Are Timeshares Ever Worth It?

ARE TIMESHARES EVER WORTH IT?

Many buyers come to regret their decisions.

Presented by Jared Daniel

 

Thinking about buying a timeshare? You may want to think twice about it.

 

While some people buy timeshares and love them, many question their choice after an initial honeymoon period. Years later, they realize that they have bought more than part-time use of a resort property – they have also bought into a cycle of aggravating fees and maintenance charges, adjusted for inflation.

In the wake of the recession, demand for timeshares has waned. Many of them are proving hard to sell, and some owners are nearly giving them away.

  

Timeshares can yield a great ROI – for the resort. At a glance, these properties seem so glamorous – and impressive infomercials, brochures and DVDs commonly announce a free night’s stay or a free weekend if only you will meet with a salesperson.

  

A profit motive fuels this spectacular sales pitch. Timeshares can be lucrative for a resort community, especially one looking for a source of financing on the way to completion or expansion.

 

Too many people end up paying more than fair market value for such investments. In a prime resort area, two weeks use of a condominium that might sell for $350,000 in today’s market may end up going for $5,000-6,000. A little math will tell you that a developer can make a nice chunk of change this way.

   

They may not represent a great investment for you. In spring 2012, an eye-catching blog post appeared at SmartMoney.com, reporting that the number of frustrated timeshare owners selling their investments for $1 (or even giving them away for free) had doubled in the past year. “Very few timeshares increase in value,” admitted Alisa Stephens of RedWeek.com, an online marketplace for these properties. In Q1 2012, FSBO postings on that website had doubled from Q1 2011.¹

In 2010, the American Resort Development Association reported annual timeshare maintenance costs averaging $731; they have likely risen since.¹

 

The timeshare resale market is currently very soft. Owners have been desperate to unload properties, and that has created a glut. In contrast, the latest yearly data from the National Association of Realtors shows that sales of vacation homes increased by 7% in 2011.¹

 

Is buying a timeshare akin to buying a condo? It depends on the nature of the ownership option. There are timeshares that are legally considered real property, and there are also vacation interval plans.

When timeshare ownership is deeded, you buy real property with a monthly mortgage attached if there is no cash sale. You and your fellow timeshare buyers collectively own the resort and have a say in its upkeep and its management.²

 

Alternately, the developer owns the resort and what you actually buy is a “right to use” option, which is legally considered personal property. In this arrangement, you commonly buy a window of time per year – it may vary annually, it may not – to use the property. In a few of these arrangements, you buy the right to use a portion of the unit with the option to rent out the unused portion. There are even right-to-use arrangements that allow you to buy weekends or weeks at multiple resorts.²

 

If you are seriously thinking of buying a timeshare, read the contract more than once. Look for a rescission clause. Ask to see the current maintenance budget for the resort. Ask about closing costs, broker commissions, and finance charges. Lastly, ask if annual maintenance fees can be capped (some timeshares do offer this feature).

How do I get out of a timeshare? You can put it up for sale online or through other media channels, but before you do, you need to check if the resort has restrictions or fees that may affect your capacity to sell it (or transfer its ownership). You can try the FSBO route – many do – or you can contact a firm that specializes in timeshare resales. (Some of these resellers may come looking for you before you look for them.)

If you go with a reseller, make sure you are dealing with licensed real estate brokers or agents. If the reseller demands a fee upfront, that’s a red flag. If you have only owned your timeshare for a couple of years and it is located outside of a prime resort area, you might be looking at a significant loss if you sell it. A timeshare appraisal service – one licensed in the state in which it is located – could help you determine its present market value.

    

What price paradise? Standing on that shore or that fairway, it may seem like you are buying a little piece of Shangri-La – a few weeks of it, anyway. You may be buying into a resort’s long-term financing strategy as well. If you fall completely in love with a resort destination, then you may end up loving your timeshare. For others, that is not the case.

   

Jared Daniel may be reached at (480) 987-9951 or jared.daniel@wealthguardiangroup.com.

http://www.wealthguardiangroup.com/

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

    

Citations.

1 - blogs.smartmoney.com/advice/2012/04/04/timeshare-prices-plummet-to-1/ [4/4/12]

2 – www.ftc.gov/bcp/edu/pubs/consumer/homes/rea15.shtm [3/05]

An Introduction to the Stock Market

AN INTRODUCTION TO THE STOCK MARKET

What it is, how it works, and how to get started.

