Despite the growth of vacation rental options like AirBNB and VRBO, the old standby, the timeshare vacation property, still remains popular among certain demographics. In this system, you own or rent a week or a month every year in a property, and other part-owners use the property the rest of the time.
Some people may love the security of having a guaranteed vacation destination every year. Others may find themselves, years in the future, wanting to get out of the commitment and unable to find another buyer. Make sure you do your due diligence before investing in one.
What Is a Timeshare?
A timeshare runs on the principle of fractional ownership. So, if your timeshare is one week of the year, you can be said to own 1/52 of the property. You will pay your share of the mortgage, plus certain maintenance fees.
Often, a timeshare is at some kind of resort. The amenities can be generous. However, the cost of a timeshare is generally more than you would pay for a comparable stay at a conventional hotel or resort. You are paying for your guaranteed access.
Timeshares can be in the form of shared deeded ownership or shared leased ownership. In the former, you actually buy a deed and are a part owner. In the latter, you only rent your interest in the property. Since you aren’t a part owner, you may have more restrictions in how you can sell your interest in the property.
You may have your interest in the property expressed as a fixed week, a floating week, or some number of points. If you have a fixed week, you are guaranteed the week in your timeshare agreement, but if you aren’t free at that time, you likely won’t be able to switch it. If you have a floating week, you have more flexibility, but if you want to visit at a peak time, you might need to book it far in advance. The points system allows you to switch times or even switch to a partner resort, but more popular stays will cost more points.
Pros and Cons
Timeshares are much more economical than owning an entire vacation home, but, like when you own a second home, you have a reliable spot you can vacation every year. For people who enjoy their routines, this can be a positive experience. Others, who prefer to experience something new each vacation, won’t get much out of a timeshare.
Cost is a major disadvantage of a timeshare. In most cases, you will spend an initial fee to buy in, your share of the mortgage, and an annual maintenance fee. This last fee is variable, and historically they rise faster than inflation. In general, timeshares are much more expensive than simply renting a hotel or resort suite for a week or two—at least until you’ve owned and used them for over a decade.
Their binding nature is the other big downside. If you find money tight one year, you can choose not to book a hotel room, but a timeshare cannot simply be canceled. Some timeshares will allow you to get out of your contract, but there will be steep fees. The only way to get out of others is to sell them to someone else.
Given these cons, why do people still buy them? In many cases, sales tactics for timeshares can be unethical or include high pressure. You may find yourself offered a free stay at a resort to be wined and dined, while you are encouraged to sign quickly without looking at the fine print. Needless to say, this is no way to make a major financial decision. If you find yourself roped into such a deal, remember that in most cases you have a certain amount of time to cancel the contract before it becomes permanent. Use that time to talk to your financial advisor about the details of your contract.
The Timeshare Secondary Market
Unlike a house, a timeshare tends to lose value while you own it. If you sell it, you are likely to get less back than you paid for it. And that’s assuming you can find a buyer at all. Websites and brokers exist specifically to resell timeshares, but there tend to be more sellers than buyers. Watch out for companies that exist purely to purchase or cancel your timeshare. Not all of them are legitimate.
For this reason, if you do choose to buy a timeshare, the secondary market can be a good place to look. You will be able to research at your leisure, without high-pressure sales techniques, and might find a timeshare offered for less than you would have to pay for it from the original issuer.
If you can’t sell your timeshare, it may be possible to rent it out to someone else. There’s a market for this as well. A friend’s unused timeshare might be a great vacation spot for your family, if they are willing to rent it to you.
Occasionally, timeshares are referred to as investments. As you can see from the facts above, they make terrible investments. Only buy a timeshare if you actually want to use it for your vacations. It’s unlikely to increase in value.
Ask Around Before Signing
Given the long-term commitment a timeshare entails, you should gather the best advice available to you before signing a contract. Research the resort offering it, including searching for scams or complaints. You should also speak to your financial advisor about the impact it will have on your larger financial picture. To meet the right advisor for you, simply contact us and be matched with a vetted professional.