Out of the 700+ articles I have written about the timeshare industry how many times have I said “Never consider a timeshare as an investment!” ?
At least a hundred. Maybe more.
That’s why timeshare news out of Brazil caught my eye. Check out this quote from a story last month: “rewards are there to be reaped – 16% per year in our case, as well as a guaranteed buy-back so you don’t need to think about exit strategies.”
Wow! That really got my attention. How do they do it? In a joint venture with RCI, UV10 (the developer) builds and sells a completed three bedroom home on an upmarket resort in northeast Brazil. The timeshare buyer’s contract can last from four to twelve years, pays out 8% per year, and at the end of the contract you get back your initial investment plus an additional 8% – at least that’s how I understand it.
Five years ago they sold 1,500 of these deals. By 2012 the number of buyers skyrocketed to over 25,000!
It took me a little while to figure out this setup and why any company would so such a thing. But then, math was not my strong suit in college. I think what this boils down to is this: At the end of the buyer’s contract the developer will own those 3 bedroom luxury homes free and clear. The timeshare buyers fronted them the money to finance this and RCI/UV10 pays them back interest only till the end of the term with a balloon payment at the end.
Is this a “win win” situation? I still need to think about this some more. What do you think the long term projected income from these properties be? Heck, what will the short term income be while the developer rents out these homes one week at a time? It is a cash cow – all by using financing from someone else.
I wish I thought of that first! But then I still think there will be unanticipated problems with this model of timeshare development and sales. I just don’t know what they are. If this was such a good construct for a timeshare venture why has it not been tried in the US? And if RCI is in on this deal why have they not done this in the US? Would it even be legal in the United States?
So many questions. I have got to think about this more.
Time for coffee.
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