Maybe you attended a timeshare informational dinner. Now, an agent is talking you into buying a timeshare with the sales pitch that will save you money.
You may wonder, is a timeshare a smart investment? Here’s the bottom line: a timeshare is not a smart investment. It isn’t even considered an investment because timeshares cost money and do not generate income.
There are both risks and benefits to buying a timeshare. You can enjoy a vacation at a set resort each year with short-term incentives such as free tickets to a show or timeshare points to swap for a cruise or golf vacation. Timeshares end up costing owners more money in the long run and are less flexible than a regular vacation.
A timeshare is a long-term financial commitment and one that’s difficult to escape. Is it worth it to have a place where you can spend a week a year without booking a hotel? Would the time and expense be better spent on a no-strings-attached vacation? Before you jump into a timeshare agreement, read the article below to help shed some light on the issue.
How Timeshares Work
Starting in 1969, timeshares offered a way for the condo industry to unload their excess vacation inventory. Today, the American Resort Development Association (ARDA) has expanded into a 9.2-billion-dollar industry.
Most of the time, buyers think that purchasing real estate can have big, long-term investment benefits. There are a lot of things that you can do with a property.
You could sell it at the top of the market. You could rent it out and receive passive income. You could fix it up and flip it for a profit. There are also tax breaks that investors can utilize.
All of these are great options.
A timeshare isn’t this type of real estate investment. In fact, it’s best not to think of a timeshare as an investment at all. Timeshares lose money.
They decrease in value while failing to bring in revenue. Worst of all, you do not actually own a timeshare. You pay for partial ownership. In real terms, this means that you can use the timeshare for one week per year.
What to Know About Buying a Timeshare
Currently, the average sales price for a one-week timeshare is a whopping $20,940.00. But wait, that’s not all.
On top of the upfront price, which only gives you partial and limited non-deeded ownership in a resort property, you also have to pay an $880.00 annual maintenance fee. You have to pay for this whether you can take vacations there or not.
While timeshare companies are moving to a points-based system, you may need to try to swap weeks if you are unable to go during your scheduled week. While you can trade your timeshare stay for other types of vacation points, these points often suffer from inflation and a decrease in value each year.
Finally, timeshare agreements are long-term, indefinite financial agreements often lasting for decades. You are required to pay the maintenance fee and any special accumulated costs for an indefinite time, maybe even for the rest of your life.
The Benefits of Buying a Timeshare
If you are aware that a timeshare is not an investment and like the comfortable predictability of staying for one set week in the same place each year, here are 6 timeshare benefits that you can enjoy.
1. You Don’t Have to Worry About Where to Go on Vacation
If you like to go to Florida each year, a timeshare there can provide you with a place to go annually.
Timeshares can be a good option if you don’t want to bother with researching and booking a beach house or hotel. If you are a fan of stable and routine vacations, then this vacation style may just be for you.
2. You Can Go to Multiple Timeshare Locations
While you can swap timeshares to holiday at another location in the company’s portfolio, you need to plan to swap with another timeshare owner. If you like to swap vacation types or regions, then a timeshare may be the way to go.
3. You Don’t Have to Take Care of the Property
While you don’t need to do any house maintenance, you are required to pay for a timeshare’s upkeep. As a timeshare “owner”, you will need to pay annual dues for this upkeep no matter what. The good news is that you won’t have to fix anything on the property yourself since the timeshare company will do this for you.
This is a benefit if you do not want responsibility for the upkeep associated with a condo or regular vacation home. You can also check-in and out of other people’s timeshares without worrying about taking care of the place, which can make for a more hassle-free vacation.
4. Timeshares Can Cost Less Than Buying a Vacation Home
According to the American Resort Development Association (ARDA), a one-week timeshare property cost around $22,942.00 upfront in 2019. This differs from a survey taken earlier by real timeshare owners in which nearly half of them reported that they actually paid less than $10,000 for their timeshare. This is less expensive at first glance than owning a condo at the beach.
Keep in mind that these timeshare prices don’t factor in maintenance fees paid in annual dues, financing, or timeshare exchange fees.
Although not hidden, these costs are not always fully factored into the advertised price. As a result, dues and fees can double the base price of owning a timeshare over your lifetime. While you can buy a used timeshare for practically nothing, there’s also a reason why many secondhand timeshares are so cheap.
5. You Can Get a Secondhand Timeshare for Free
There’s a reason that something is free. If someone can’t afford the fees, then they are practically forced to give their timeshare away. This is because timeshares plummet in value.
Getting a timeshare from another owner costs 0-10% of the company price according to Timeshare Users Group. You have to pay dues, but you won’t have the upfront cost that comes with a new timeshare. Learn more from One Mile at a Time.
While all of this sounds great, there are some drawbacks to a secondhand timeshare. You can’t convert a timeshare that you didn’t get directly from the company into hotel points or cruises. You also might find that the previous owner was behind on dues or owes special assessment fees. If you decide to buy secondhand, these are some hidden financial risks that you’ll need to know about.
