Falling Real Estate Prices - Page 3

dooijp · 05-31-2008, 02:33 PM

That doesn't answer my point. It's like saying buy Enron at 50--it went to 80. It's investment Grade! and then it went to zero. My point above has nothing to do with appreciation, it has to do with the frequently stated notion that "equity clubs have less risk as deposits are held in separate real estate company secured by homes" The concept that they have less risk IS true, but what i've mathematically proven above is that it's not particularly meaningfully less risk. So if you are paying the all time high in dues at DC's even as real estate plunges and you think the equity model is safer, look at my numbers. Tell me how they are wrong. If you want the real estate upside great, but you are paying for that via higher dues (A&K dues should be lower to reflect no cost of leverage) AND opportunity cost on extra cash. I hope you enjoy the upside, I'm happy not to have it as i don't want to pay 10,000 bucks a year for it at these levels. LUSSO for that matter has not made it yet either. I like those guys, i like their model, but they need to add a lot of people or get liquidated. SO if you are in LUSSO and you love your gains, you might consider locking them in as they are NOT REALIZED GAINS. not all companies are equal so you might give risk factors to clubs: say ER is benchmark, quintess might be .85 in terms of risk, Lusso .6, A&K .6 (because it's brand new): what i mean by this is the risk of success. Should LUSSO be the same credit spread as Quintess: of course not. Quintess has 210 million more in equity to cover members. So, stay with my rant here: if Quintess we could lose 100% as postulated above, my risk of loss is 385K, but i only perceive a 15% chance of them going under vs ER. 15%x385 is 58K expected loss. A&K liquidation loss is only 50% of higher 495 deposit but i feel they have 40% chance of failing vs ER makes my expected loss day 1 99,000. Much higher than quintess. So, rather than cite old data, please someone refute my fundamental premise here that IN A BAD REAL ESTATE MARKET, EQUITY OFFERS ONLY MARGINALLY HIGHER PROTECTION.

DestiFan · 05-31-2008, 03:19 PM

A few points need to be made here....

1) This is all hypothetical - and we are debating against ourselves. Too many smart people on this board for our own good. I am willing to play along with the discussion, but lets be very clear here - if Real Estate values across the world in high-end destinations fall an average of 30%, we have a lot more problems than our DC membership. That will be many times worse than the great depression and we should all have money in cash...period. Seriously, for a 30% mean decline in value to a DC portfolio, that means markets in Mexico, Aspen, Vail, Beaver Creek, NYC, Caribbean, London, Tuscany, Hawaii, Costa Rica, etc, etc, etc. has fallen 30% despite of currency fluctuations and global demand. Effectively, it would mean that every major economy in the world is under significant pressure. The reason the Caribbean, Vail/Aspen, NYC, Dubai, etc have all remained strong is because there are other people doing better than us Yanks right now - see the Wine market lately? I would be concerned if the DC you join is 100% US based in non-luxury areas. That would be an issue right now...and could always be.

2) We have had a blow-up already in DC land - the original A&K. Lots of lessons learned there. Are we for sure not going to have another one? I actually think we are much less likely b/c the DC industry can't afford it to happen again this soon after A&K. Before that would happen, you would see "mergers" and "buyouts" from existing well-established clubs.

3) I agree with your "risk" math - problem is everyone you are talking to on this board has already done the math and is ok with the risk of going to zero. I think most people on this board, and DC buyers in general, come from Financial Markets, Law, Physician/Dentist, Real Estate, or Business Owner backgrounds - we all have been successful in managing our careers --- this decision is not about money -- its about convenience. I am typing this from a DC house right now - and I had the best week of vacation I have had in 10 years.

All legitimate questions - but there is no answer to your questions that can get you over the hump. DO the dilligence yourself - either the risk of Beta testing is ok with you or not. I understand how hard that decision is - I agonized for months - but did the plunge and now love it.

Good luck...

LTTravel · 05-31-2008, 04:52 PM

DestiFan, where are you now? Gonna give us a report?

TarheelTraveler · 05-31-2008, 05:52 PM

Dooijp - I love your analysis, but I think you are missing a key point about equity clubs with no leverage. It's not only that you own the real estate and there is no one else in line in case it goes bust, but there is no financing, positive cash flow, it is self-sustaining and has big dollars behind it in the case of A&K. The dues are not a money maker for A&K but are intended to cover all expenses. With increasing levels of debt in most non-equity clubs, you always need more members or new investors and a higher rate of growth which in of itself carries much more risk. If the members own the real estate, you don't have investors who own the real estate and who want certain returns, isn't it much less likely that there will be a liquidation if there is a decrease in real estate values?

