Timeshares: Does It Make Sense To Buy One?
Timeshare presentations have replaced used car salesmen as the image we conjure up when we think of high pressure sales. The timeshare industry has a bad reputation based on sleazy tactics, hidden fees, and an overall lack of transparency. Yet timeshare sales continue to boom. Domestic timeshare sales were $9.2 billion in 2017. That’s more that the entire music industry ($8 billion) or Major League Baseball ($9 billion). There are lots of myths and misconceptions about this form of real estate ownership, which is shared by close to 8 million US households. Many people enjoy their timeshares and feel that owning one causes them to take more vacations. Let’s look at how they work and whether they make economic sense.
What exactly do you own?
Timeshares are based on the concept of fractional ownership in a property. You may not be able to afford a vacation home, but you may be able to afford 1/52nd of one. An article I read described timeshares as: vacation homes sold to people who can’t afford vacation homes.
Most timeshare owners get a deed to a property just like they did when they bought their house. They can rent their unit out, sell it, exchange it, and pass it on to their heirs.
Some properties do not give you a deed and instead operate on a point system. These are referred to as “vacation clubs.” In this scenario, you purchase a specific number of points that can be redeemed at different destinations. The number of points needed to use a property varies based on the location, type of unit, and time of the year. Some plans let you “bank” or sell your unused points.
Technically, you are leasing the right to use the property for a set amount of time each year in this “non-deeded” point system..
How Much Do Timeshares Cost?
The average sales price is approximately $20,940, with an average annual maintenance fee of $880 for a one-week timeshare. The company selling the timeshare will finance the purchase price but be forewarned, interest rates are very high (e.g., 14% for a term of 10 years).
Most timeshare agreements are indefinite contracts, which means you’re obligated to pay the maintenance fee indefinitely, just like you are obligated to pay property tax indefinitely on any other form of real estate as long as you own the property..
Assessments can also be levied if the property needs significant maintenance (e.g., a new roof or a new sewage line). One group of owners in Kauai, Hawaii (The Point at Poipu Resort) were surprised to get a bill for $5,800 each, in addition to the $1,400 in annual dues, when their resort experienced significant water damage in 2011, as an example. Some properties also charge miscellaneous fees, such as a publication fee if you want to view other properties that may be available for trade, and additional fees if they help you sell your property.
Do you recommend buying Timeshares?
Despite all their drawbacks, some people love their timeshares and say they’ve had great family vacations in nicer accommodations than they would have otherwise. That being said, timeshare programs are ridiculously complicated: internal exchanges, external exchanges, trading power, seasons, demands, points, preferences, etc. Many people do not fully understand their timeshares. I was recently talking to one of my clients who owns two timeshares who said he really likes the point system. He said you can get good value if you have the time, patience, and motivation to research available properties, book your stay well in advance, and use the program to its fullest.
My client recommended buying a point-based timeshare with an organization that has lots of resorts so you have the ability to trade. Most importantly, he said…don’t pay retail! On that note, next week I will cover the best way to buy, sell, or get out of your timeshare contract.
In the meantime, Consumer Reports did a story comparing the cost of buying a timeshare to renting a room at the same resort for a week each year. Their conclusion was that you are better off renting for the short term, but the timeshare pays off it you use it each year after approximately thirteen years. Check out the article HERE.
Do you own a timeshare? I would love to hear your story. Are you glad you bought it? Do you use it each year? Would you do it again?
Have a great week.