The Vacation Property Scam

On an earlier post I wrote about the dangers of multi-level marketing (MLM). I actually have a planned follow-up to that post which chronicles further experiences I have had with the MLM "pod people" as I have heard them called. However, one of the main points of that post was that you should always be leery of any "opportunity" in which you are promised great things, but in which direct answers to pertinent questions are not given. I would like to discuss briefly another scheme that is out there that you may or may not have been exposed to, and which you may have even fallen victim to. That scheme is the vacation property scheme.

I don’t use the word ‘scheme’ here lightly. I do believe that when you are offered something in a high pressure way, told you must do it immediately, and are belittled if you don’t, there must be more than meets the eye. These things have all the characteristics of a scheme, a scam, and a sham.

Actually, my very first encounter with high pressure sales pitches had nothing whatever to do with either MLM, property, or anything of the sort. My first encounter was as a young man in my late teens or early twenties and pertained to a workout gym. I was not totally into that sort of thing (and my physique would make that clear!), but I had a friend who was. I went as his guest one time. I guess it was ok, but it was just not my cup of tea. However, someone there cornered me, and wanted to talk to me about joining. They had a ‘special deal’ that was just going on right then. If I did not sign up that day, I would never again be able to get in at that rate. I could not leave, think about it, and come back another day to sign up. I must do it right then or lose out.

Now, I was young and naïve. I had very little experience with such things. I was not an aggressive or assertive person. If it was anything other than money, I may have fallen for it. But, as I stated in the post on MLM, I, for whatever reason, have always been very tight when it comes to my money. And, seeing as how I was not totally fired up about paying money in order to have the opportunity to go do hard and painful exercises, I politely declined. This against the protests of the salesperson. I thought he was going to follow me out to my car and hound me all the way home. "You’ll NEVER get an opportunity like this again!!!" he said over and over.

About two weeks later I saw an advertisement in the local newspaper for that very same gym offering that exact same offer open to the public. A valuable lesson was ingrained in my mind that day. I have been leery of high pressure sales pitches ever since.

With that as a background, lets fast-forward a few years. I was in my mid-twenties, had a beautiful wife (still do!) and a wonderful young baby boy (who is now a young man in his late teens). We received a call or letter or something about coming to hear about an opportunity for a vacation property. Simply for showing up and hearing their pitch, we would receive some sort of nice prize (I don’t recall exactly what it was in this instance).

Now, as I recall it, this was a ‘resort’ being built on one of the nicer lakes in our region. We were shown a little of the property, and given promises of things that were in the works and going to be built. (Hint number one: don’t believe it til you see it. If it ain’t already built, it may never be!) After being greatly impressed, we began talking money. Frankly, I do not remember how much the money was. I do know it seemed like a whole lot to me at the time, and the thought that I was paying for a lot of possible future use in a single place that is not even completed yet gave me pause for concern. Again, I was not the most cunning of men, but somehow when it came to money, I was one of the most cautious.

Now, to paint the picture a little clearer for you, all this was taking place in a large room. There were many people there being given the same sales pitch as I. During the time I was there, perhaps five or six people actually agreed to a purchase. Each time someone did, the salesmen would stand up, ring a loud (and quite annoying) bell, and make an excited announcement. This atmosphere was similar to the ‘pep rally’ atmosphere at the MLM meeting I would attend a few years later and described in the MLM post. I guess some people really love attention like that. Not me! That actually gave me further resolve to not buy into the sales pitch.

So, I began the process of declining. This promised "no pressure" sales pitch suddenly took a turn for the worse. The guy just would not let it go. He would not take ‘No’ for an answer. I remember him pointing to my wife and my baby and saying "If I had a beautiful family like that, I know that I would want to provide them with a nice vacation place for life."

Well, that was just too much. Mess with my money and its bad enough. Question my devotion to my family and you have just gone too far. We got up, got our crappy prize, and left.

Over the years, I have had several other opportunities to go on these things. It was usually the promised prize along with a promise of no high pressure sales that got me to go. However, none of these ever seemed to work out quite like it was planned. One time, we were promised a grill and so many pounds of steaks. The grill was cheap and lousy – I don’t think we ever used it. The steaks were almost indescribable. I didn’t even recognize the cuts of meat. They were about as tender as a steel belted radial and probably less tasty.