Don't get me wrong. I think the developments in the industry have been great. Deposits and dues have gotten to much more reasonable levels, the deals have decreased and the DCA has increased the transparency, thereby decreasing the risk significantly across the board. And I expect that there will be plenty of growth for all DCs.

3DH · 05-31-2008, 09:06 PM

Just to clarify for you DestiFan, in this thread, dooijp says he/she joined Quintess... hence he/she has already made the plunge.

DestiFan you brought forth some great points... thanks for taking the time to compose your reply!

Now, make sure to give us a report from the DC home you are enjoying!

DestiFan · 05-31-2008, 10:10 PM

Man, I thought I was "dropping some knowledge" on my man dooijp - love to use that phrase - did not know he had joined.

First, for full disclosure - and many already have read this - we are members of UE - having joined last Fall. I seriously considered ER, LUSSO and Quintess and would have joined Quintess or LUSSO (sorry ER), but my wife and I felt we would never get use out of the extra size of the homes. We have one young child and usually travel with one set of parents or one set of friends and 5-6 bedrooms seemed too much - so PE Platinum/UE Signature (hate new name)...seemed perfect for us. $2MM houses are just fine with us...as they are literally close/next to top tier houses, but less rooms and maybe slightly less desirable location. How do I know? I stayed this week at the Elite house that was 10 houses down from my Signature house by using my days via receprosity...and we have stayed at the Signature version. PS - I loved Quintess/Lusso, however, and completely understand the draw to these clubs.

My family is on vacation this week in Watercolor, FL (now UE knows who this is...but oh well...). I know UE is the only DC with a set of homes here, but I would encourage all of you to have your club's look into it. It is literally the perfect family resort. Beach, lake, golf, fishing, kids camp, pools, bike rides, etc. We had a fantastic 7 nights - and wish we were not leaving. For those who like to golf - Camp Creek Golf Club - Private but UE members allowed - is in the top 5 places I have ever played...ever. In addition, the beach is pure white, water aqua blue and people are Southern nice!

Would be willing to chat about Watercolor if any others are interested. We are off to Bend, OR in July and Lake George, NY in Sept. Again, this was an incredible vacation - house was 5 stars, location 2 blocks from beach and on lake. My family can't stop raving about it...

Check out UE website to see Watercolor...

dooijp · 05-31-2008, 10:31 PM

To Tarheel: This has been my point all along, we just don't know how any of these clubs will work in the downside scenario so it's a very interesting conversation point to have. Non-equity looks easy, you lose it all. Equity is more interesting but not necessarily better. I've demonstrated you lose about only 35 cents on the dollar less investing equity vs non-equity. The investor in A&K is a hedge fund--don't think they stick around too long when it doesn't make money. All investors are the same--10 year time horizons don't exist any more. So when the management company implodes due to no new members and poor cash flow at that point, what do you owners do? hire a new management company or you sell the homes. Either way will be very pricey. A new management company will take you out of your upside for sure and turn you into any other DC. In fact, most small DC's market that "even if we go bankrupt Quintess will buy us". That's probably the same outcome if A&K fails, don't you think? So you'll end up in the same spot. Only you put in 30% more up front then a non-equity club. My point is not that you aren't secured--certainly you are, but your risk of loss is only marginally safer than a non-equity club. i'd like to see people on this board finally stop saying equity club is safer, it is just DIFFERENT. Also, i could argue that a non-equity club is likely to remain in business a lot longer than an equity one. the investor in non-equity club can take some losses at management company as it's really part of his funding cost overall--ask them, they'll tell you that losing money there is no biggie. if they can break even, they are effectively owning a call option on a massive real estate portfolio at zero cost! That said at some level of real estate decline they do lose interest (my point way above). Still, they can pony up more equity if need be. An equity club management company could bail if they can't prove out making money over time as they only have 30% upside. I don't honestly know enough about their motivation to see what keeps them in or out. But simple math does tell me how members turn out.

