Usually, you have only a few days.
Timeshare purchasers usually get the right to rescind the contract within a specific amount of time. Most states and some foreign countries have laws giving timeshare buyers at least a few days to cancel the agreement, usually between 3 and 15 days.
In Colorado, for instance, a purchaser has up to five calendar days after the sale to rescind a timeshare contract. (Colo. Rev. Stat. § 6-1-703). Under Nevada law, timeshare purchasers get the right to cancel a timeshare contract until midnight of the fifth calendar day following the date the contract was executed. (Nev. Rev. Stat. § 119A.410). (Remember that statutes change, so checking them is always a good idea.)
State law also often requires that information about the right to cancel be included in the contract. The right to cancel is typically nonwaivable, meaning the seller can't ask or require you to give up this right.
Most of the time, you must send your cancellation in writing. Even if the law allows you to cancel the contract orally, preparing and sending a timeshare cancellation letter to the seller is a good idea.
A cancellation letter should typically include the following information:
While it’s usually unnecessary to provide a reason for canceling the timeshare contract, you must explicitly state that the letter's purpose is to rescind the contract. A statement like “I am contacting you within the rescission period to cancel this timeshare contract” will usually work. Be aware that state law might provide specific information you have to include in your cancellation notice.
State law usually sets out the method by which you should deliver the cancellation. Or the timeshare contract itself might provide instructions.
Some timeshare companies allow hand-delivery of a cancellation notice. Others accept delivery only via registered or certified mail. Be sure to follow the instructions exactly and make sure the letter is delivered within the applicable rescission period. Otherwise, your cancellation might not count.
If the rescission period has passed and you want to unload your timeshare, you’ll probably have to try to sell it to a new owner rather than get a refund. Be sure to watch out for resale scams. However, under limited circumstances, state law might give you the right to get out of a timeshare contract after the rescission period has expired.
In Arkansas, for instance, a buyer has five days to cancel a timeshare contract after execution of the contract of sale or up until receipt of the public offering statement. (Ark. Code § 18-14-409). But the purchaser may bring a lawsuit in court within four years to rescind the contract if there is a question about the accuracy of the public offering statement or validity of the timeshare contract. (Ark. Code § 18-14-403).
The vast majority of timeshare exit companies that claim they can get you out of your timeshare are scammers. They'll take an upfront fee from you and then either stall while not resolving your timeshare problem or simply disappear with your money.
It's critical to understand all of your rights when purchasing a timeshare. If you sign a timeshare contract early in your vacation, the rescission period could very well expire before you even get home.
To avoid missing the window of opportunity for canceling the contract, be sure to read all of the terms of the contract at the time you purchase the timeshare. Most timeshare laws require the seller to include information in the contract about how long you have to cancel the deal and the procedures for delivering a cancellation letter. But a timeshare seller might bury these details in the paperwork, or the instructions might be confusing.
To protect yourself, you should be familiar with timeshare laws before you sign the agreement.
To verify how long you get to cancel a timeshare contract and the specific procedures you need to follow, consider talking to a consumer protection attorney or timeshare attorney in the state where the timeshare is located.
If you buy a timeshare abroad and want to learn about your cancellation rights, consult with an attorney or consumer protection agency in that country.
]]>So, if you're thinking of buying a timeshare in Mexico, you should learn the applicable laws and consider several different issues. For starters, even though Mexican law protects timeshare purchasers by providing the right to cancel a timeshare contract, it might be difficult to enforce this right.
Also, timeshare scams abound in Mexico, and you should take steps to avoid becoming a victim.
In Mexico, foreigners are restricted from owning land within 50 kilometers of the coast or 100 kilometers of an international border. But the majority of timeshares are in beach resorts in places like Mazatlan, Los Cabos, Cancun, Cozumel, and Puerto Vallarta. So, in most cases, when you buy a timeshare in Mexico, you're only purchasing a right to use the timeshare rather than an interest in the real estate. (In the United States, the two main types of timeshare interests are deeded and right to use.)
Generally, with Mexican timeshares, you'll receive the right to use one or more units for a specific number of weeks during a certain number of years. You will have to pay an initial purchase price and periodic maintenance fees, which are likely to go up each year.
