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What’s the Deal with Timeshares?

When you’re on vacation, the promise of a free show or amusement park tickets, a free fancy dinner, or gift card can be hard to turn down, especially when all you’re asked to commit to is a 90-minute presentation about a timeshare opportunity, also sometimes called “vacation ownership” or “prepaid vacations.” However, before you take the bait and secretly promise yourself (and perhaps your partner) you’ll just say “no” in the end and leave with your free gift, know what you’re in for.

Timeshare pitches might be known for their high-pressure sales tactics and dubious promises, but few people understand how they work and why they might not be a good purchase for them. Knowing the reasons behind your answer—whether it’s “yes” or “no”—before the salespeople get to work on you is critical for making a smart decision.

A timeshare is partial ownership in a resort, condo, or vacation property that gives owners limited access to a unit and the location’s amenities, like a spa. These resorts are usually located at popular, high-traffic destinations like beach-side cities in Florida, Mexico, and California. You pay an upfront price (roughly $20,000 in recent years), usually with a loan or with credit cards, and then an annual maintenance fee that increases over time.

Typically, timeshare resorts offer larger spaces—two bedrooms or more—and in-room amenities like kitchens, washing machines, and a general gathering space. This makes them appealing to families with children or families who like to hold reunions at a vacation location.

Ownership plans

With each of these ownership schemes, when you’re not using the unit, other families are, putting wear and tear on the space beyond what you would with a solely owned property.

  1. Timeshare ownership works by having 52 customers purchase one week of access per year.
  2. Fractional ownership makes units available to owners anywhere from 2 to 12 weeks per year. You can choose how much stake you want in a property based on how many weeks you want access to—so 1/26 or 1/13 ownership of the property based on the 2- to 12-week model. Of course, the cost increases the more weeks you purchase access to. These properties are often more upscale.
  3. Some properties offer both ownership plans.

Vacation schedules

  1. A fixed schedule gives owners access to their unit at a specific, fixed time each year.
  2. A floating schedule gives a little more flexibility by designating an amount of time an owner can access the timeshare each year, but allowing them to choose the dates they want—as long as they coordinate it with the other owners and don’t book too early or too late.
  3. Less common is combinable time, which allows owners to skip timeshare weeks and then make up the time during another year (for a longer vacation) or at a later date in the same year.

Locations

  1. A one destination timeshare only has timeshares at one location.
  2. Multi-destination timeshares have multiple properties owners can choose to visit.
  3. Points-based timeshares are becoming more common. There are multiple locations, each worth a certain level of points, but owners only have access to high-level properties after accumulating points from buying into properties, purchasing points from the company, or using a branded credit card.

Who can use the timeshare

  1. Owner-only timeshares require the owner to be present, although they can bring family or friends with them if the unit can accommodate them.
  2. Some timeshares allow owners to give their unit to friends and family for vacation if they’re not able to use it.
  3. Rentable timeshares give owners the option to rent out their unit for their portion of the year.

Maintenance fees

  1. Yearly annual fees are commonly charged. The fees are a fixed rate at first and often increase through the years of ownership.
  2. Fee-free timeshares charge owners nothing more than the cost of buying into the timeshare.

It’s an expense, not an investment

The salesperson will pitch a timeshare as an investment that pays back in a big way in the future. However, upon closer inspection, a timeshare is a pure expense and has few to none of the features of an investment.

  1. It doesn’t generate income like an investment. While you may receive a deed as proof of your fractional ownership, you don’t have all of the advantages of owning real estate, like cashing in on appreciation by selling (see next point below), taking equity out on the unit in credit, or renting it out at a profit during the time you’re not there.
  2. Timeshare units do not gain value. In fact, they depreciate the second you take ownership. There is an almost guaranteed zero percent chance you’ll ever recover your initial investment or the years of maintenance fees.
  3. It’s very, very hard to sell a timeshare; they aren’t a liquid commodity. There is a huge resale market of owners trying to get rid of their fractional ownership, sometimes selling for as low as $1.
  4. Speaking of trying to sell a second-hand timeshare, most timeshare agreements are indefinite contracts—you’re on the hook for all associated fees indefinitely while you hold the deed, which is a huge financial commitment. And the timeshare company can report you to a collections agency if you stop paying, which damages your credit.
  5. With the often-expensive yearly fees alone, you could stay at a decent-quality hotel for a week at the same price. Last year, the ARDA reported the average yearly fee was $1,000.

If you’re ever approached to join a timeshare presentation, know that unless you can afford to purchase full ownership of a rental property, you probably can’t afford a timeshare.

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