Once, I received an invitation to one of these things that had five scratch off numbers. The instructions said that if you scratch off a series of two you get a certain prize. If you scratch of three you get a better prize. Four and five are even better prizes. When I scratched my five off, four of them were of the same number. The prize for four was some huge color television. We kinda needed a new television at the time, but I was skeptical. I read and re-read the thing over and over looking for the catch. I could not find it. I finally decided to go, knowing I would turn down the offer, and thinking I would get my great new television set for my trouble. My biggest concern was how I was going to fit that thing into my car. Yet, in the back of my mind, I feared there was still some catch to it. I just did not know what it was.

When I finally convinced the salesman that I was not going to buy, he said, "Well, give me your invitation so I can see what prize you get." Nervous, I gave it to him. He said, "Well, you have a series of two, and you get such and such prize." I don’t remember what it was, but I know it was crappy. I said, "But I have a series of four and that gives me the big TV set." "No, you only have a series of two. That gives you this crap prize."

I don’t remember the exact numbers I scratched off, but, let’s just I scratched off something like 3-3-7-3-3. Four threes, right? I get the prize for four of the same, right? No. It had to be a series. Had it been 3-3-3-3-7 then I get the TV. Instead, I just got the prize for the series of two. It was such a wonderful prize that to this day I do not remember what it was!!! Maybe this was the cheap grill and bad steaks - I really don’t remember. Actually, I do not even remember what the sales pitch was for on that particular trip.

However, I am convinced that the whole thing was a scheme. They knew that a lot of folks would think they had won the television. That got them there. Then the high pressure sales would catch some percentage of those who took the bait. What a system!

I think these offers went on for years on the basis of baiting people with the promise of a great prize, when the actual prize was not quite what you had in mind. One acquaintance of mine, who happens to love boats, received an offer that involved the prize of a sailboat. After the pitch, he asked about it and was told that they would mail it to him. How do you mail a sailboat? Turns out, it was a blow-up raft.

Another acquaintance received an offer promising a five piece entertainment system. He got a walkman, headphones, and three batteries.

Eventually, though, enough people apparently got skeptical about these tactics, and the sales people had to up the ante a bit. My further experiences did involve somewhat better prizes, but the experience itself was still very negative.

The next specific experience I remember involved a condominium that was located in my favorite vacation location – Orange Beach Alabama. We were contacted via the telephone and asked to come to the presentation with the promise of two nights at a nice hotel, a thirty dollar gift certificate to one of various restaurants, and perhaps another prize or two – I do not entirely recall. We did receive these prizes, and did enjoy them very much. My wife and I had a wonderful weekend. The gift certificate we received was even from our favorite restaurant. No complaints here.

However, the sales pitch itself was simply awful. One thing that has changed considerably from the earlier years of timeshare condominiums and vacation resorts is that now you essentially buy into the system where you can stay at resorts virtually anywhere in the world. Without going into the specific details of this particular deal (I don’t really remember them anyway), suffice it to say that we spent about an hour and a half with this lady, and the cheapest product offered to us was in the neighborhood of fourteen thousand dollars. Apparently the lady took my interest in seeing one of the rooms as an actual interest in purchasing one. Everything was fine until I repeatedly made it clear we were not buying. The last thing the lady did was very nastily say "Well, you shouldn’t take any more free vacations!!" That hacked me off!

That experience was in November, 2001. I specifically remember it because it was on the day of the University of Alabama’s last victory over Auburn in football! Only recently have I had another experience.

We had an opportunity to spend a week in Branson, Missouri free of charge at a condo of a friend. During the week their sales department called the room and offered me one hundred twenty dollars cash on the spot to listen to their pitch. Short on cash, I agreed. Basically the same pitch was given once again. Vacation paradises all over the world were mine for the asking. However, shortly into the process, our lady realized she did not have a sale. They were obligated to spend an hour and a half with us. She started basically going through the motions. It was somewhat humourous. Finally, she said, "All I can offer you is thus and so and the cost is, gulp, fifty three thousand dollars. I am quite sure that you are not interested in that, are you?" Of course we were not. Not only this, though, but they could finance this fifty three grand at credit card rates for us. Yippee!!! "However," she continued, "I’ll call John. He is authorized to give you some alternate opportunities."

