, paid a company a fee, and the company took their timeshare away…just like a junker car.  That next Sunday, over breakfast, Jane turned to John and said “You know, you’re a doctor and a graduate of Yale.  I’m a lawyer and a graduate of Harvard.  We’re both pretty smart people.”  John responded “yeah, so?”   “Well”, Jane retorted, “It’s hard to believe it took us ten years to figure out how to get rid of a timeshare”.  

The characters above are fictitious.  But you probably recognize the story as being very similar to your own.  While some timeshare owners go through the ten-year-cycle in only four or five years, others may take fifteen to twenty years to finally get it.  But I call it the ten-year-cycle because that seems to be about the most common amount of time it takes for people to come to terms with the notion that their timeshare is actually worthless.  Unfortunately some never get there.  I believe it is ‘ego’ that prevents them from coming to terms with the truth.  These people go to their graves never allowing themselves to admit that the timeshare for which they paid good money no longer has any value.  Admitting it would mean that they made a mistake, and some people just can’t admit that.  And those are the people that die still owning that timeshare, thus leaving that burden to their children.  What a shame. 

The Reson You Can't Sell Your Timeshare

Hello Timeshare Owners.  My name is Uri Fried.  I am the founder (now retired) of The Timeshare Company, LLC, a company dedicated to rescuing desperate timeshare owners looking to unburden themselves from the endless financial liabilities of their timeshare interval ownership.  But not only did I start this company, I am the creator of the timeshare disposal industry itself. 

Back in the mid 1990’s, when our kids were small, we owned a couple of weeks of timeshare.  They weren’t what they were cracked up to be but we made them work and took our boys on several nice vacations.  Once the boys were a bit older they no longer wanted to vacation with mom and dad.  That’s when our timeshares no longer worked for our family. 

Well, just like you, it didn’t take me long to realize that ‘selling’ my timeshare was virtually impossible.  Can you imagine?  I paid a lot of money for those timeshares.  Two weeks in a Florida resort right on the beach.  I tried everything, spent a lot of money on ads and even got scammed once by one of those off-shore outfits.   I couldn’t even give them away.  My sons didn’t want them.  My relatives didn’t want them.  I even offered to donate them to a couple of local churches, but even they didn’t want them.  Turns out they didn’t want the financial burden that came with the timeshares.  I can’t blame them. 

Well, I came to find out that I’m not alone.  A little light reading on the internet was all I needed to realize that there were literally millions of timeshare owners in the same boat.  That’s right…millions.  Did you know that it is estimated that more than half of all the timeshare owners in the United States no longer want their timeshares? Turns out that the majority of us simply don’t use our timeshares, can’t seem to get rid of them, yet are stuck paying those ever increasing annual maintenance fees, taxes, and special assessments. 

It wasn’t until my wife and I were making out our wills that the attorney asked us who we wanted to inherit our timeshares.  It turns out that even upon our deaths, someone has to take on the burden of our timeshares.  They just don’t magically disappear or float off into the sunset.  For me that was the straw that broke the camel’s back.  I couldn’t stand the idea that one or both of my sons would be burdened by these two ‘mistakes’ that my wife and I made. 

That was the beginning of a two-year process that led to me starting this company.  We started by disposing of timeshares in one resort at a time, one state at a time and then one country at a time.  Today we dispose of timeshares all over the United States, Mexico, the Caribbean, and many countries around the world.

While the company I founded continues to be the leader in the industry, I’ve since retired.  While I should be spending every waking moment trying to improve my ghastly golf scores, my aging body just won’t allow me more than a few hours each week.  So, I’ve decided to try my hand at another item on my bucket list…..Writing.   They say the best writers write about what they know, so I’ve decided to write about timeshare ownership and why it’s seemingly impossible to dispose of something that one would think should have great value.

Think about it.  You pay thousands and thousands of dollars for a share of real estate.  The real estate sits in a popular resort/vacation destination in Florida or Hawaii or California, etc.  As a rule, property values in these vacation areas are generally higher than in most other locations and typically increase over time.  When one buys a vacation home one expects to be able to sell that home years later for at least the price they paid and usually for much more.  So here’s the $64,000 question.  How is it that an owner of a timeshare, say on the beach in Hawaii, who paid perhaps $40,000 (about the average in Hawaii) for that timeshare, can’t find a buyer for that same timeshare ten years later?  Not only can’t he find a buyer to pay him even a single dollar ($1), he can’t even GIVE it away for free.  Even charities won’t take it.  Those same charities will accept your old junker car as a donation. They’ll take your boat too.  But not your $40,000 timeshare.  Why? The answer is simple. 

Back in the days when the concept of ‘Timeshare’ was new, people believed what the marketers told them…that timesharing was the greatest thing to come along since sliced bread.  Timesharing was the future of vacationing.  It would give you and your family million-dollar vacations for pennies.  You were buying real estate and real estate always increases in value over the years which meant that once you were done using it you could sell your timeshare real estate for more than you paid for it.  The developers spent Billions spreading that around and millions of unwitting people, many of them quite smart people like doctors, lawyers, engineers, and the like, literally bought into it.  Now let’s fast-forward about thirty years.  Today, millions of timeshare owners have experienced the real truth about timeshare ownership and the ability to ‘sell’ it when you’re done with it. 

While there are actually many reasons why it’s almost impossible to sell your timeshare, the number one reason is that the developers of timeshare resorts never developed a ‘resale’ vehicle by which timeshare owners could divest themselves of a timeshare they no longer wanted.  It’s tough enough for a developer to sell his own timeshares; he definitely does not want or need the competition of a resale market.  Even after fifty years of timeshares in America, timesharing has still not become a mainstream must-have item such as a car, a cell phone, a home, etc.  These are all things that as we grow up we learn that they are the must-have’s of life.  Even life insurance has become one of life’s must-have’s.  As few as thirty years ago life insurance agencies were calling you up and offering you a set of free steak knives if you would allow them into your home to tell you about their life insurance policies.  Today, most people know that once they are married, or have a child, or buy a home, it’s time to buy life insurance.  The insurance companies were successful getting us there.   However, as much as they tried, timeshare developers were not able to get timeshare ownership to become one of life’s must-have’s.  To this day, developers still need to lure customers into take a timeshare tour by offering valuable gifts.  In most cases these gifts are very expensive.  Televisions, Computers, tickets to DisneyWorld, and even luxury vacations and cruises are just some of the lavish prizes one is promised just for listening to a timeshare presentation.  And because developers sell a timeshare to about one out of ten ‘tours’, they give away thousands of dollars in prizes to get that one sale. On top of the cost of prizes there are commissions to highly trained sales people, marketing costs, overhead, not to mention the cost of building the resort itself.  Building and selling timeshares is a very expensive proposition for developers.  Potential Timeshare buyers are a very small percentage of the population and developers simply do not want or need the competition of resale timeshares.  And because the general public does not actively seek out timeshares for purchase (remember, they need to be ‘lured’), resale businesses have not popped up.  Don’t get me wrong.  Over the years there have been a few brave souls that have opened timeshare resale offices with the thinking that “If you build it they will come”.  Unfortunately, those misguided shopkeepers learned very quickly that the only people that came were the timeshare owners who wanted OUT, but not people who wanted to buy in.  No sales.  No money.  No business.