dooijp · 05-31-2008, 10:56 PM

To destifan: I did join Quintess just a day ago--not sure i mentioned it here or on another thread. One thought for everyone on this board: i came here 3 weeks ago to find out more about clubs and felt dialogue was one-sided. People ask questions and get many happy friendly answers. I think that putting the doomsday scenario out there as a possibility is good for the industry. the reason people don't join is that they fear the deposit loss and THEY SHOULD. however, if they look at my posts and say "man that dooijp is a raving lunatic , a 30% decline is impossible." It sets a context for them to continue to look at clubs as i believe <20% decline keeps the business alive.

now, to your we are all super smart doctors/lawyer/dentists etc and have done the math and don't mind deposit going to zero point. First, I don't think it's true that people understand it. Ask any member the following questions: what percent of the home portfolio is levered? What is the nature of the financing used? How many years before your club has burned it's cash based on current membership levels? How many new members does it take to buy a house? How is membership ratio calculated? Who is junior to you in the capital structure and who is senior? Well, we know no one knows these things. So that means everyone is happy saying it could go to zero and just not understanding the business model well. And just because they can lose the money does not mean they want to lose it. How much bigger would this industry be if someone could actually make people feel SECURE in their deposit using something else than the equity model marketing gimmick. We could add members who don't want to lose the deposit too! In fact, i would argue that we members of DC's are in fact POOR! We are too poor to own homes in vacation spots we like so we have to find other poor bastards like us to pool our money and let some DC make money off of us!

Anyway, I've enjoyed the banter. One big takeaway i did get from this forum is that people love the clubs and aren't as likely to give up as fast as i thought they might. I was really worried the members would rush to the exits and based on everything people say here, i think the bigger worry is keeping the investors in line in a big collapse.

Thanks to all, in the words of nixon, " you won't have dooijp to kick around any more"

DestiFan · 05-31-2008, 11:04 PM

Not that it matters, but I did ask all the same questions you are asking prior to taking the dive myself.

I completely understand the business model, tax ramifications (the reason Steve Case is invested), capital structures, debt covenants, etc. I became comfortable with them, because I, like many others, can afford second/third homes, but cannot stand the hassle associated with them. $300k+ is a lot of money - liquid...this is not leveraged capital for the majority of DC buyers. I think the majority people on this board, and at all the big players, have done a lot more work than you give them credit for....you would be surprised.

dooijp · 05-31-2008, 11:22 PM

For sure on this board people do the research, but terms like debt covenant, passive losses, etc elude all but a few. People went nutso over tanner and haley--it can't be that they understood and were happy with the risk. Moody's rated billions upon billions RMBS AAA, banks bt em and yet everyone lost money. Even smart people miss risk. The fact that so many people think i'm crazy saying 30% declines are possible MUST mean they are not contemplating the downside risk properly. And now i'm done posting.

Kagehitokiri · 05-31-2008, 11:25 PM

i think many would be surprised by who posts here.

dooijp, IMHO you started some interesting discussion, were clear on your opinions, and posted some good data.

DestiFan · 06-01-2008, 12:50 AM

I too enjoyed the discussion - but to say people don't understand these things is not giving credit to the people who are on here...don't know about average DC investor.

But let's not compare Moody's and S&P ratings, RMBS market, Bond Insurance, et al. with DC memberships. I understand my pool of assets. They are being managed by a third party that I know and speak to frequently (not a CDO manager that I have never met). The underlying assets are physical assets that have value that are traded daily to allow quick appraisal of the assets (these are not Level III).

I think everyone on here - non equity members - need to understand why rich people (Steve Case) and other investor types love this business model. #1 is tax reasons ---- massive NOLs. DCs are a massive tax shelter for these guys and allow them to participate in RE appreciation on our backs. Its near risk free tax management for very wealthy firms and investors. The amount of money Case has saved at ER must be mind boggling from a Tax perspective...

vineyarder · 06-01-2008, 08:31 AM

Quote:

