What is a timeshare?
A timeshare, also known as vacation ownership, is based on the concept of fractional or shared ownership in a vacation property. Timeshare arrangements allow multiple purchasers to own allotments of usage, typically in one-week increments or points, within the same property. The timeshare model can be applied to many different types of vacation ownership properties, such as timeshare resorts, condominiums, apartments, and campgrounds.
For example, if you purchase one week at a timeshare resort apartment each year, you own 1/52nd portion of the unit. Other buyers purchase the remaining fractions.
How do timeshares work?
Timeshares give owners annual exclusive use of a vacation property for a defined period of time or defined number of points. Timeshares typically use one of the following three systems:
With a fixed week timeshare, owners have the right to use the vacation property for a specific week (or weeks) every year. There are advantages and disadvantages to this system. The upside is that the owner is guaranteed an annual vacation at the same time every year. The downside is that it may be very difficult to change or swap the fixed week.
If you purchase a floating week timeshare, you will have the ability to use the vacation property for a week or weeks during a specific period of time. Although in theory the floating week might seem to be more flexible than a fixed week, the trouble lies in booking when you desire. The week you would like to book may not be available during the busiest times of the year and may need to be reserved well in advance to ensure availability.
Points are the newest system within the timeshare industry, and many timeshare companies only operate on a points system. The points system can be best described as having a form of currency (points) that allow you to “buy” time to use at a resort property. The amount of points you have to use to book a trip varies based on the vacation property, location of the property and time of availability. Timeshare companies use a points based system to allow timeshare exchanges either within their own timeshare resorts (internal exchange) or with other resorts (external exchange). While the points system allows owners to have more choices of where they want to vacation, it can also limit users ability to travel when and where they want to travel. Meaning, points do not come with a set week or location, so trying to use points to book a vacation can be difficult if the resort you want to stay at is booked two years in advance.
Types of timeshare
There are typically two types of timeshare, shared deeded ownership or shared leased ownership.
Shared deeded ownership or “fee-simple” timeshares give the buyer a share of the ownership. According to The World Tourism Organization, around 90 percent of timeshares are fee-simple or shared deeded ownership.
Shared leased ownership —or right-to-use contracts —allow the buyer to use the timeshare for a predefined period of time. This is different from shared deeded ownership, in that you don’t own any portion of the property. Ownership reverts to the original owner at the end of your term.
Shared Deeded Ownership
A shared deeded timeshare gives each buyer a percentage share of the physical property. For example, a timeshare unit that is sold in increments of one week can technically have 52 total deeds. That’s to say: buying one week in this particular resort condominium unit would result in a one-fifty-second (1/52) ownership interest in the unit. These types of timeshare ownership are often held in perpetuity and can be willed to one’s estate.
Shared Leased Ownership Interest
Shared leased ownership interest allows the owners the right-to-use a specific vacation property for a fixed or floating week (or weeks) each year for a certain number of years. With shared leased ownership, the timeshare company still holds the deeded title to the property.
How much do timeshares cost?
No matter which type of timeshare you buy you will have to pay fees. These fees include an up-front fee, mortgage fees, recurring maintenance fees (monthly or yearly) as well as yearly assessment fees.
Factors such as unit size, resort location and the timing of your stay can affect the cost. The American Resort Development Association estimates the average up-front cost at $22,000 with around $980 in maintenance fees annually.
Up-front fee/Mortgage fees
If you do not have the money to pay for the up-front costs, you only have a few options. Many banks will not give a loan to purchase a timeshare, because if you default on their loan, they can’t repossess a week of vacation time. Your only real option will be to use the timeshare company itself. They typically charge very high interest rates, because they know they are the only ones offering financing. The American Resort Development Association (ARDA) reports that the average interest rate on a timeshare loan is 14% over 10 years, with rates reaching as high as 20%. It’s important to consider the much higher interest rates when calculating your future mortgage payments for the timeshare.
In addition to the mortgage payments, you will also be responsible for paying monthly or yearly maintenance fees. The maintenance fees are often the largest, ongoing financial burden for most timeshare owners. Typically, if you buy a deeded timeshare, there’s no expiration date. This is something that many people are unaware of when they purchase their timeshare. This means they will be responsible for paying maintenance fees indefinitely, whether or not they use the timeshare. Another thing to consider is that maintenance costs rise with inflation, often going up year after year.