By law, in Mexico, you have five business days to cancel a timeshare contract after you've signed it. The sooner you act, the better. Also, be aware that this right to cancel can't be waived. If you try to cancel, some timeshare salespeople might tell you that you waived this right when you signed the contract, which isn't true. Mexican law stipulates that purchasers are legally entitled to cancel a timeshare contract without penalty.
To cancel the contract, notify the developer in writing. It's also a good idea to send a cancellation notification by email, as well as in person, if possible. Be sure to:
The timeshare developer must refund all the money you have paid, without any penalties for canceling, within 15 business days.
Often, though, timeshare developers in Mexico are very reluctant to provide refunds. If the developer stalls or refuses to give you a refund, you can file a formal complaint against the company with PROFECO. You might also want to consult with a local attorney to find out how to enforce your rights.
Timeshare developers often hire aggressive salespeople, and thousands of foreigners have fallen for the tricky sales tactics used by numerous timeshare companies in Mexico. If you're thinking of attending a timeshare presentation or purchasing a timeshare in Mexico, it’s important to learn how to avoid becoming the victim of a timeshare scam.
If someone approaches you during your vacation and invites you to a complimentary breakfast or offers a free stay at a resort, beware. That person might want to sell you a timeshare. Mexican law prohibits timeshare salespeople from offering gifts, free vacation certificates, or any other promotion strategies without informing the consumer of the specific purpose of the offer, but this prohibition doesn’t stop salespeople from using this tactic.
If the salesperson only shows you a brochure of the timeshare property—but not the property itself—run away from the deal. There's very likely some problem with the resort. It's probably in disrepair, or maybe it hasn’t even been built yet. You need to visit the resort and the developer’s office before you even consider purchasing a timeshare.
Don't sign a contract when you first meet with a timeshare salesperson. Take the documents with you when you leave the meeting so you can spend some time reading the fine print. Review the contract and documents with an attorney.
Certainly, don’t sign any documents that are in Spanish only. Even if you're fluent in the language, you might not understand all the legal terminology. If the timeshare salesperson has provided you with a "translation" of the contract, it might not be correct or accurate, so get it translated elsewhere.
Before you purchase a timeshare at a particular resort, run a search on the internet to find out more about the company that you’re dealing with. Timeshare owners who have previously been scammed often post their experiences and warnings about scammers online.
You can also check for complaints about the resort developer at any PROFECO office.
If any promises were made during the sales presentation, make sure those promises are covered in the contract.
If you bought a timeshare in Mexico and want to sell it, watch out for scams.
One common scam involves stealing the identity of an attorney in the United States or Mexico and using that person's identity to offer help in selling the timeshare—for a substantial fee. The scammers might provide documents with names of companies, brokers, and attorneys that appear legitimate.
But the scammers just steal the identities of real attorneys and set up bogus websites under the attorneys' names. The real lawyer isn't involved, and the scammers disappear with the timeshare owner's money.
To avoid this kind of scam, always verify that you're dealing with a legitimate, licensed attorney. For attorneys licensed in the United States, you can find an attorney's true contact information from the state bar association or state office of attorney regulation.
In another common scam, a potential "buyer" calls you and offers to purchase your timeshare for, say, double what you paid. The supposed buyer (or the buyer's representative) might not ask for an upfront fee, but you'll have to pay "tax fees" (such as a "Mexican federal tax" or "Mexico state tax"), "insurance premiums," "gains taxes," "customs fees," or something similar—but bogus—to get the deal to go through. Someone might call you to say that stating that if you don't pay the tax or fee, they'll put a lien on your resort so you can't use your time there. (Not true.) Fees will keep popping up for various hurdles that supposedly need to be overcome before you get paid.
As long as you pay these fees, the scammer strings you along, maybe telling you that you'll get reimbursed. But no buyer exists, and you won't recoup your money. This scam might also involve fake lawyers and documents.
If you fall for a scam like these, even if you eventually figure it out, the scammers might later take a different approach. You might get a call from the "police" saying your information was found in the raid of a scammer call center. Or the caller might say they're part of a law firm that's filing a class action suit against the company that scammed you. The caller will say you can recover your money (and maybe more in damages) if you pay them certain fees, like clerk fees, court taxes, printing fees, court fees, docket fees, and government fees. But these are just more scams.
Also, beware of any caller that says you're under investigation for money laundering because you sent money to Mexico after being scammed and that you must pay a fine or fee to clear up the issue. This is yet another scam.