6. Timeshares Have a Lot of Space
You get more square footage with a timeshare than with other types of vacation rentals. These areas include living spaces, multiple separate bedrooms, kitchen, and a washer and dryer.
Altogether, a timeshare feels more like a condo than a hotel room. The property usually includes high-quality swimming pools, hot tubs, a gym, and beachfront access.
The Risks of Buying a Timeshare
Despite these amenities, there are six risks to buying a timeshare to keep in mind.
1. You Were Pressured into Buying Something That You Can’t Afford and Won’t Own
Maybe you attended a timeshare meeting during a hotel dinner event. After the presentation, a sales agent talked you into buying a property at their highest price. Agents often claim that a timeshare is worth it because people typically spend more on vacation than on a timeshare. The agent assumes that you would not finance a vacation or would pay full price for it.
This may not be true for you since most people do finance vacations or get great deals (rarely paying full price).
Before you buy anything, ask for a copy of the agreement’s fine print. Then figure out if what they are offering is less expensive than what you would usually spend on your yearly vacation.
It’s a good idea to look up package deals in your preferred vacation area to get a price comparison (and more flexibility for your future vacations) before rushing into a timeshare commitment.
Worst of all, you don’t own the property outright, just the exclusive right to use the property.
You can’t rent out or sell a timeshare outside the company as if you owned an actual real estate title.
2. You Face the High Cost of Timeshare Financing
Since you don’t own your timeshare property like a regular piece of real estate, you can’t use a regular mortgage.
Your financing options will include alternative financing choices that the timeshare company offers, a personal loan (which typically has high interest rates), a credit card, or a home equity loan.
In addition, most timeshares will not be eligible for real estate or investment tax deductions. That’s a sobering indication that you are not buying real estate or making an investment.
3. Your Timeshare Will Not Retain or Appreciate in Value
Another risk to buying a timeshare is that, unlike real estate purchases, a timeshare does not retain its worth. It also does not increase in value.
When selling your secondhand timeshare, your competitors will be other owners who are forced to basically give their timeshares away for free.
Still not sure about the resale risks? The Association of Vacation Owners estimates that at any one time there are millions of timeshares floating around on the vacation market.
Timeshares become a dime a dozen once people buy them from the timeshare company. Since vacationers can easily buy secondhand timeshares for practically nothing, your timeshare will grow less and less valuable over time.
Even if timeshare values stay afloat or increase in rare cases, this is due to fluctuations in supply and demand for a popular area—not because timeshares are a good investment.
If your company permits it, you can try to rent out your timeshare to recoup some losses, but this involves a lot of time and effort.
4. Your Timeshare Points Usually Devalue Over Time
Inflation sucks. While not all timeshares are point-based and there are also floating and fixed-week timeshares, a points system is currently the most popular system.
Be wary of point-based timeshares because while they offer more flexibility, they also can lose value due to inflation. The timeshare developer may also re-assess points each year due to seasonal shifts that can also devalue your points.
For instance, something that costs 100 points today can cost you 150 points next year. This is another way that timeshare owners lose value and money.
5. You Might Be Unable to Afford the Fees
Maybe the timeshare and its annual dues seemed affordable when you first signed up, but now you can no longer afford it.
The timeshare company can charge special assessment fees if your property requires upgrades or repairs not covered by the developer’s annual dues fund.
If your timeshare property is older, located in a hurricane area, or needs other types of repairs, these costs can add up fast. You might be unable to cover rising fees and your property will continue a downward spiral in value.
6. It Can Be Hard to Get Rid of a Timeshare
Buying a timeshare means that you are committing to it for the long-term. This commitment often lasts for twenty or thirty years.
Timeshare commitments are also incredibly hard to escape. That’s why you will see owners giving their timeshares away to get out of the contract.
Unlike monthly mortgage payments, you can’t just stop paying your annual timeshare dues if you can’t afford it or want to walk away from your timeshare commitment. That’s a big thing to commit to for the long haul after a sales push meeting.
You Have Two Options for Getting Out of a Timeshare
- Return your timeshare to the resort company.
Giving the timeshare back through the Coalition for Responsible Exit is a hard, time-consuming, and often unsuccessful process. This leads owners to their second option out of desperation.
- Give your timeshare away.
So, is a timeshare a smart investment? Here’s the bottom line:
- A timeshare doesn’t generate income, so it’s an expense, not an investment
- You don’t actually own it.
- It’s not liquid
- It’s difficult to get rid of
- It has a poor resale value
Here’s what to do instead. Think about how much you will use a timeshare. Compare the overall price to vacation package deals.
It’s cheaper to stay at a hotel, find a resort deal, or book an extended stay vacation on websites such as Airbnb, VRBO, Priceline, or Expedia. Hotels often give discounts and you can also use credit cards or hotel rewards points.
Do a lot of research, be financially savvy, and know that there are much better and less expensive, string-free vacation options out there than a timeshare commitment.