Provided by Jared Daniel

Confused or unsure? You’re not alone. It’s amazing to me how many adults, many of them college grads, know practically nothing about the stock market. Many schools simply don’t offer or don’t require the classes that cover it. If you’ve been holding off on investing because you simply didn’t know enough about it … that’s probably wise. But rather than delay any longer, here’s some information to get you started:

The nuts and bolts. Basically, if you own a stock, you own a part of a company. You’ve invested in that company. If the company does well, the value of your stock rises. If the company does poorly, the value of your stock falls. That is the stock market in the simplest terms.

                                   

The market. Think of it like a flea market. Rather than travel all over town, a flea market offers you a central location where buyers and sellers can meet up. The stock market isn’t all that different. Stock markets are simply gathering places for stock owners to buy and sell stock securities.

Exchanging? Trading? These are terms you hear frequently in regard to stocks, but they can be misleading … and perhaps this is one reason there is so much confusion. You’re not actually exchanging stocks, and you’re not really trading stocks. You are buying them or selling them.

How much does it cost to buy or sell a stock? Actually, there are two costs to consider … 1) The cost of the stock, and 2) the cost of the “trade”. The price of the stock varies hugely from company to company and can change from moment to moment, so that’s a question I can’t answer for you. But there’s also a fee to buy or sell a stock (or “share”). The amount of the fee depends on which stock brokerage you use. Generally these fees can range from under $10 to $20 or even up to $100 per “trade”. Keep in mind you will pay a fee when you buy your stock, and again when you sell it.

What is a brokerage? A broker is a conduit for the buying and selling of stocks. For example, let’s say you want to buy a stock that’s listed on the New York Stock Exchange (NYSE). Well, that stock is bought and sold on the floor of the NYSE. So, unless you are authorized to trade at the exchange and want to travel to New York, you instead enlist the services of a broker to take care of your buying and selling for you. Brokerages pay fees to become members of a stock exchange and access the “floor” of an exchange for trading. They then buy and sell stocks on behalf of their clients.

So, how do you get started? There are all kinds of ways to get started and a myriad of brokerage choices, including discretionary dealing (where the brokerage chooses stocks on your behalf), advisory dealing (where the brokerage gives you advice, but leaves the decisions up to you), and execution-only brokerages (where you will be entirely self-directed). Most brokerages have a minimum deposit you must make to get started, so you’ll want to look into that as well. If you’re serious about investing and want to do it frequently and avidly, read up on the markets and consider taking a class to educate yourself.

Before you make any big decisions, though, think about enlisting the assistance of a qualified financial professional who can give you insight and perspective on the financial markets.

Jared Daniel may be reached at www.wealthguardiangroup.com, or jared.daniel@wealthguardiangroup.com.

These are the views of Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

A Review of Recessions

A REVIEW OF RECESSIONS

This economic slump could be just another “bump in the road.”

Presented by Jared Daniel at Wealth Guardian Group

Economists widely agree: America seems to be in a recession. Important economic indicators show declining manufacturing, a constricting retail and service sector, and poor GDP. So is the sky falling? Is this the end of the world? No. Recessions have occurred throughout our history, and the economy has bounced back.

                                                                             

The National Bureau of Economic Research has identified ten American recessions since World War II; this would be the eleventh.¹ Let’s take a look at some notable recessions in recent decades, and the way Wall Street reacted to them.

The 2001 recession. This one lasted eight months, by NBER’s estimation, and it followed the longest economic expansion in U.S. history (1991-2001).² It accompanied the last bear market, which lasted roughly from mid-2000 to late 2002. In 2002, stocks tanked: the Dow Jones Industrial Average was down 16.8% for the year, the S&P 500 sank 23.4%, and the NASDAQ fell 31.5%.³ But in 2003, the market made a powerful comeback: the Dow gained 25.3% on the year, the S&P 500 26.4%, and the NASDAQ an amazing 50%.⁴ The bulls kept running right on through 2007.

