Have you ever been tempted to purchase a vacation time share? You may be offered a free multi-day hotel stay, meals or tickets to an event – just for attending a short introductory meeting to learn more. Chances are the meeting will be much longer than you anticipate with pressure to purchase.
While there are benefits to having your own vacation place available to you every year, with an option to trade to a different location in the US or abroad, there are risks to making this commitment. Do your homework to fully understand the pros and cons of timeshare “ownership” before making a decision that will impact your family finances for years to come. This is a true case of “buyer beware;” many have succumbed to the sales pressure without fully understating the long-term financial obligations. Also consider whether or not you will really use the timeshare each and every year based on your work obligations and family situation.
A timeshare is not an investment like owning a stock portfolio or investing in your retirement plan. Buying a timeshare is different from purchasing an investment property. Investment property owners can rent their property to others for a partial or full year and earn rental income, eventually selling the property for a profit in the future. With a timeshare, you buy the “right” to use a property, but you do not outright own a specific property. You cannot modify the terms of a timeshare contract, rent it out or resell it like a traditional investment property because you do not own title to the property. While timeshares purchased two or three decades ago may now be worth more than the original purchase price, this happens less frequently today. Regardless of whether or not you use your timeshare in any given year, you must still pay the annual fees.
Benefits of Timeshares
Timeshares can be a good option if you plan to travel to the same vacation location every year. Over time, this can provide access to desirable vacation locations at a more affordable cost than owning a property outright. Some programs offer an option to exchange vacation homes for a different location of equal or lesser value - if you plan far enough ahead and other locations are available to swap - but this often requires additional fees.
Many timeshare units are larger than rental condos or hotel suites, with community fitness centers, pools, hot tubs, tennis courts and beach access. Timeshare owners do not handle maintenance or improvements, which works well IF the timeshare company manages the property well. Note the initial price of a timeshare often does NOT include financing costs, annual maintenance fees and exchange fees, which have been known to double or more over time.
Risks of Timeshares
You may purchase something you cannot afford. Review the fine print carefully and compare the total costs versus your annual vacation budget. The timeshare salesperson will often quote prices that exclude costs of timeshare financing. This can be misleading as you consider the decision. Traditional mortgage financing is not available for timeshares, so the cost of the purchase may be far higher than you understand.
Timeshares almost never increase in value, and most do not retain their value. Selling on the secondary market can be challenging as you may not have much interest in your timeshare unit, or similar units are being given away at little or no cost. It is unusual to rent out your timeshare for a profit; renting it out often requires significant work.
Timeshare ownership may require special assessments if the property needs upgrades or repairs that cannot be covered by the reserve funds from timeshare owners’ annual dues. Higher assessments can lead to a downward spiral of owners not being able to afford their dues, resulting in reducing the quality of the resort. Annual dues usually increase over time, which may lead to the fees being unaffordable. Timeshare points can lose value over time due to inflation, and secondary market purchases can depress a timeshare’s value. The timeshare company may change the points required for preferred dates or change other parameters of the points program.
What happens if you decide you no longer want your timeshare? The annual fees may become too high for your budget, or your vacation location interests may have changed over time. You might be able to purchase a timeshare from another owner for a lower cost instead of directly from a timeshare company at full price. You would take over the fees but may not have to pay to purchase the timeshare. But be aware there can be drawbacks to buying a timeshare secondhand. You may not be able to convert the timeshare into other options, such as hotel points or cruises or the current owner may owe prior year maintenance fees or assessments.
Purchasing a timeshare is a long-term commitment, often lasting decades. It is a commitment that can be nearly impossible to end. You might be able to give your timeshare back to the resort, but the process can be difficult and time-consuming. Before purchasing a timeshare, consider whether you can achieve your vacation goals through other means, such as extended stay properties through Travelocity, Expedia, Priceline, Airbnb and VRBO.
Do not succumb to sales pressure to buy a timeshare until you understand whether it makes sense for you, not just now but in the future.
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Janet Rhodes Friedman, CFP®, CDFA®, MBA
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.