Well, along came John. He was offering something quite less expensive. We were still pretty adamant that the answer was no. So, he told the original sales girl to go ahead and sign us out and get our prize. She left, and shortly thereafter an older friendly looking lady came over and began basically an exit interview. "Were you treated nicely?" "Do you understand our offers?" etc. But, slowly the questions began changing. "What is your reason for not purchasing with us today?" "On a scale of 1-10, how interested do you think you would be in buying in at some time in the future?" etc. Next thing I know, this friendly retired nurse was making the final push. She leaned over the table as if she was taking a chance telling us this and said "I’m authorized to give you this very special offer…." then went on to give one last ditch try to get us hooked. This was apparently some sort of a trial offer for only about twenty five hundred dollars. After wrestling with her for a few minutes, she finally gave up the ghost, gave me my cash, and let me go. I hated every minute of it, but I guess a hundred and twenty dollars for less than two hours of work is a pretty good rate!

Now, all of this so far has been a brief description of my experiences, but, analytical mind that I am, my real intent is to analyze in very broad and not too specific terms why one should never buy into one of these offers. It all boils down to simple economics. However, the majority of people today are totally uneducated in the field of economics. They are therefore apt to fall for something that ‘sounds’ like a good deal.

A great introductory book concerning economics is Henry Hazlitt’s Economics in One Lesson. The ‘one lesson’ referred to in the title is essentially that, when considering economic policy, one has to look beyond what is immediately obvious at first glance as a short term limited result and look further and deeper to the longer term, wider impact. He then demonstrates how this works by examining a number of faulty economic premises in light of this one lesson. For example, minimum wage law in the immediate, short term, appears to have a very positive effect in that people, particularly poor people, can make more money. However, the wider, deeper, longer-term effects of minimum wage law are in fact quite damaging to the economy as a whole, and particularly to those at the lower economic levels. To see all of this takes some fairly deep and lengthy thought processes that may not be readily available to every person.
Now, were you of a lower economic status than most and your local politician offers to raise the minimum wage, you would most likely support him in his efforts. However, if someone educated you on the damages of minimum wage law and showed you that in the long run it would in fact bring harm to you, you would likely not support it. What you may need to get to the point of understanding this economic impact, though, is time to understand the arguments and think them through.

Now, in considering the vacation property offers we discussed above, the one thing that is absolutely not available is time to think. If reading this blog accomplishes absolutely nothing else than the following, I will be satisfied: Always be leery of any offer that sounds great, yet must be taken advantage of on the spot with no time for further consideration. Perhaps that can be considered "Personal Economics in One Lesson."

Every single time I have ever gone to one of these sales pitches, (including also the one from the gym) I have been told that I simply must take advantage of it right then. I had to buy while I was there. Virtually every time when I did not buy immediately, the seller began sweetening the pot with supposedly better offers, but the pot was never sweetened with time. I always asked for brochures, literature, and further information about the costs and benefits of the plan, and have yet to receive one single bit of information that I could take home and contemplate. At least once, maybe more, when I asked about further information was asked in return "Well, what information have we not already given you?" This is a stupid question. If I knew what information I had and did not have, I would not need to ask for more. The only thing that was ever shown me (and this is eerily similar to the multi level marketing scams) is a few numbers scratched on a piece of paper by the salesperson. And even this was not given to me to take home and consider. When all was said and done, I left with no information whatsoever. Please consider that fact before you buy into one of these deals.

So, the next time you go to one of these sales pitches be sure to ask yourself: "If this is such a wonderful opportunity for me, then why do they not allow me to see all the numbers and take it home and think about it for a few days?" If it is in fact a great deal, you could determine that yourself and you would likely come back to them with a purchase.

