The Economics of Your Investment at Deer Ridge

Do you know how the decisions of Ridge Management Ltd are VERY negatively affecting the economics of YOUR condo ownership at Deer Ridge?  Read the below email we sent to fire RML to better understand the price you are paying and how much you are REALLY losing under the current Rental Pool Agreement:

To:       Deer Ridge Board of Directors
Re:       Cancellation of RML Rental Pool Agreement
             New Dissident Deer Ridge Website: www.DeerRidgeOwners.com
Date:    January 30, 2006

We see that we are continuing to be stonewalled by the Board on receiving the information that we are rightly due as an owner of Deer Ridge.  Several other owners had warned us that this would be the case and, apparently, they were right. 

As a result of the Board’s stonewalling, excuses and delaying tactics, and due to the outrageous $1,000 a year “excise tax” imposed on us and our one unit by the management company wanting to charge us a for using our own condo - on top of a 25% higher than market management fee, we hereby announce the following steps to make more money with our condo and to increase Deer Ridge property values for both ourselves and other owners:  

•  We will NOT sign the new RML rental pool agreement that is due by February 1, 2006 and we hereby terminate our participation in the RML rental pool.  You can, now, no longer claim that you know of “no owner who has quit the rental pool due to the RML and Board fee structure and policies.”

•  Since there seems to be a lot of flawed math and analysis used by RML in the past, we have done some calculations to help the Board and other owners understand some of the financial impact of our personal decisions.  Hopefully, it will be helpful for others to understand how some of the arithmetic works that directly affects their ownership and property values.
•  By taking our one unit out of the rental pool, we estimate that RML will lose approximately $7,000 a year in lost management fees and other expense pass throughs they use to offset their too-high operating costs (since we cannot get the detailed general ledger and financial statements on RML from the Board that we are entitled to have as an owner, this is our best estimate at this time.  However, in 2004, our specific unit, A-202, generated over $15,000 of rental income.  The 50% management fee on this amount was $7,500 in addition to all the other charges and expense pass through costs from RML thereby probably generating collections by RML just from our unit totaling between $8,000 and $9,000 for 2004.) 
•  If our more conservative estimate of $7,000 a year loss in RML management fees from our unit’s withdrawal from the rental pool is correct, this will amount to a loss to RML of about $35,000 over the next five years on our one unit. 
•  How much did the management company expect to incrementally make, annually, off its absurd “excise tax” across all 72 units, err now 71 units, currently in the rental pool from owners’ using their own unit?
•  When we bought our unit at Deer Ridge, we had calculated that by renting our unit that we would probably see an annual carrying-cost offset of only about $5,000 a year considering the 50% management fee and other expense pass throughs from RML.  With the new “excise tax” charging us for using our own unit for the month of October each year and maybe a few other prime time days, we now calculate that this $5,000 a year benefit will drop another $1,000 from the “excise tax” we would have been required to pay - meaning that we would now only see a net benefit of only $4,000 a year to put up with all the onerous constraints, cookie-cutter content controls and other inconveniences that result in our being in the RML rental pool. 
•  With the management fees and expense pass throughs from RML, owning a unit at Deer Ridge is a GUARANTEED financial loss for EVERY owner, regardless of both the purchase price and the amount of any mortgage. 
•  Every owner at Deer Ridge that is in the RML rental pool probably loses between $4,000 and $8,000 a year for the privilege of owning a condo - due in large part to the RML fee structure and its lack of success at increasing off-season economic occupancy.  This has several impacts to owners:
• Many owners end up having to sell their unit because they cannot afford to cover the negative cash flow every year.
• New buyers avoid buying at Deer Ridge because the numbers don’t make sense.
• Both of these issues have the effect of lowering, or suppressing increased, property values for all owners.
• Since ownership at Deer Ridge is a guaranteed loss, the only incentive to buy is to be able to use and enjoy the unit.
• The ongoing result of this will be ever increasing sales being made to buyers who intend to occupy their units full time and who, consequently, will not have them in the rental pool.
• Because of this, RML will continue to lose units joining the rental pool.
• The times when folks can use a condo are deemed “prime time” by RML which now wants to charge for the owners’ use during that time.  In other words, they want to get paid a management fee for doing nothing and achieving no increase in the property’s economic occupancy…except continuing to cover their too-high fixed overhead.
• What is “prime time” to RML also happens to be the same time when owners have the time, opportunity and desire to use their own property (kids are out of school for owners over summer just as they are for renters…the fall foliage occurs at the same time of year for owners as it does for renters…etc.)
• Now, RML wants to be paid for owners using their units - thereby greatly diminishing the ONE benefit there is for owning at Deer Ridge.
• RML constantly uses the term “excessive use” by owners.  There is no such thing…at least from an owner’s perspective.  If an owner uses their unit 30 days or 300 days a year that is an owner’s right…but the “excessive” mindset of RML seems to set the tone for all decisions made by the Board.  So, the Board decides that anything above some arbitrary amount of use is excessive…so let’s tax the owners by charging them to use their own unit.
• Instead, RML should take the same two steps any other business has to take:  get more customers and/or cut costs to match the income they can generate from their own efforts and merits….NOT tax us owners for their own marketing shortfalls.
• These kinds of actions by RML are resulting in our choice to no longer participate in the RML rental pool. My guess is that their actions will result in a further dwindling of the number of units in the rental pool.
• However, the larger issue is that these actions by RML are hurting all of us when it comes to the value of our property and the potential increases in value that other properties are enjoying.
•  With regard to our unit, we believe that we can make up, or exceed, our $4,000 a year difference with some of the below steps.  Even if we only get back a small portion of this net $4,000 each year from our own rental approaches, it is preferable to the arbitrary policies, and the unjust fees being charged, by RML.
•  In the last three days, we have just bought all rights to both www.DeerRidgeCondo.com (for advertising our own unit for rental) and www.DeerRidgeOwners.com (for use by the “Deer Ridge Dissidents”) Internet domain names. 
•  Since we know how to do our own web site design and programming, we already have up some quick pages for the world to see…but stay tuned for immediate updates with much more detailed content that will be added there about all the issues we have been emailing the Board.
•  We will use one or both of these new Internet domains to do some combination of the following:
• Advertise our own unit for direct rental using search engine optimization and Google AdWords to drive traffic to our new Internet sites (We only have to rent our unit, with its GREAT view, for about 6 weeks in the summer to net the same bottom line dollars that we would have netted during the entire year with RML.) 
• Our guess is that with our search engine optimization software we own, both of our two new sites will come up near the top of the first page for any searches done for the term, “Deer Ridge” and other Gatlinburg rental related keywords.
• Use the new site to provide a new, more open, and easier to use forum for other disgruntled, dissident Deer Ridge owners.
• Use the new sites to provide a platform to inform other owners of my Board candidacy and credentials.
• Use the new sites to actively solicit proxies from all other Deer Ridge owners who will not be able to attend the annual meeting or use the proxies to call for special elections on a variety of important issues that affect the owners’ rights, operational issues and property values.
• Use the new sites, along with a targeted email campaign, to aggressively solicit management company bids from the two to three dozen larger property management companies in the Gatlinburg area…ones that will not charge RML’s above market fee or try to make us pay for using our own unit.  We believe when we point out there is a growing dissident movement and that several units may be interested in a new management company, we will generate a lot of interest and competitive bids for us, and other owners, to consider.
• The results and exact terms of our Request for Quotes from outside management companies will be posted at our new web sites for other Deer Ridge owners to see.
• Since there is virtually no economic occupancy at Deer Ridge during the first calendar quarter of each year, there is very little if any lost unit revenue (at least net of fees and charges) while the above steps are implemented.
•  If we are successful with the above steps in finding another, more reasonable management company, I will announce the details on my new Deer Ridge web sites; notify all other owners via mailings (even if we have to end up getting the information from public tax records.)  Additionally, we will have detailed discussions at the annual owners’ meeting in late April about ALL of this. I expect to have some meaningful results in the 90 days between now and then.
•  Our guess, based on the several other disgruntled owners who have emailed us, is that some of them will also choose to use whatever new management company that we end up using…especially since the other owners will be able to cancel their agreements with RML with 60 days notice.
•  I am sure that most owners will choose, either through inertia or for other reasons, to keep using RML in spite of the unfair policies, higher fees and charges.  However, if even a half dozen of us end up going with a new management company and each unit has the same $7,000 a year RML income / expense offset impact that our unit does, then we calculate that RML will incrementally lose $42,000 a year, or $210,000 over the next five years. 
•  With only 15%, or 10 units of the current 71 units in the RML rental pool, using the new management company, these RML impact numbers become $70,000 per year and $350,000 over 5 years.
•  Obviously, if even more owners see the same benefits that we, and possibly others, may see, the above RML impact could be even higher.