New timeshare scams seem to arise all the time. Check online to see what other people have gone through to make sure you don't get similarly taken. The Federal Trade Commission website is a good place to start, and be sure to read the comments people post. And, as always, any scam that seems too good to be true or that demands you make some sort of payment urgently is most likely a scam.
If you've been scammed, you can file a complaint with the Internet Crime Complaint Center. You might get a response, but you probably won't get your money back. If the scammer is in the United States, you can report the person and company to the FTC at FTC.gov/complaint, and the state Attorney General’s office.
If you're thinking of purchasing a timeshare in Mexico—or have already done so—consider hiring competent legal counsel in Mexico as soon as possible to advise you of your rights and responsibilities in the transaction.
]]>You are legally entitled to sell your timeshare at any time, just like for any other real estate. Unfortunately, timeshares are almost always sold at a loss, because:
If you do manage to sell your timeshare, but at a loss, can you at least deduct the loss from your taxes (if you itemize deductions)? Unfortunately, the answer is usually no. Nevertheless, there are exceptions, which depend on how you used your timeshare.
As alluring as it can sound to own a timeshare in Hawaii or another resort location, you might discover hidden disadvantages. Cost, for example, can be an ongoing concern. Maintenance and other fees can be substantial and can go up over time. You might get tired of the place (even Hawaii can get boring), and not want to spend your vacation at the same spot each year. Or you might find that, if your contract doesn't entitle you to use the place at a fixed time each year, the competition with fellow owners sometimes leaves you with no vacation choice but an inconvenient time of year or during bad weather.
It's no wonder many timeshare owners eventually decide to sell their interests. (Also see Buying a Timeshare: Pros, Cons, and Form of Ownership.)
A timeshare is considered a "personal use timeshare" if you used it exclusively as a vacation getaway for yourself and your family, relatives, and friends, or you left it vacant or exchanged its use with other timeshare owners. The great majority of timeshares fall into this category.
Losses from the sale of a personal use timeshare are deemed to be personal losses and are not deductible at all. End of story.
If a timeshare qualifies as rental property, losses incurred on its sale are tax deductible. However, this is rarely possible. A timeshare will qualify as a rental property only if:
When determining the rental and personal use days for the 15-day, 14-day, and 10% cutoffs, you must include the combined use of all the owners of the timeshare unit. The result is that personal use by any owner of a timeshare is considered personal use by all of the owners—for example, if you use your timeshare zero days, but the other owners use it 300 days, you have 300 days of personal use.
This makes it virtually impossible to satisfy the fewer-than-15-days or 10% personal use tests. For this reason, few timeshares can be classified as rental property.
You can deduct your losses when you sell a timeshare if it qualifies as a business timeshare. There are two ways to achieve this classification:
In either case, you must never have used the timeshare for personal purposes or rented it out.
If you used the timeshare as business lodging, you may deduct a loss when you sell it as a business lodging expense. But, if you want your timeshare to qualify as business lodging, you must:
For example, if you had a timeshare in Hawaii, you could have attended a business convention or business-related educational seminar there and stayed in your timeshare. You would need to have spent a majority of your days there engaged in a business activity. Be sure to keep careful records.
]]>If you don’t know much about the town or city your target property is located in, it's best to start by getting in the car and taking a drive. This sounds obvious, but investors frequently make poor investment choices by assuming the area where their investment property is located is just like another community they're familiar with. By visiting in person and at length, you can learn things like where the access routes to the highway are, and get a sense of the traffic. You can see whether there is an adequate town center, accessible public transportation, good shopping, or other factors important to your potential renter or buyer.
Does the area appeal to you? Do the nearby properties look well maintained? If you don’t like what you’re seeing, chances are that a renter or future buyer of the property won’t, either.
While you're at it, hit the town hall and find out whether there’s any development going on in the community. Understanding local development plans, and whether a flood of people and businesses are moving in or out, can give you a gut check on the current property inventory and future market potential.
In addition to driving around, you’ve got to explore by foot to truly get a feel for an area. Go into local stores and restaurants and talk with the managers about what it's like to do business in the community and/or live there. Call local friends and get their thoughts on the area. You’ll be surprised how much people will tell you.