Originally Posted by dooijp

My point above has nothing to do with appreciation, it has to do with the frequently stated notion that "equity clubs have less risk as deposits are held in separate real estate company secured by homes" The concept that they have less risk IS true, but what i've mathematically proven above is that it's not particularly meaningfully less risk. So if you are paying the all time high in dues at DC's even as real estate plunges and you think the equity model is safer, look at my numbers. Tell me how they are wrong. If you want the real estate upside great, but you are paying for that via higher dues (A&K dues should be lower to reflect no cost of leverage) AND opportunity cost on extra cash. I hope you enjoy the upside, I'm happy not to have it as i don't want to pay 10,000 bucks a year for it at these levels. LUSSO for that matter has not made it yet either. I like those guys, i like their model, but they need to add a lot of people or get liquidated. SO if you are in LUSSO and you love your gains, you might consider locking them in as they are NOT REALIZED GAINS. not all companies are equal so you might give risk factors to clubs: say ER is benchmark, quintess might be .85 in terms of risk, Lusso .6, A&K .6 (because it's brand new): what i mean by this is the risk of success. Should LUSSO be the same credit spread as Quintess: of course not. Quintess has 210 million more in equity to cover members. So, stay with my rant here: if Quintess we could lose 100% as postulated above, my risk of loss is 385K, but i only perceive a 15% chance of them going under vs ER. 15%x385 is 58K expected loss. A&K liquidation loss is only 50% of higher 495 deposit but i feel they have 40% chance of failing vs ER makes my expected loss day 1 99,000. Much higher than quintess. So, rather than cite old data, please someone refute my fundamental premise here that IN A BAD REAL ESTATE MARKET, EQUITY OFFERS ONLY MARGINALLY HIGHER PROTECTION.

I think that your reasoning is perfectly sound. The big question is what the appropriate risk ratios are for various clubs; I wish there was some objective way to tell!

Quote:

now, to your we are all super smart doctors/lawyer/dentists etc and have done the math and don't mind deposit going to zero point. First, I don't think it's true that people understand it.

Personally, from an anecdotal standpoint, most physicians I know are notoriously poor investors unless they use competent professional advisors... It is truly amazing how many physicians I know have lost huge sums of money on 'investments' in areas that they knew nothing about, and did virtually no due diligence on...

Quote:

Thanks to all, in the words of nixon, " you won't have dooijp to kick around any more"

I certainly hope this doesn't mean that you are going to stop posting; you have stimulated some very interesting discussions, and I would certainly hope to hear more from you as you begin to experience Quintess 'from the inside'...

vineyarder · 06-01-2008, 08:34 AM

Quote:

Originally Posted by DestiFan

Would be willing to chat about Watercolor if any others are interested. We are off to Bend, OR in July and Lake George, NY in Sept. Again, this was an incredible vacation - house was 5 stars, location 2 blocks from beach and on lake. My family can't stop raving about it...

Check out UE website to see Watercolor...

I, for one, would love to hear more about your experience; did you get to see the Signature home as well, for comparison? What made you choose to upgrade to the Elite property at that destination?

TravelGuy · 06-01-2008, 08:39 AM

Quote:

Originally Posted by dooijp

One thought for everyone on this board: i came here 3 weeks ago to find out more about clubs and felt dialogue was one-sided. People ask questions and get many happy friendly answers.

dooijp,

Maybe you haven't read some of my over-the-top threads regarding the PE/UR merger? Or maybe my review of the High Country Club New York City property that was ripped apart? Not a warm and fuzzy feeling when you make definitive statements that are not in the mainstream on this board.

Sometimes it's OK to get kicked around for the better good of the forum.

Congrats on your DC membership! Skip the buyer's remorse phase and enjoy your travels!!

05-31-2008, 02:33 PM	#41
dooijp Junior Member Join Date: May 2008 Posts: 21 Club: Quintess, LRW	Re: Falling Real Estate Prices That doesn't answer my point. It's like saying buy Enron at 50--it went to 80. It's investment Grade! and then it went to zero. My point above has nothing to do with appreciation, it has to do with the frequently stated notion that "equity clubs have less risk as deposits are held in separate real estate company secured by homes" The concept that they have less risk IS true, but what i've mathematically proven above is that it's not particularly meaningfully less risk. So if you are paying the all time high in dues at DC's even as real estate plunges and you think the equity model is safer, look at my numbers. Tell me how they are wrong. If you want the real estate upside great, but you are paying for that via higher dues (A&K dues should be lower to reflect no cost of leverage) AND opportunity cost on extra cash. I hope you enjoy the upside, I'm happy not to have it as i don't want to pay 10,000 bucks a year for it at these levels. LUSSO for that matter has not made it yet either. I like those guys, i like their model, but they need to add a lot of people or get liquidated. SO if you are in LUSSO and you love your gains, you might consider locking them in as they are NOT REALIZED GAINS. not all companies are equal so you might give risk factors to clubs: say ER is benchmark, quintess might be .85 in terms of risk, Lusso .6, A&K .6 (because it's brand new): what i mean by this is the risk of success. Should LUSSO be the same credit spread as Quintess: of course not. Quintess has 210 million more in equity to cover members. So, stay with my rant here: if Quintess we could lose 100% as postulated above, my risk of loss is 385K, but i only perceive a 15% chance of them going under vs ER. 15%x385 is 58K expected loss. A&K liquidation loss is only 50% of higher 495 deposit but i feel they have 40% chance of failing vs ER makes my expected loss day 1 99,000. Much higher than quintess. So, rather than cite old data, please someone refute my fundamental premise here that IN A BAD REAL ESTATE MARKET, EQUITY OFFERS ONLY MARGINALLY HIGHER PROTECTION.

