The Truth About: Timeshares

If you are considering buying a timeshare, think twice before signing on the dotted line. Many people get into a timeshare contract without fully understanding the pros and cons. Others have no idea what the total cost will be until they get hit with their first special assessment or tax bill.

What is a timeshare?

A timeshare, also commonly referred to as a vacation ownership, is a lifetime commitment to paying for annual trips to the same resort or family of resorts. You prepay or finance a lump sum upfront plus annual maintenance fees. Upgrade or exchange fees come into play if you want to stay somewhere different than you originally paid for. The typical trip is one week long.

How do timeshares work?

There are two types of timeshare contracts available, which will outline who owns the property and how it works for you to visit your timeshare.

Shared Deeded Contract

A shared deeded contract divides the property ownership between you and all of the other people who own the timeshare. Each shareholder is typically designated a specific week or set of weeks they can use the property each year. A shared deeded contract also gives you the right to transfer ownership of your share by selling, gifting or bequeathing.

Shared Leased or Right-to-use contract

A shared leased or right to use contract divides the use of a property between you an all of the other people (shareholders) you pay for the timeshare. The lease gives you the right to use the property for a certain number of years. It does not give you the right to sell or rent your timeshare or give any ownership rights.

Both types of timeshares are just that, shares. When purchasing a timeshare, you are not investing in a peice of real property, but rather a share of that property. Typically giving you the right to use the property - that's it.

Timeshares can't be all that bad... can they?

They are typically far overpriced

The average one-week timshare costs more than $24,000. That figure doesn't include transportation, food and other expenses needed for travel. Now go take a look at the average cost of a one-week vacation... how many years in a row would you have to take that vacation to be able to break even on your "investment"?

Timeshares don't gain value

In many cases, timeshare salespeople tell you that they offer an investment. After all, you can lock in rates today and guarantee yourself leisure in the future, then the return gets calculated in dollars saves plus quality leisure time.

The real winner is the developer when they persueded 52 buyers to give $20,000 as an investment... that adds up to over $1,000,000 for a condo that could maybe be worth $500,000 on the open market when/if it came time to sell. As a shareholder, you never gain value and no equity gets accrued.

Timeshares are notoriously inflexible

Let's pretend the comfort of having access to a well-maintained vacation property holds enough value to keep your attention and justify an inarguably stupid price tag. After all, who doesn't love a carefree getaway?

You might care quire a bit when you find out that the access you already paid for isn't available during the time you'd like to take your vacation. Timeshare agreements allow property owners to blackout dates where the timeshare owner will have to pay a premium to stay at the property during specific time periods. That means spending even more than the inital $24,000 investment for a week-long vacation if you want to head out over a highly desired timeframe.

But let's say you signed up for a timeshare and realized later that it wasn't economical. You still owe the debt and you still have to pay for things like maintenance - even if you don't ever use the timeshare. That's about $1000/year on average. That's basically half of a vacation you pay for the privelege of having the option of vacationing in a specific place... that is also why people are selling their timeshares online for $1.

Why are timeshares still a thing?

A truly alarming number of Americans own timeshares..... a whopping 7.1% of adults actually. The Better Business Bureau warned against it. The Federal Trade Commission has offered their own warnings. The National Association of REALTORS® even has continuing education discussing the preditory factors of timeshares and why they should be avoided...

Due diligence is ultimately the consumers responsibility, of course and sometimes you just cannot fix stupid.