Timeshares.........

I went on vacation this past week to the Smoky Mountains.  The variety of tourist attractions provided a nice little break from the monotony of the most beautiful parts of the country.  It also gave me the opportunity to learn more about one of the most subtle scams that has ever been conjured—timeshares.

I've had a mild interest in learning about timeshares since the people who have them consider them to be investments.  While my wife didn't exactly enjoy the two hours spent talking to Wyndham about the "investment opportunity", it did net us free tickets to a show, $40, and a "free" two night stay for our next vacation.

Just like any other sales pitch, this one came in three parts, just like a meal.  There's the  appetizer, main course, and dessert.  

The appetizer's purpose is to develop an appetite for what they are trying to sell you–vacations.  By asking questions that make you think about families and time, it is easy to get someone emotionally interested in vacations.  And that is exactly what the first server brought us.  

Then the next server brought out the main course, the actual numbers and figures of this "investment".  He made his sales pitch, throwing in inflation figures, future values, and payoff dates.  

Finally, the dessert server showed up and sweetened the deal.  More than double the points, a financing deal, and even paperwork ready to be signed.  Efficient, rewarding, and good value, can't get much better than that–that is until I started crunching numbers in my head, and asked more questions.

The first red flag for me came when the second server told me that this was a one-time offer, that he wouldn't be able to replicate the deal for me in the future, so I needed to act now.  One-time offers have never made sense to me, especially since those one-time deals show up all the time.  It's kind of like the "biggest sale ever" that takes place at JC Penny every other week.  Or Victoria's Secret monthly "semi-annual sale".

Then he told me that the inflation rates in the hotel industry is about 12% annually.  I literally pulled out the B.S. card on that one.  I quickly did the math and realized that what he's telling me is that a hotel that charges $150 a night today only charged $38 a night in 2000?  I think he inflated his inflation number. 

Once he realized he wasn't getting anywhere with me, the deal sweetener showed up with even more.  Just like the infomercials, he told me that if I act now, he would double my points.  And with the timeshare rental program, he could hold this "one-time offer" for me for 20 months.  For a one-time offer, it sure lasts a long time.

Then came the most blatant attempt to mislead.  He told me that once the timeshare had been paid off, there would be no more payments, no more fees, and all the charges for hotel stays would be nonexistent.  I then pointed to the bottom of the offer sheet and asked him what the $80 maintenance fee was about.  It is a monthly fee that has the potential to go up or down.  Since it is in the hotel industry, I am going to make the assumption that it will only go in one direction by about 12%.  Further interrogation revealed even more fees and limitations associated with booking vacations.  

I promptly told him that we weren't interested in it at the time and his demeanor flipped like a switch, further cementing my opinion of timeshares as subtle scams.  

Knowing that almost all owners of timeshares regret the purchase confirms my notion.    

Shelter Shakeup

Since the housing market has taken quite a hit over the past couple years, and the Fed and the government has taken drastic measures to try to revive the market, the big question is what lies ahead for buyers and sellers for the next two, three, ten years. Only time will provide an accurate story, but there is no shortage of guesses from prognosticators. While buyers are enjoying low interest rates and sellers are smiling at the first time homebuyers trying to take advantage of the $8,000 credit, buyers and sellers will be frowning at what the future may hold, perhaps within the next year.

So lets look first at the present situation. Low interest rates make refinancing more attractive for current homeowners looking to refinance. Ironically, that was one of the forces that pushed the needle into the housing bubble. First time homebuyers taking advantage of the $8,000 tax credit have until December to sign the papers saying they will take over an asset that will lose its value for a couple more years. Sounds like a great idea to me.

Sellers are not selling their houses for as much as they would like because they bought their houses 5 years ago thinking that they could double their equity three years later. These are probably the same people who invested their life’s savings into Bear Stearns stock. Sellers are happy about the attractive deals that are out there for homebuyers though because that means two more people are willing to at least drive by to see the exterior.

The future seems to look a lot more bleak for both of these groups.

With the lowest interest rates ever, and all the money that has been pumped into the system, rates will go up, a lot more than the average Joe is going to realize. Economists are thinking perhaps 7.5% to as much as 15% within the next year or two. This would be necessary in order to curb inflation. We do not want to become the next Zimbabwe. But with all the money that was pumped into the system, would 15% really be enough? But lets just say interest rates rose to 15%. Would you take out a loan to buy a house? I think I speak for most when I say I wouldn’t unless the sellers dropped their asking prices. So that is exactly what will happen.

Housing prices will drop so that buyers will drive by to see the fresh paint on the exterior. Sellers will lose a ton of money selling the house, and buyers are going to grab their ankles as they volunteer to pay high interest rates on their mortgages.

The positive side for sellers is that if they sell their houses soon, they could just invest their money in a really strong company, perhaps General Motors.

So what does this mean for homebuyers in the future? If you have the money to throw down on a house in a couple years when housing prices may hit bottom, it may not be a bad idea. If you don’t have enough money for a house, good luck. You could just invest your money in another really successful company, Ford.

If you bought a house recently because houses are cheap in order to make a quick dollar in a couple years, you may make your quick dollar, but you’ll probably lose several thousand in the process. That means you won’t have that extra money so that you could invest in the booming company CROX.

My plan is to wait a few years to buy a house. I’m sure I can get one for a low price since the mortgage rates will be high, and I’m sure by then, there will be even more tax credits, government programs to help me get into a house for dirt cheap.

Disclaimer: If you happen to get rich as a result of my brilliant stock tips, it is your responsibility to share to profits with me. My investments in Washington Mutual, Sirius Radio, and Las Vegas Sands two years ago hasn’t panned out for me. You can’t go wrong because it can’t get any lower, right?

Next weeks blog: Abrupt bankruptcy?