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Timeshares—to buy, or not to buy?

July 11, 2017

Just a few short decades ago, the thought of owning a luxurious resort villa, or a beautifully adorned vacation home was a dream to behold.  Likeminded travelers all around the world were searching for a way to fulfill extravagant vacation fantasies that only the wealthy could seem to afford. And then it seemed like almost overnight, and ripe with potential—the Timeshare industry was born.

Timeshares were first seen in Europe in the mid-1960’s, joined by some of the first American programs in 1969.  Over the next few decades, high-pressure sales tactics, along with extraordinary portrayals to buyers, gave the industry a notorious name.  

So, what exactly is a Timeshare?  A Timeshare a property—typically a condominium resort villa or vacation home—where multiple parties own rights to use the space, with each person allotted a specific period of time. Essentially, when a person signs a contract to purchase a timeshare, they are agreeing to pay the owner of the property a sum of money for the exclusive right to use it for a specified time during the year. One or two weeks is the typical period that may be purchased.  The idea of such an agreement gave someone a chance to lavish in the accommodations of the property, without carrying the financial or management burdens associated with it.  

As time passed, timeshares became attractive to both affluent, and budget oriented consumers. Those experiencing waves of success were attracted by the promise of luxurious new resort properties in exotic destinations—while the less affluent liked the idea of not spending a lot of money on a vacation. By the early 1990’s, nearly four million timeshare owners worldwide occupied properties at over 2,300 time-sharing destinations across the globe. 

But something changed over time.  Many buyers began backing away from the idea of owning rights to use these beautifully adorned vacation homes. Once upon a time, if you had a timeshare, you were considered to be in the upper echelon—but it seems the culture of the industry had a major shift as the idea of timesharing became more popular.

Much of the industry shift was due to the misconception about timeshares, and the idea that they are a good investment.  People would go into a deal with the notion that a vacation home would be a financial asset—when this was not the case.  True, they were a great way to save money for families who take annual vacations; but that’s about as far as it goes.

The cost of purchasing a timeshare also depends on a number of factors that people often overlook, such as the time of year selected.  If it’s a popular season, premium prices are charged at a higher rate.  Add to that the annual maintenance fee and property taxes that are divided proportionally among the timeshare owners—and it becomes a pretty hefty cost.  In the end, consumers tend to lose more than they gain.  

Most insiders insist that huge hospitality giants are among the big contributors to the shift in culture.  These days, timeshares increasingly operate on a points system, which give people more flexibility with where and when they travel.  Members can also roll over points from the previous year or dip into points from the year ahead.  Essentially, the points are used like currency, and timeslots at the property are reserved on a first-come basis. “The average sales price for a one-week timeshare is approximately $19,000, with an average annual maintenance fee of $660,” according to Howard Nusbaum, CEO and president of American Resort Development Association. And with timeshares being a $9 billion industry, many buyers were being taken advantage of with promises, rather than facts.   

All of this leads one to believe that despite the perks that come along with owning a timeshare, they may only be a good investment if you plan to vacation at the same resort every year, or if you purchase a unit that can be exchanged for other locations.  And if you decide to sell it, then what?  Well, you lose a significant amount of money because unlike other real estate, it will never go up in value. Additionally, most timeshares are perennial, meaning they don't have an expiration date. That means you're obligated to pay the annual maintenance fee indefinitely, unless you break the contract. 

While the use of a very expensive property could be more affordable with a timeshare, it’s important to consider the long-term investments that are associated with it.  If you like predictability, a timeshare could be a perfect match! However, if you are considering buying a timeshare, think twice before signing on the dotted line. Many people get into contracts without fully understanding the pros and cons—while others have no idea what the total cost will be until they get hit with their first special assessment or tax bill.  

The timeshare industry has evolved to a branded, and highly lucrative industry—but if you plan to buy one, try not to think of owning a timeshare as an investment.  Always remember that the value lies in using it, and if you’re lucky, hopefully that’s more often than not.

 

 

 

 

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