The Perks and Drawbacks of Timeshares
A vibrant teal blue ocean, the aroma of sand and surf, and long green palm fronds blowing in the wind may have you dreaming of owning a property in paradise. But for many, a vacation home isn’t in the budget. One alternative many people consider is a timeshare. As with any major purchase, you should carefully research whether a timeshare is right for your family.
A timeshare is a lifetime commitment to pay for trips to the same resort or family of resorts. It’s based on the concept of fractional ownership in a property. A lump sum is prepaid or financed upfront along with annual maintenance fees. Resorts sell timeshare units in parts or ownership pieces corresponding to varying amounts of time. Typically, the parts are weekly intervals (seven nights’ worth of vacation time) or points. Points represent a currency for the use of units in nightly or weekly increments.
Will owning a timeshare be a financial headache or help your family curb annual travel expenses? Experts agree that generally, timeshares shouldn’t be considered a long-term investment. Instead, think of a timeshare as a prepaid vacation plan. Here’s how a timeshare works:
There are two types of general timeshare programs:
Non-Deeded or Shared Leased:
A shared, leased timeshare divides the use of a property between you and all the others paying for the timeshare. The lease gives you the right to use it for a certain number of years, but it doesn’t provide you with ownership rights.
Deeded or Shared Deeded:
A shared deeded contract divides ownership of the property between you and all the other timeshare owners. It also gives you the right to transfer ownership by selling, gifting, or bequeathing. Each person is designated a week or set of weeks they can use it.
From here, ownership structures can become more complex. For example, some properties operate on a points system, often referred to as vacation clubs. Other plans let you bank unused points to use to purchase fixed weeks or floating weeks.
Types of timeshares
Not all timeshares are alike. Some operate on a floating-week timeline where you reserve the property for a designated time of the year. Others offer fixed-week programs, a fixed amount of time to stay at a property, for instance, a specific week every year. A points-based timeshare is another form of timeshare, and here’s how it works: You accumulate points by staying with a travel-related company such as a resort or by buying points. One of the benefits of this type of timeshare is that if you’re invested in a timeshare network with properties around the globe, you don’t have to travel to the same vacation spot every year.
How much does a timeshare cost?
According to ARDA’s 2020 State of the Vacation Timeshare Industry report, the average sales price per interval for a timeshare was $22,942. With a typical timeshare, you’ll pay this upfront cost as a lump sum for a mountain cabin or beachfront property you can visit every year for the rest of your life unless you decide to sell your timeshare. The upfront cost may be high, but the longer you hold onto your timeshare, the more value you’ll get out of it.
Other fees
There are other fees associated with the cost of owning a timeshare that is in addition to the lump sum. The average annual maintenance fee is $1,080, according to ARDA. Depending on your timeshare location, you may have a transfer fee, a recording fee, and if major repairs are needed, you could be assigned an assessment fee that could be in the thousands of dollars. You might also be responsible for paying property taxes.
Pro Tip: Read the contract carefully and understand what you’re getting into before you commit to buying a timeshare.
Calculating the long-term cost
To get an idea of the long-term cost of a timeshare, here’s an example without factoring in financing, price increases, or inflation:
· Upfront cost: $23,000
· Annual fees: $1,000
· Closing cost: $800
· Vacation nights per year: Seven
· Number of years: 30
· Total cost: $23,000 + $30,000 + $800 = $53,800
· Total vacation nights: 210
· Total cost per vacation night: $53,800 / 210 = $256.19
· Stick with well-known brands
Timeshare scams are widespread, and fraudsters will take your money by promising to buy your timeshare or help you sell it. It can be hard to distinguish between the good and bad ones, so scrutinize the companies available to you. Read online reviews, seek out referrals, and thoroughly vet companies before you commit money and sign a contract.
Before you buy
If you’re interested in a timeshare, carefully consider the perks, drawbacks, and costs. Take the time to research the property and talk to other timeshare owners. Don’t make your decision in haste, and never let a salesperson rush you. Consider how you’ll pay for it because banks won’t give you a mortgage to purchase a timeshare. Beware of “easy” financing schemes from timeshare developers that may come with sky-high interest rates.