The 1990-91 recession. Some trace the roots of this one back to Black Monday in 1987, others to the S&L failures and junk bond collapses of the late 1980s. The first three quarters of 1991 represented the depths of this recession, which did much to thwart the reelection of President George H.W. Bush. Interestingly, this one occurred in the middle of an 18-year bull market. Between the start of 1990 and the end of 1991, the Dow rose from 2,810 to 3,100.⁵

The 1981-82 recession. This one was quite severe, lasting 16 months.¹ Some historians blame this recession on the Federal Reserve, which tightened its monetary policy in response to the runaway inflation of the late 1970s. But economists see it differently, arguing that Fed chairman Paul Volcker had to do something – and something drastic – to get the economy back on its feet. The Fed ended up hiking interest rates all the way to 21.5% in December 1980 (the all-time record), and during this recession, the jobless rate was higher than at any time since the Great Depression.⁷ But the Fed’s tactic worked. By 1983, inflation was down from double digits to 3.2%.⁷ Between February 1983 and August 1987, the Dow climbed from the 1,100s to 2,700.⁵

The 1973-75 recession. Ah, yes. Remember waiting in line for gas? Remember buying gas only on even or odd days according to your license plate? This one occurred not only due to the OPEC embargo, but also as a byproduct of the U.S., U.K., and other key nations going off the gold standard in the early 1970s. That move devalued the dollar and other benchmark currencies. So in October 1973, OPEC decided to price oil relative to the price of gold instead of the value of the dollar. Its member nations also cut production levels. Over the next few months, crude oil prices quadrupled.⁸ Commodities prices took off. The bull market in commodities lasted until the dawn of the 1980s. When the OPEC embargo hit, Wall Street was already in the middle of a bear market. Yet just a short time later, in July 1976, the Dow hit 1,011, its highest point between January 1973 and October 1982.⁵

Some perspective. Until the last quarter-century or so, recessions commonly and cyclically occurred every few years. Only two post-WWII recessions have lasted longer than a year.¹ Some analysts feel this is due to the evolution of the U.S. economy over the years: today, consumer spending and the service sector are huge drivers, not just manufacturing. While no one has a crystal ball, what is apparently the first recession in seven years may fall in line with recent economic examples, to have only brief and temporary effects.

These are the views of Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

Citations.

1 cnbc.com/id/20510977/

2 money.cnn.com/2001/11/26/economy/recession/index.htm

3 usatoday.com/money/markets/us/2003-01-02-charts-intro_x.htm

4 query.nytimes.com/gst/fullpage.html?res=9B01E2DE1F3EF932A35752C0A9629C8B63&scp=1&sq=January+1%2C+2004&st=nyt

5 http://www.incontext.indiana.edu/2002/nov-dec02/spotlight.html

6 answers.com/topic/closing-milestones-of-the-dow-jones-industrial-average

7 marketwatch.com/news/story/have-you-gone-paul-volcker/story.aspx?guid=%7BFC39F929-B835-431D-90E7-C48585790133%7D

8 cbc.ca/news/background/oil/

Why You Shouldn't WIthdraw From Your 401(k)

WHY YOU SHOULDN’T WITHDRAW FROM YOUR 401(k)

Resist the temptation. Fight the urge. Fight for your future.

Provided by Jared Daniel

Recently, you may have heard about a spike in 401(k) withdrawals. The evidence is not merely anecdotal. Fidelity Investments recently issued its 2010 overview of the 401(k) accounts it administers and found that 22% of participants had outstanding loans from these retirement savings plans, with the average loan at $8,650. In 2Q 2010, a record 62,000 of Fidelity’s 401(k) participants had taken hardship withdrawals – a jump from 45,000 in the preceding quarter.^1,2

If at all possible, you should avoid joining their ranks.

The persuasive argument against a 401(k) loan. If you borrow from your 401(k), you are opening the door to some big risks (perhaps not immediately evident to you) and you may pay some severe opportunity costs.

^·          What if you lose your job? That’s an all-too-common occurrence right now. If you get laid off or leave your job and you have an outstanding 401(k) loan, guess what – you usually have just 60 days to pay it all back, 60 days without income from work. Well, what if you don’t pay it all back? The outstanding loan balance may be recharacterized as a 401(k) withdrawal. If you are younger than 59½, you may be assessed a 10% federal tax penalty on the “withdrawal amount”, which by the way would be taxed as ordinary income.^1,2

^·          What will you do with the money? Will it be invested in anything? If not, it won’t grow. When you take a 401(k) loan and use the money for an expense, you are forfeiting its potential for growth and compounding. (Think: how much could that lump sum grow over 20 or 30 years if your account returns 5% or 8% a year? Do the math, look at the potential.)