05-31-2008, 03:19 PM	#42
DestiFan Member Join Date: Apr 2008 Posts: 52 Club: UE - Signature	Re: Falling Real Estate Prices A few points need to be made here.... 1) This is all hypothetical - and we are debating against ourselves. Too many smart people on this board for our own good. I am willing to play along with the discussion, but lets be very clear here - if Real Estate values across the world in high-end destinations fall an average of 30%, we have a lot more problems than our DC membership. That will be many times worse than the great depression and we should all have money in cash...period. Seriously, for a 30% mean decline in value to a DC portfolio, that means markets in Mexico, Aspen, Vail, Beaver Creek, NYC, Caribbean, London, Tuscany, Hawaii, Costa Rica, etc, etc, etc. has fallen 30% despite of currency fluctuations and global demand. Effectively, it would mean that every major economy in the world is under significant pressure. The reason the Caribbean, Vail/Aspen, NYC, Dubai, etc have all remained strong is because there are other people doing better than us Yanks right now - see the Wine market lately? I would be concerned if the DC you join is 100% US based in non-luxury areas. That would be an issue right now...and could always be. 2) We have had a blow-up already in DC land - the original A&K. Lots of lessons learned there. Are we for sure not going to have another one? I actually think we are much less likely b/c the DC industry can't afford it to happen again this soon after A&K. Before that would happen, you would see "mergers" and "buyouts" from existing well-established clubs. 3) I agree with your "risk" math - problem is everyone you are talking to on this board has already done the math and is ok with the risk of going to zero. I think most people on this board, and DC buyers in general, come from Financial Markets, Law, Physician/Dentist, Real Estate, or Business Owner backgrounds - we all have been successful in managing our careers --- this decision is not about money -- its about convenience. I am typing this from a DC house right now - and I had the best week of vacation I have had in 10 years. All legitimate questions - but there is no answer to your questions that can get you over the hump. DO the dilligence yourself - either the risk of Beta testing is ok with you or not. I understand how hard that decision is - I agonized for months - but did the plunge and now love it. Good luck...

05-31-2008, 04:52 PM	#43
LTTravel Super Moderator Join Date: Nov 2007 Posts: 698 Club: ER, HCC Corporate, DHH Lite, Bud Lite (A few too many)	Re: Falling Real Estate Prices DestiFan, where are you now? Gonna give us a report?

05-31-2008, 05:52 PM	#44
TarheelTraveler Senior Member Join Date: Nov 2007 Posts: 351 Club: A&K Residence Club	Re: Falling Real Estate Prices Dooijp - I love your analysis, but I think you are missing a key point about equity clubs with no leverage. It's not only that you own the real estate and there is no one else in line in case it goes bust, but there is no financing, positive cash flow, it is self-sustaining and has big dollars behind it in the case of A&K. The dues are not a money maker for A&K but are intended to cover all expenses. With increasing levels of debt in most non-equity clubs, you always need more members or new investors and a higher rate of growth which in of itself carries much more risk. If the members own the real estate, you don't have investors who own the real estate and who want certain returns, isn't it much less likely that there will be a liquidation if there is a decrease in real estate values? Don't get me wrong. I think the developments in the industry have been great. Deposits and dues have gotten to much more reasonable levels, the deals have decreased and the DCA has increased the transparency, thereby decreasing the risk significantly across the board. And I expect that there will be plenty of growth for all DCs. Last edited by TarheelTraveler; 05-31-2008 at 06:27 PM.