Even though we refuse to use RML with its current structure and arbitrary agreement, we remain an owner of Deer Ridge and have a right to ALL the information, general ledgers and financial statements, mailing lists of all owners and proxy forms to solicit the proxies from all other owners that we have been requesting for the past few months.  If these are not forthcoming, immediately, we will take other appropriate steps accorded us as an owner. 

We would have greatly preferred that the Board and RML were more responsive to the needs of all the owners and that we could have worked together to fix the obviously broken management company.  However, it has now become clear that you intend on carrying forward your arbitrary and outrageous fee structure and policies.  We will do what we have to do to solve the problem.

We believe that the above steps are in both our best interest and also in the best interest of other owners who care about their annual net income and their property’s value and are willing to take the same approach with the management of their units. 

If the Board wants to do what it can to avoid some of the above consequences, it might seriously consider doing two things in the next 3 days:  Provide us ALL the information via email that we have been requesting for the past few months - which we rightfully entitled to as an owner at Deer Ridge AND fully rescind the outrageous “excise tax” whereby owners are penalized for using their own units. 

We will be making a trip to our unit at Deer Ridge with the tentative dates of February 12 through February 26 in order to both check on our property and to review and audit ALL 2004 and 2005 Deer Ridge and RML books and records that are our right to see in accordance with both the bylaws and the Tennessee Horizontal Property Act. 

Please ensure we have full access to ALL books and records for all days between those two dates.  

Robert and Janet 
A-202

PS:  Please note our new email address:  Robert@DeerRidgeOwners.com

PPS:  Note that the targeted date of February 12th was changed due to the blizzard that swept that part of the country that week.  The new audit date is March 13th.  Details available by clicking Audit.