^·          The terms of a 401(k) loan are less than ideal. You can’t deduct interest on a 401(k) loan, and that interest is typically one or two points above the prime rate. Here’s another thing few people realize about 401(k) loans: when you pay the money back, you pay it back with after-tax dollars. Ultimately, those dollars will be taxed again when you take a 401(k) distribution someday.^1,3

The compelling case against hardship withdrawals. Sometimes these are made in worst-case scenarios – someone is being evicted or foreclosed on, or needs money to pay medical bills. Sometimes people think hardship withdrawals are “good debt” – they make these withdrawals in order to pay college costs or buy a house. Well, here are the reasons that you might want to look elsewhere for the money.

·         You may not be able to get a hardship withdrawal. Some 401(k) plans don’t allow them. Many do, but you will have to satisfy some IRS rules. Hardship withdrawals can only be made to pay medical expenses that are more than 7.5% of your adjusted gross income, to pay qualified tuition expenses, to pay funeral/burial costs,  to make home repairs, or to stop eviction or foreclosure on a primary residence. Beyond those IRS requirements, the company you work for might have its own stipulations. Some firms won’t give an employee a hardship withdrawal unless the employee can demonstrate that no other source can provide the needed funds.²

·         You may not be able to withdraw as much as you want. Okay, let’s say you are able to take a hardship withdrawal. The money is considered a retirement plan distribution. Are you younger than 59½? If so, you may be hit with an additional 10% tax penalty for early withdrawal. Regardless of your age, the amount you withdraw will be taxed as ordinary income. So besides the potential subtractions above, you’ll lose even more of the lump sum you pull out to income taxes. Only in very rare cases can you get a hardship withdrawal without penalty (court order, total disability). Even in those circumstances, the money is still taxable.^2,4,5

·         You can’t pay the money back. It would be nice if you could, but you can’t. To add insult to injury, after you reduce your retirement savings through the hardship withdrawal, you typically can’t contribute to your 401(k) for the next six months.^2,5

Knowing all this, would you still consider these moves? Is it worth it to possibly do harm to your retirement savings potential? There are alternatives. Talk to a financial services professional – you may be pleasantly surprised to learn what other options might be available.

Jared Daniel may be reached at http://www.wealthguardiangroup.com/, (480) 987-9951 or jared.daniel@wealthguardiangroup.com

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. www.montoyaregistry.com www.petermontoya.com

Citations.

¹ kiplinger.com/columns/kiptips/archives/what-you-need-to-know-about-401k-loans.html [8/20/10]

² moneywatch.bnet.com/retirement-planning/blog/what-works/more-folks-raiding-401k-accounts/466/ [8/30/10]

³ bankrate.com/finance/debt/avoid-401-k-loan-to-pay-credit-card-debt.aspx [4/8/10]

⁴ fool.com/personal-finance/taxes/2005/05/23/job-changes-and-your-401k.aspx [5/23/05]

³ startribune.com/lifestyle/yourmoney/100647994.html [8/14/10]

Ways to Save for College

Ways to Save for College

Comparing & contrasting the potential of some popular vehicles.

Provided by Jared Daniel

How expensive will college be tomorrow? The Department of Education projects that by 2030, the tuition cost of obtaining a four-year degree at a public university will surpass $200,000. Staggering? Indeed, but college is plenty expensive already. In 2012, tuition averaged $15,100 a year at public colleges and $32,900 a year at private colleges.¹

 

A Sallie Mae study finds that today’s students, on average, can only pay for 24% of their college expenses. It is little wonder that student loan debt exceeds credit card debt today.¹

   

How can you start saving to meet those costs today? With interest rates being what they are, don’t look to a garden-variety savings account. Even if current interest rates soon ascend to 2% or 3%, you would be at a disadvantage even if the bank account was large as tuition costs are climbing more significantly than inflation.

The message is pretty clear: to meet college costs, you need either a prepaid tuition plan or a savings vehicle that taps into the power of equity investing. Let’s look at some options.

 

Prepaid 529 plans. Offered by states and public colleges, these plans let you buy tomorrow’s tuition with today's dollars. You purchase X dollars of tuition today, and that is guaranteed to pay for an equivalent amount of tuition in the future.