05-31-2008, 09:06 PM	#45
3DH Super Moderator Join Date: Jan 2008 Location: Texas Posts: 654 Club: LUSSO Collection	Re: Falling Real Estate Prices Just to clarify for you DestiFan, in this thread, dooijp says he/she joined Quintess... hence he/she has already made the plunge. DestiFan you brought forth some great points... thanks for taking the time to compose your reply! Now, make sure to give us a report from the DC home you are enjoying! __________________ "Boutique" is better! Another extremely satisfied LUSSO member!

05-31-2008, 10:10 PM	#46
DestiFan Member Join Date: Apr 2008 Posts: 52 Club: UE - Signature	Re: Falling Real Estate Prices Man, I thought I was "dropping some knowledge" on my man dooijp - love to use that phrase - did not know he had joined. First, for full disclosure - and many already have read this - we are members of UE - having joined last Fall. I seriously considered ER, LUSSO and Quintess and would have joined Quintess or LUSSO (sorry ER), but my wife and I felt we would never get use out of the extra size of the homes. We have one young child and usually travel with one set of parents or one set of friends and 5-6 bedrooms seemed too much - so PE Platinum/UE Signature (hate new name)...seemed perfect for us. $2MM houses are just fine with us...as they are literally close/next to top tier houses, but less rooms and maybe slightly less desirable location. How do I know? I stayed this week at the Elite house that was 10 houses down from my Signature house by using my days via receprosity...and we have stayed at the Signature version. PS - I loved Quintess/Lusso, however, and completely understand the draw to these clubs. My family is on vacation this week in Watercolor, FL (now UE knows who this is...but oh well...). I know UE is the only DC with a set of homes here, but I would encourage all of you to have your club's look into it. It is literally the perfect family resort. Beach, lake, golf, fishing, kids camp, pools, bike rides, etc. We had a fantastic 7 nights - and wish we were not leaving. For those who like to golf - Camp Creek Golf Club - Private but UE members allowed - is in the top 5 places I have ever played...ever. In addition, the beach is pure white, water aqua blue and people are Southern nice! Would be willing to chat about Watercolor if any others are interested. We are off to Bend, OR in July and Lake George, NY in Sept. Again, this was an incredible vacation - house was 5 stars, location 2 blocks from beach and on lake. My family can't stop raving about it... Check out UE website to see Watercolor...

05-31-2008, 10:31 PM	#47
dooijp Junior Member Join Date: May 2008 Posts: 21 Club: Quintess, LRW	Re: Falling Real Estate Prices To Tarheel: This has been my point all along, we just don't know how any of these clubs will work in the downside scenario so it's a very interesting conversation point to have. Non-equity looks easy, you lose it all. Equity is more interesting but not necessarily better. I've demonstrated you lose about only 35 cents on the dollar less investing equity vs non-equity. The investor in A&K is a hedge fund--don't think they stick around too long when it doesn't make money. All investors are the same--10 year time horizons don't exist any more. So when the management company implodes due to no new members and poor cash flow at that point, what do you owners do? hire a new management company or you sell the homes. Either way will be very pricey. A new management company will take you out of your upside for sure and turn you into any other DC. In fact, most small DC's market that "even if we go bankrupt Quintess will buy us". That's probably the same outcome if A&K fails, don't you think? So you'll end up in the same spot. Only you put in 30% more up front then a non-equity club. My point is not that you aren't secured--certainly you are, but your risk of loss is only marginally safer than a non-equity club. i'd like to see people on this board finally stop saying equity club is safer, it is just DIFFERENT. Also, i could argue that a non-equity club is likely to remain in business a lot longer than an equity one. the investor in non-equity club can take some losses at management company as it's really part of his funding cost overall--ask them, they'll tell you that losing money there is no biggie. if they can break even, they are effectively owning a call option on a massive real estate portfolio at zero cost! That said at some level of real estate decline they do lose interest (my point way above). Still, they can pony up more equity if need be. An equity club management company could bail if they can't prove out making money over time as they only have 30% upside. I don't honestly know enough about their motivation to see what keeps them in or out. But simple math does tell me how members turn out. Last edited by dooijp; 05-31-2008 at 11:52 PM.