A lot could be said, and perhaps in another blog I will say more, about how to consider offers such as this should you ever have the information needed to analyze it. It is highly doubtful that you would ever receive that information from a salesperson of this sort, but the process of analysis can still be useful in multiple situations.

The long and the short of it, though, is this: With one of these deals you pay a large, very large, sum of money up front for the right of staying in a condo in the future. The latest one I went to allowed you to buy a certain size (one, two, three, or four bedroom) and a certain amount of time per year. Actually, even this was not so simple – you actually pay for a certain number of ‘points’ that can then be redeemed for certain amount of space and time per year. That is, of course, not explained in any detail, so you really do not know how much you have bought, nor do you know how much you will specifically need in the future. Therefore, you may be paying for a lot more than you need, or a lot less. You really do not know. But, once you pay this large sum, you have some certain amount of time and space in their condo resorts for some amount of time (even for a lifetime if you buy the lifetime package).

However, in addition to this, these things always have other charges that come up annually. These are usually refered to as ‘maintenance’ fees and are supposedly used for upkeep of the property. These things tend to have a way of starting out very cheap, then going up through the years. I know of people who have bought into these things and eventually their maintenance fees go up to hundreds of dollars per year.

Now, the only way to determine if you have saved money or lost money on such a deal would be for you to know and understand exactly what it is you have bought, exactly what your needs would be for the next so many years, know exactly what the rate of increase in vacation rental space would be, know exactly what the increase in your maintenance and any other fees would be, know how much interest you could make if you did not spend the large amount up front, etc. and then make a comparison. It is almost impossible for an average Joe or Jane to know all this, but I’ll bet the accountants working for the resort sales companies have a pretty good ideal!
But, as an example, say, you spent twenty five thousand dollars now, and began paying two hundred dollars annually in fees, but that these fees go up by fifty dollars each year. Now say you could get the same room for a week this year for a total of fifteen hundred dollars. Assume this goes up by five percent each year. So, comparing your two options, you could spend twenty five thousand dollars now, and two hundred plus dollars per year increasing by fifty dollars per year each year – OR – you could invest the twenty-five thousand in a savings account, get five percent per year and take your vacations from the money in that account. These rentals will cost you fifteen hundred dollars per year going up at a rate of five percent per year. Based on these assumptions (which may or may not be realistic – I just made them up) it would take at least twenty years to break even. That is, if you purchased this plan, it would take you over twenty years to start actually saving money. Less than twenty years and you would have actually come out cheaper not buying the condo and instead just renting for a week each year. This analysis does not even consider the economic impact if you bought in and had to finance the deal at essentially credit card rates.

Now, in twenty years a lot could happen. You may lose a job, have an illness, or other financial hardship. Would you have rather spent that money on still future potential vacations, or would you rather have invested that money? What if you, or your spouse, or both, passed away ten years from now? Was that a wise investment? Essentially what you are doing on one of these offers is paying for future vacations way ahead of time. That is almost never a wise thing to do (unless you are the seller of such a plan). Would you go down to the local car dealership, and pay him twenty five thousand dollars for a car you will get twenty years from now – even if that car is then worth fifty thousand dollars? I think not. Why would you do this with rental property?
Now, it is certainly possible that some people get in at the right time, have many years worth of vacations, and in the end, spend less than they would have otherwise. In most cases this is very doubtful, but it is inevitable that a few come out very good. I am sure the sellers of the condos know and understand this. But, I can guarantee you this one thing: We have only touched on the economics of doing this. The companies that market these deals have paid experts looking at the economics of it. Do you think they have your economic security or their profit in mind? I have absolutely nothing against a company making a profit. I want to make a profit. But, these guys make huge profits by, in my opinion, defrauding their customers. They make you think that you have just gotten the deal of the century, when in fact, they are laughing all the way to the bank. You or I may not be able to fully grasp and analyze the economic impact of a deal such as this but I assure you that the selling company knows the general economic impact for the bulk of their sales. Think about that before you buy into such a deal.

In the end never ever buy into anything that you do not fully understand the terms of the deal, especially if information on the terms is not forthcoming and time is not given to analyze the terms.