There are also a range of additional fees with timeshares including closing costs, taxes on the resort property, HOA dues, exchange fees (when you don’t have enough points for that beach condo at one of the timeshare resorts), and the “special assessments” for any repairs made to your unit. An example of a property assessment fee would be if the resort property gets damaged in a storm, that cost can be passed on to the timeshare owners.
Are timeshares a good investment?
We have all heard it a million times, real estate is a great investment for you and your family. So a timeshare must be a great investment then since it is a type of real estate, right? Wrong.
First things first, a timeshare is not an investment. Investments, by definition, are designed to appreciate in value, generate income or do both. A timeshare does not fit the definition, because it is unlikely to do either of those things. Another reason timeshares can’t be considered an investment, is that you do not actually own them in the case of shared deeded or shared leased (right-to-use) timeshares.
There are a staggering amount of timeshares listed for sale all over the internet for less than $1. This is because there is no market for a used timeshare. The timeshare companies have to use bold tactics to get you to buy a new one, so think of all that you would have to do to sell a used timeshare. Thus, the idea of a timeshare being an investment is completely false because it is nearly impossible to sell a timeshare at all, much less selling it for a profit.
Many timeshare salespeople are trained to position owning a timeshare as a future investment that will put money into your pocket through rental income. But unfortunately, this couldn’t be further from the truth. It is extremely difficult to find renters, and even if you do, the income you will bring in from an occasional renter will not cover your maintenance fees.
The entire sales process should be a clue about the reality of timeshares. Have you ever heard of any other investment that offered you a free weekend in Florida just for giving the product a try?
Ultimately, a timeshare is not an investment, it’s a vacation plan. It’s also an non-liquid asset that is likely to lose value over time.
Advantages and Disadvantages of Timeshares
All timeshare are not created equal. Some timeshare companies have created a trustworthy brand that delivers on their promises. Other timeshare companies don’t.
Many timeshare companies have vacation properties in some of the most beautiful and sought after locations in the country. If you prefer vacationing in a predictable location each year, and purchase your timeshare with one of the reputable timeshare companies, you may enjoy owning a timeshare.
There are several disadvantages that buyers should consider before purchasing a timeshare.
Some of the biggest drawbacks of a timeshare are the ongoing costs. The annual maintenance fees generally increase year after year, with some owners paying thousands of dollars. In addition to the yearly maintenance fees, the owner also has to pay their monthly mortgage payment until they pay off the timeshare. The interest rate on the mortgage payments is typically high as well. All of these payments, on top of the up-front fee for the vacation property, make owning a timeshare a large financial expense. Overall, it is much cheaper to stay a week in a comparable resort or hotel in the same location without owning a timeshare.
Another issue with timeshares is they offer little flexibility to alter your dates or book the dates you want in the first place. To get what you want, when you want it, requires booking sometimes 12-18 months in advance.
In addition, a timeshare contract is a binding one; the owners cannot walk away from a timeshare contract because there is a change in his or her financial or personal circumstances. Even if you pay off your timeshare, you are still required to pay maintenance fees for the rest of the contract whether or not you use the property. Most timeshare contracts are written in perpetuity, meaning it doesn’t have a specified end date.
It is notoriously difficult to resell a timeshare. Timeshares also tend to depreciate quickly and there is a disproportion in supply and demand due to the number of timeshare owners looking to exit their contracts.
Considerations Before Buying a Timeshare
If you are still on the fence about buying a timeshare, take some time to consider the following.
Don’t fall for the bribe
Timeshares have a reputation for their lengthy, high-pressure sales presentations, where salespeople bribe potential buyers with free meals, tickets, and accommodations. Many times buyers are exhausted by the end of the presentation and end up signing contracts they don’t fully understand.
Be aware of this when a salesperson stops you on your next vacation and offers you free tickets to attend a sales presentation. If you do find yourself in one of these presentations, make sure your salesperson tells you the purchase price directly and doesn’t evade your questions. Read through the contract carefully, do not just take the salesperson’s word as the truth.