05-31-2008, 10:56 PM	#48
dooijp Junior Member Join Date: May 2008 Posts: 21 Club: Quintess, LRW	Re: Falling Real Estate Prices To destifan: I did join Quintess just a day ago--not sure i mentioned it here or on another thread. One thought for everyone on this board: i came here 3 weeks ago to find out more about clubs and felt dialogue was one-sided. People ask questions and get many happy friendly answers. I think that putting the doomsday scenario out there as a possibility is good for the industry. the reason people don't join is that they fear the deposit loss and THEY SHOULD. however, if they look at my posts and say "man that dooijp is a raving lunatic , a 30% decline is impossible." It sets a context for them to continue to look at clubs as i believe <20% decline keeps the business alive. now, to your we are all super smart doctors/lawyer/dentists etc and have done the math and don't mind deposit going to zero point. First, I don't think it's true that people understand it. Ask any member the following questions: what percent of the home portfolio is levered? What is the nature of the financing used? How many years before your club has burned it's cash based on current membership levels? How many new members does it take to buy a house? How is membership ratio calculated? Who is junior to you in the capital structure and who is senior? Well, we know no one knows these things. So that means everyone is happy saying it could go to zero and just not understanding the business model well. And just because they can lose the money does not mean they want to lose it. How much bigger would this industry be if someone could actually make people feel SECURE in their deposit using something else than the equity model marketing gimmick. We could add members who don't want to lose the deposit too! In fact, i would argue that we members of DC's are in fact POOR! We are too poor to own homes in vacation spots we like so we have to find other poor bastards like us to pool our money and let some DC make money off of us! Anyway, I've enjoyed the banter. One big takeaway i did get from this forum is that people love the clubs and aren't as likely to give up as fast as i thought they might. I was really worried the members would rush to the exits and based on everything people say here, i think the bigger worry is keeping the investors in line in a big collapse. Thanks to all, in the words of nixon, " you won't have dooijp to kick around any more"

05-31-2008, 11:04 PM	#49
DestiFan Member Join Date: Apr 2008 Posts: 52 Club: UE - Signature	Re: Falling Real Estate Prices Not that it matters, but I did ask all the same questions you are asking prior to taking the dive myself. I completely understand the business model, tax ramifications (the reason Steve Case is invested), capital structures, debt covenants, etc. I became comfortable with them, because I, like many others, can afford second/third homes, but cannot stand the hassle associated with them. $300k+ is a lot of money - liquid...this is not leveraged capital for the majority of DC buyers. I think the majority people on this board, and at all the big players, have done a lot more work than you give them credit for....you would be surprised.

05-31-2008, 11:22 PM	#50
dooijp Junior Member Join Date: May 2008 Posts: 21 Club: Quintess, LRW	Re: Falling Real Estate Prices For sure on this board people do the research, but terms like debt covenant, passive losses, etc elude all but a few. People went nutso over tanner and haley--it can't be that they understood and were happy with the risk. Moody's rated billions upon billions RMBS AAA, banks bt em and yet everyone lost money. Even smart people miss risk. The fact that so many people think i'm crazy saying 30% declines are possible MUST mean they are not contemplating the downside risk properly. And now i'm done posting.

05-31-2008, 11:25 PM	#51
Kagehitokiri Super Moderator Join Date: Nov 2007 Posts: 1,321	Re: Falling Real Estate Prices i think many would be surprised by who posts here. dooijp, IMHO you started some interesting discussion, were clear on your opinions, and posted some good data.

06-01-2008, 12:50 AM	#52
DestiFan Member Join Date: Apr 2008 Posts: 52 Club: UE - Signature	Re: Falling Real Estate Prices I too enjoyed the discussion - but to say people don't understand these things is not giving credit to the people who are on here...don't know about average DC investor. But let's not compare Moody's and S&P ratings, RMBS market, Bond Insurance, et al. with DC memberships. I understand my pool of assets. They are being managed by a third party that I know and speak to frequently (not a CDO manager that I have never met). The underlying assets are physical assets that have value that are traded daily to allow quick appraisal of the assets (these are not Level III). I think everyone on here - non equity members - need to understand why rich people (Steve Case) and other investor types love this business model. #1 is tax reasons ---- massive NOLs. DCs are a massive tax shelter for these guys and allow them to participate in RE appreciation on our backs. Its near risk free tax management for very wealthy firms and investors. The amount of money Case has saved at ER must be mind boggling from a Tax perspective...