Before you even sign up with a Realtor, you can find out what properties have recently sold in the area that match up with the size and amenities you're looking for. A simple Zillow search will show you sold properties within a particular town or city. You can also ask your real estate broker to produce a list of more specific, comparable properties in the area. Knowing how much an investment property is worth will help you gauge its value and determine potential growth.
If you’re going to rent out a residential property, know its true rent potential before you buy. Your Realtor can help with this, and provide comparable sales data. For more information on determining the financial implications of renting out an investment property, see Evaluating Cap Rate: Is That Residential Real Estate Investment Property Worth It?
Find out the current mortgage and last sale price of your target property, and see if there are any liens on the property. These are all public records, most of which can be found online. Knowing this information will help you understand your negotiation boundaries for buying the property, and the price the sellers will likely be willing to accept.
In addition to the property taxes, ask your Realtor to obtain data on the current, everyday (or every year) expenses of the property, such as utilities and insurance. If it’s a commercial property, this should be no problem. For a single-family home, a seller might provide this information if they know there's an eager investor looking for it.
You might feel that a particular property is the one, but it's best to look at a number of properties before making an offer on one. Ask your Realtor to show you several within your price range, including properties you don’t like the look of, so you can assess different neighborhoods and have a better sense of your target property’s value. After all, the list price is not necessarily the amount the seller expects or would accept, so it's worth getting a sense of the range.
Look at how the town or city compares with other localities in the area. How do the schools stack up? What’s the median income? Unemployment rate? What’s the population count, and is the community growing? How do the real estate taxes compare to nearby towns?
All this will help you better understand the relative attractiveness (or lack thereof) of your target town or city. Don't forget to check the official website of the town, city, or county where the property is located; many government websites include demographics, crime statistics, and other data. For links, check out State & Local and Municode. Another useful resource is Sperling's Best Places which provides a wide range of statistics by zip code.
Understand how the property is zoned. Would you be able to expand the existing structures? Convert them for some other use? What are the setback regulations from the street and bordering areas of the lot?
If you have visions of developing the property, you need to know how the town classifies it and the limitations that come with that. If, for example, you want to turn a residential property into a commercial one, a consultation with town managers about zoning concerns is imperative. See, for example, Home Businesses and Zoning Laws.
Towns, counties, and municipalities are increasingly making data about a property’s physical history available online. Or, a trip to the local government administration building can yield results and personal help. Knowing when a permit was actually pulled, perhaps for a furnace installation, or a new roof, will help you determine the seller’s honesty when those matters come up during the negotiation. Discrepancies learned can result in actual dollars saved.
]]>An investment property is a property you buy to generate income like to rent to tenants or flip and sell for a profit. However, a second home is a single-family dwelling you plan to live in for some of the year or visit regularly.
The definition of an "investment property" is a property that's:
Examples of investment properties include:
A “second home” is a residence you intend to occupy for part of the year in addition to a primary residence.
To get a mortgage loan to buy a second home, the property typically must be located in a resort or vacation area, like the mountains or near the ocean, or a certain distance (typically at least 50 miles) from the borrower's primary residence. Also, the borrower must meet credit and other underwriting requirements,
Usually, a second home is used as a vacation home. But it could also be a property you regularly visit, such as a condo in a city where you often conduct business or a pied-à-terre.
Investment properties and second homes are similar because they are both types of property you don't use as a primary residence. However, with both, you're responsible for property maintenance, repairs, property taxes, insurance, and utility bills.
Either type of property might appreciate in value over time, and owners of both investment properties and second homes might qualify for certain tax deductions or advantages (see below).
Mortgage loans are available for qualified borrowers to buy an investment property or second home. But the terms and interest rates vary from lender to lender and in different situations, like if you have bad—or good—credit.
Basically, if you buy real estate that you'll use just to make a profit rather than as a personal residence for you and your family to visit at times, that property is considered an investment property. Second homes are used for personal enjoyment.
First, consider what you want to do with the property: make money or have fun with it. Secondly, if you'll be taking out a loan to buy the property, consider the loan requirements and terms and how they'll affect your financial situation. Investment property loans usually have higher interest rates and require a larger down payment, typically around 20%, than properties people use as second homes. On the other hand, second home loans regularly have a lower interest rate than investment property loans.
