Steamboat Bill

What is the impact of a 20% non-refundable portion of a Destination Club’s membership fee on a cost-per-night evaluation?

You can use the following format for any destination club and I will simply look at one current example. Note that some clubs offer different policies for their membership fees such as 80% of the current rate, 90% refundable, or even 100% refundable.

Imagine you want to join Exclusive Resorts as an Affiliate member.

Affiliate - $239,000 membership fee (80% refundable), $13,900 annual dues, 15 included nights

If you resign after 5, 10, 15, or 20 years, Exclusive Resorts will keep $47,800 of your $239,000 original membership fee as it is based upon the current rate when you joined. To determine the effect on your cost per night, simply divide the $47,800 by the number of nights used (for example 150 nights used in 10 years).

Here is the effect of a 20% non-refundable fee on the cost per night.

Resign after 5 years - $47,800 / 75 nights of use = $637 cost per night

Resign after 10 years - $47,800 / 150 nights of use = $318 cost per night

Resign after 15 years - $47,800 / 225 nights of use = $212 cost per night

Resign after 20 years - $47,800 / 300 nights of use = $159 cost per night

Thus, the longer you remain a member, the less effect the guaranteed 20% loss of your membership fee has on your average cost per night. Unfortunately, there is no exact method to determine how long you will be a member, but 10 years is a good rule of thumb.

Upgrade Girl

Nice analysis but what about the lost opportunity cost on the $47,800 and on the rest of your deposit? If you're a savvy investor you could be losing an additional 10% compounded annually on the entire $239,000. That amount needs to be factored in.

TravelGuy

Your point is true and is usually calculated into a "cost-per-night" calculation. However, I believe the original post was made only to point out the effect of the 20% non-refundable deposit, not total lost opportunity cost.

Steamboat Bill

This thread is limited to the effect of the "non-refundable deposit" on the cost-per-night calculation.

My personal cost-per-night calculation (this is subject to bias of course) can be found on this thread:

How to determine the "cost per night" of Destination Club membership

I also think 10% compounded annually is WAY too aggressive in evaluating the lost opportunity of membership deposits. I know many professional investors that would love to be able to do that on a long term basis. I prefer to use an industry standard 5% lost opportunity cost in my calculations.