Written by: Corey Janoff
This post was originally published on our previous blog website on February 7, 2017 and has since not been revised and/or updated.
We are all familiar with the concept of a timeshare – you own a fraction of a property with many other people and get to stay at the property for an allotted time period each year (typically one to two weeks). Most people only take one or two “big” vacations a year (if that), so a timeshare provides them with the perfect scenario. You get to “own” a vacation home, but since you will only use it once or twice per year, you only have to pay for a portion of the home. On top of that, many timeshare companies allow you to exchange time at your home for a stay at one of their other properties all over the world. For many people, this all sounds fantastic.
I’m Regretting My Timeshare Already
People that buy into a time share often quickly find themselves regretting the decision. The most common complaint is the dates you want to travel are unavailable. Remember, you are sharing your vacation home with a bunch of other people and the reservations are first come first serve. So if you have kids and you are wanting to use your timeshare during spring break, good luck. You will have to book your vacation at the earliest possible moment you are allowed to make your reservations.
Most timeshares will allow you to make reservations a certain number of days in advance of your stay. If you are wanting to travel during popular vacation dates, you and everyone else will be in a rat race to book the property. You will either need to get on the phone to call the reservation line the moment the phone line opens up, or get on your computer early in the morning to try and reserve online (and pray that the website doesn’t crash!).
Beware of Financing the Purchase of the Timeshare
Timeshares can vary widely in price, but let’s say a typical timeshare costs $20,000 to buy in. Not everyone can afford to write a check for that initial price tag. Timeshare companies are aware of this and offer financing options. However, financing a timeshare isn’t like taking out a mortgage or financing a car. The interest rates that timeshare companies charge are the equivalent of purchasing the timeshare on a credit card. People often find themselves paying upwards of 10% interest per year, making the actual cost to buy in significantly more expensive than the initial price tag.
Don’t Forget Maintenance Costs
One of the things that prospective buyers don’t always take into consideration is the maintenance fees of their timeshare. Even if you don’t use the timeshare in a given year, you still have to pay the maintenance expenses. These can often be a couple hundred dollars per month for nicer properties. And the maintenance fees will rise over time.
Look at the property you are considering purchasing a share of on vacation rental sites (such as hotels.com, expedia.com, vacasa.com, airbnb.com, etc.). It is not uncommon to find that you can rent a unit in the same complex for a similar weekly cost as the annual timeshare maintenance fees.
My parents once stayed at a very nice resort at a discounted rate, courtesy of a timeshare company hoping to woo them into buying. My dad liked the resort so much, he actually considered buying into the timeshare, but the annual maintenance fees were around $2,000. Before pulling the trigger, he looked online to see what it would cost to simply rent a room at the resort and found that, depending on the travel dates, he could stay at the resort for around $100 per night (plus taxes & fees)! So rather than buying into the timeshare, he simply booked a week at the same resort for their vacation the following year, at a much more favorable cost.
But Won’t My Property Value Appreciate Over Time?
Timeshare companies will often give you the impression that in addition to having access to all these great vacation destinations for a small up-front cost, and reasonable ongoing maintenance expense, the value of your property will appreciate over time. This is great – if you are able to sell your timeshare one day.
Basic economics says prices are dictated by supply and demand. Well, with timeshare property developers, once the supply is all bought up, they start building more properties! When the demand increases, more properties are built. So rather than new buyers purchasing shares of properties from existing owners, the timeshare company sells them the new developments. This means, it is very difficult to sell your timeshare if you want out, and the value often doesn’t rise like you would expect with traditional real estate.
If you want out, but cannot find a buyer, why not simply stop paying for the timeshare? That is an option, but doing so is considered the equivalent of foreclosing on a house on your credit report. That could make it extremely difficult to make a major purchase, or open an account in the future where they run your credit beforehand. As long as you don’t plan on taking out a mortgage or auto loan (or renting an apartment) within the next seven years, this could make sense, but proceed cautiously.
So…Does it Ever Make Sense to Own a Timeshare?
Based on what you have read so far, you are probably thinking: why would anyone every want to own a timeshare? For certain people, owning a timeshare works well for them.
First and foremost, you need to have a flexible schedule. Like I mentioned earlier, popular dates book up fast and reservation are made on a first come first serve basis. So if you can plan far in advance and take vacations whenever you want, then it could make sense for you.
Also, the ability to exchange dates at your primary property for a stay at another property in your timeshare company’s network can be very appealing. You will have the ability to take vacations all over the world through your timeshare.
So if you are retired, or don’t have children in the house (and don’t plan on having kids), and have a flexible schedule, then a timeshare can be great! For everyone else, proceed cautiously before purchasing a timeshare.