Booking may not be easy
Even though you may have been promised easy access to booking and special privileges, sometimes timeshare salespeople offer up more than they can guarantee. Points-based timeshare systems come with no guarantees. Just because you have been told you have a right to use the resort for your vacation doesn’t mean you will actually get what you were promised.
Just because the salesperson tells you it’s easy to trade your week for another week or your resort property for another property, doesn’t mean it really will be easy. More often than not timeshares are booked many months in advance. Owners often find it hard to even use their points, much less use them for somewhere that they really want to go on vacation.
Whether it’s due to being booked up for years at a time, or not having enough points, or being blocked out by some rule or regulation, many owners can’t use the timeshare the way they were told they could during the timeshare presentation.
It’s also important to remember that some destinations are more popular than others, meaning more people will want to travel the same weeks to the same places that you want to travel.
Timeshare Companies are also notorious for pushing to sell “upgrades”
If you call the timeshare companies to complain about being unable to book your desired trip, they will often explain how the package that you bought wasn’t “enough”, and why you need to buy more timeshare to take full advantage of all that timeshare ownership offers.
Unfortunately, this includes paying even more timeshare fees every year and saddling your financial health with even more potential timeshare mortgage debt.
Fees and charges
In addition to the monthly loan payment, which comes with a high-interest rate when financed through the timeshare company, the annual maintenance fee will also set you back hundreds, if not thousands, of dollars every year. This is often the same price as a vacation itself. Also, if the resort property needs a new roof or a new sewage line, a “one-time” assessment fee can be sent to owners. Some properties also charge miscellaneous fees, such as a publication fee if you want to view other resort properties that may be available for trade, and additional fees if they help you sell your property, or even book a trip for a friend or family member with the timeshare you own.
Another major consideration is your health. That vacation resort property across the country may seem like a great place to visit today, but when you are in your eighties, you may not be so keen on traveling. Although you may be done traveling, the bills for the timeshare will continue. Consider that your desire to travel will decrease with age and health concerns.
Think it over
Like any major financial decision you make, you shouldn’t impulse buy a timeshare. If you attend a timeshare presentation, do your best to avoid buying anything on the first day.
Contracts are binding
Timeshare ownership is not an easy thing to get rid of because you voluntarily signed a contract when purchasing your timeshare. However, when it comes to considering your options for relieving yourself of your timeshare, there are a few different approaches you can take.
- -Attempt to reach a cancellation agreement with the timeshare company yourself
- -Hire a lawyer to represent you
- -Sell or rent your timeshare online
- -Use a reputable timeshare cancellation company
Watch out for fraud
Watch out for fraud within the timeshare cancellation industry. It’s important that you only work with companies who have a 100% money back guarantee. If they don’t, then they may be trying to take advantage of you.
Victims of timeshare exit fraud often report receiving scam phone calls telling them they have a timeshare buyer on the other line and need an immediate answer. They may ask you for a payment, but never agree to pay someone before doing your research. Also, beware of any company that cold calls you or harvests your information as a “lead.” They are just trying to make as much money off you as possible and chances are they can’t deliver.
Know What You Are Signing
Oftentimes, timeshare presentations go on for hours and then all of a sudden it is time to sign the dotted line. Be sure to read the fine print and ask questions when it comes to timeshare agreements. Before you sign a timeshare agreement, you should know:
- -How much you will be paying each month and what the costs cover
- -What you are allowed to book and when you are allowed to book it
- -How long you will be responsible for maintenance fees or any other fees
- -What your options are if you want to exit the timeshare
Also remember that there is a “right of rescission” period for timeshare contracts. This period is usually between three and 10 days and is the amount of time a buyer has to cancel without penalty after signing. Check out this chart from Nolo to find the laws for the state where you’re considering making the timeshare purchase.
If you do end up keeping the timeshare after the rescission period has passed, you still have options for cancellation. Check into a reputable timeshare cancellation company that offers a 100% money back guarantee.
Overall, it is debatable whether timeshares’ significant upfront costs, ongoing maintenance fees, and limited liquidity make them worthwhile. For those looking for a way to vacation that doesn’t include all of the fees and limitations that come along with a timeshare, planning a trip using a vacation rental company might be a better option.