 

You can do this in two different ways. Some of these prepaid plans are unit plans, in which you pay for X number of college credits or units now with a promise that the same amount of credits will be covered in the future. In other words, you’re locking in tuition at current rates.

 

As an example, let’s say a year of college at Hypothetical State University requires 36 units. Mom and Dad use a unit plan to pay $7,500 for those 36 units now for their 6-year-old daughter. In turn, the plan promises to pay whatever those 36 units cost when she starts her first semester at Hypothetical State 12 years from now, even though it might be much more.²

The other prepaid 529 plan variant is the contract plan, or guaranteed interest plan. In these prepaid plans, you make a lump sum contribution (or arrange recurring contributions), essentially buying X number of years of tuition. In turn, the plan guarantees to cover this predetermined amount of tuition expenses in the future.²

Usually, beneficiaries of prepaid tuition plans must be residents of the state offering the plan, or prospective students of the college offering the plan. In the wake of the recession, some of these plans are not accepting new investors as some states are worried about underfunding.^2,3

529 college savings plans. These state savings plans allow you to invest to build college savings rather than simply prepay them. Plan contributions are typically allocated among funds, and possibly other investment classes; the plan’s earnings grow without being taxed. The withdrawals aren’t taxed by the IRS either, as long they pay for qualified education expenses.²

 

You can contribute up to six-figure sums to these 529 plans – there’s a lifetime contribution limit that varies per state. Most of them are open to out-of-state residents. If the market does well, you can harness the power of equity investing through these plans and potentially make a big dent in college costs.²

There are two caveats about 529 plans. Should you elect to withdraw money from a 529 plan and use it for non-approved purposes, that money will be taxed by the IRS as regular income – and you will pay a penalty equal to 10% of the withdrawal amount. 529 balances can also negatively affect a student’s chances for need-based financial aid. In a given school year, that eligibility can be reduced by up 5.64% of your college savings.³

 

Coverdell ESAs. Originally called Education IRAs, Coverdell Education Savings Accounts offer families some added flexibility: the withdrawals may be used to pay for elementary and secondary school expenses, not just college costs. These are tax-deferred investment accounts, like 529 savings plans. Unfortunately, the current annual contribution limit for a Coverdell is $2,000. Any remaining account balance must generally be withdrawn within 30 days after the beneficiary’s 30th birthday, with the earnings portion of the balance being taxable.^3,4,5

Roth IRAs. Yes, it is possible to use a Roth IRA as a college savings vehicle. While the IRA’s earnings will be taxed, withdrawals used to pay for qualified college expenses will not be taxed and will face no IRS penalty. Additionally, if your son or daughter doesn’t go to college or comes into some kind of windfall that pays for everything, you end up with a retirement account. While Roth IRA balances don’t whittle away at a student’s chances to get need-based financial aid, the withdrawal amounts do come under the category of untaxed income on the FAFSA.³   

Life insurance. Some households look into so-called “cash-rich” life insurance – whole or universal life policies – as a means to fund a college education. This requires a big head start, as when you buy one of these policies the bulk of your premiums go toward the life insurance part of the contract for several years and you have yet to build up much cash value. The big feature here is that most colleges don’t consider life insurance when evaluating financial aid applications.³

Would a trust be worth the expense? Rarely, families set up tax-advantaged trusts for the purpose of college savings. In the classic model, the family is incredibly wealthy and the kids are “trust-fund babies” bound for elite and very expensive schools. Unless you have many children or your family is looking at potentially exorbitant college costs, a trust is probably overdoing it. The college savings vehicles mentioned above may help you save for education expenses just as effectively, all without the administrative bother associated with trusts and the costs of trust creation.

Jared Daniel may be reached at (480) 987-9951 or Jared.Daniel@WealthGuardianGroup.com.

http://www.wealthguardiangroup.com

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – money.usnews.com/money/blogs/my-money/2012/07/25/how-much-will-you-need-to-send-your-child-to-college-in-2030 [7/25/12]

2 – www.axa-equitable.com/plan/education/529-plans/529-vs-prepaid-tuition.html [2011]

3 – money.cnn.com/101/college-101/savings-plan.moneymag/index.html [1/10/13]

4 – money.msn.com/tax-tips/post.aspx?post=9dba01a0-b233-4e6e-97ef-aecbc62188e3 [1/9/13]

5 – www.irs.gov/uac/Coverdell-Education-Savings-Accounts [9/11/12]