Monday, May 12, 2014

My Personal Experience With Diamond Resorts International Inc DRII

Some of the best investment insights over the years have come from an experience you might have with a company. Last week I was on my honeymoon, which was a week stay in Lake Tahoe, CA. We stayed at the Lake Tahoe Vacation Resort, which was has changed ownership/management over the years, and is currently under renovations. The week long stay was a gift from some co-workers of my wife who were members of Diamond International (DRII).

Diamond International is essentially in the business of selling 'points' on an annual basis to consumers. You purchase these points, and redeem them for hotel stays around the country which are managed or affiliated with Diamond International. While similar to a timeshare, the DRII saleswomen was quick to point out that this was not a timeshare, and that it was far different than one. They were also quick to refer to people who have signed up with DRII as 'owners' - which I found clever, but not actually accurate. But I'll get to that a little later on.

First was the sales pitch. Like many sales presentations, they get you to sign up for the sales presentation by waving a free gift in front of you. In our case, they offered a $75 Visa gift card, which I actually did receive at the end of a 2+ hour presentation. The presentation included a brief tour of one of the remodeled rooms and an extensive sales pitch by a fairly seasoned saleswomen who had been in the business for almost 20 years.

During the pitch, they refer to you (if you buy) as 'owners' which I found a bit inaccurate because Diamond International themselves don't own a large portion of the properties, they are simply a management company in most situations. DRII salespeople were also quick to point out that this is NOT a timeshare - which traditionally allow you to vacation in one location and during one season or part of the year. In that case, you actually do have some ownership, although your vacation options are typically less than what DRII can offer. In essence, buying into a DRII membership was essentially pre-buying your vacation each year in the form of 'points' ... which probably works for people that vacation each year, but for a young couple who's looking to save money, rather than spend it - it's not ideal or financially responsible.

One of the weakest parts of the presentation was when they brought over the 'sales manager' who was a middle-aged man, who came across as somewhat slick & polished. He was less interested in explaining the benefits of joining Diamond International, rather he was looking to close the sale by getting my wife & I to sign a contract. I remember when the contract was presented to us - the saleswoman legs began to shake in anticipation and she was on the edge of the seat .... I took that as a sign of desperation. Recently I've visited a Tesla location inside a shopping mall (only to window shop) and an Apple store (for service on my iPhone) ... and never did the sales person pressure me or seem anxious to make a sale. That's because they are confident companies, not desperate for a sale. Companies like Diamond International - who have more debt than most of the customers are probably somewhat desperate for sales.

Details of the contract they were trying to get my wife and I to sign were:

Interest Rate: 17%+
Amount Financed: $10,000+
Monthly Payment: $175 - $250/month
Maintenance Fees: ~$800/year

We politely declined, saying that our financial situation wasn't going to allow us to spend nearly $200+ per month for the right to take a vacation. We simply don't travel that much, and finding deals online is not particularly difficult.

There are many reasons why just about anyone would never want to agree to this type of vacation spending habits. While your points carry over for a maximum of 2-3 years, if you don't take a vacation ... or don't spend all your 'points' you end up paying for vacation time you never used. Additionally, if your families budget, lifestyle or vacation habits change in any way, you are locked into spending money you don't want to spend. During the sales pitch, the saleswomen did say that you could sell your points to friend/family ... but I'd figure just getting into the vacation planning business might be easier than collecting money from family members. Additionally, something like this is almost impossible to sell - so you don't really own anything considering Diamond International is never going to limit the number of these memberships.

While I haven't decided if I would invest directly in DRII - I know that I would never be a customer of their product, so it makes it difficult for me to invest my money. However, if they get enough people to sign up for their services - it's an interesting way to capitalize on the hotel/travel segment of the market.

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