Also, be sure to pick the right location, considering the rental market (if applicable) or whether the property is in a desirable vacation spot. Finally, take a close look at the associated costs of buying and maintaining a property, including mortgage payments, property taxes, homeowners' insurance, and potential income. That way, you can determine if buying a property and which type is a good idea.
A second home loan might be appropriate if you want to use the property yourself, but perhaps rent it out sometimes or keep it for your exclusive use. An investment property loan is probably appropriate if you want to rent the property out full-time.
If you're considering taking out a loan to purchase an investment property or a second home, understand the differences between these terms and make your intentions clear to the lender when you apply for the loan. That way, you'll ensure you get the correct type of loan for the property you intend to buy.
Don't be tempted to buy a property as a second home when you intend to use it as an investment property to avoid a higher interest rate and stricter loan qualification requirements. This tactic is considered mortgage fraud.
When it comes to financing, it’s more straightforward and less expensive to get a mortgage for a primary residence. After all, in tough financial times, people prioritize paying for their main home.
So, lending requirements are stricter for second home and investment property loans than principal residences. Both second home and investment property mortgages require better credit scores and a larger down payment than a primary residence loan. You might have to show that you have enough savings, called "reserves," to make the payments for up to six months.
You’ll probably also need sufficient income to cover two mortgage payments (your primary residence and the second home or investment property). Generally, you can't use the rental income you expect to receive from an investment property to qualify unless your tax returns show you have property management experience, subject to some exceptions. Talk to a mortgage lender to learn more.
Getting a second home mortgage is generally cheaper and easier than a loan for an investment property. Investment properties are typically the most difficult to finance.
Eventually, you might want to convert your second home into an investment property. Read your mortgage documents carefully to determine if the contract restricts whether the second home can be rented or how long the home must be used as a second home.
A second home loan might include a Fannie Mae/Freddie Mac "Second Home Rider" with the mortgage. This rider often says that:
So, this rider makes it seem like you can't rent out a second home. But Fannie Mae and Freddie Mac rewrote their guidelines to clarify that if you have a Fannie Mae or Freddie Mac mortgage on a second home, that house can be used as a rental property, subject to some limitations.
Here are the rules:
Renting a second home was always allowed for Fannie Mae and Freddie Mac policies under certain circumstances. But because of the complex language in the rider, both borrowers and lenders often didn't understand the rules.
If you have a second home rider like the one discussed above, you can't use a property management company to help you manage renting your second home. So, if you find yourself in this situation, you must handle all rental tasks associated with your second home (if you decide to rent it out), such as finding renters, collecting payment, and maintaining the property. You can hire someone to do particular tasks like yard work, but you must manage the rental yourself. You also can't enter into a timeshare agreement.
Managing any property, even just a second home you use exclusively yourself, but especially investment property, can be time-consuming. You might have to deal with difficult neighbors, numerous repairs, or an unexpected vacancy, all of which can impact your profitability and enjoyment. If allowed, you might consider hiring a management company to help you.
Purchasing an investment property or a second home come with certain risks. Again, they usually require a substantial down payment, which will deplete your financial resources. In addition, maintaining another property can put a strain on your finances. You'll have to pay mortgage payments, property taxes, insurance, and maintenance costs. If you fail to make the payments, you could face a foreclosure as you would with your primary residence if you defaulted on the mortgage.
Also, the value of the property you buy might to up or down, depending on the real estate market. You might have to take a loss in the property's value or accept less in rental income.
Investment properties and second homes have different tax benefits. For example, expenses usually aren’t deductible for personal residences, like second homes. Associated costs with these properties are nondeductible personal expenses. But if you have an investment property, say a rental, you can write off expenses, like maintenance costs.
For tax purposes, if you rent out your property, including a second home, for 14 days or fewer each year, the income isn’t usually taxable at the federal level. But if you rent out your property for more than 14 days per year, you’ll have to pay federal income tax on your net rental income. (However, the terms of your mortgage contract might prohibit renting out a second home.)
Mortgage interest is deductible for a second home in some cases. For an investment property, it can be deducted as a business expense to lower taxable income.
Consult with a tax professional for comprehensive advice about taxation issues related to a second home or an investment property.
To learn more about purchasing an investment property or second home, see Nolo’s articles:
Talk to a real estate lawyer for more information about buying an investment property or a second home and how to finance such a purchase. If you have questions about the taxation of these properties, talk to a tax lawyer.
]]>The answer is yes, as we'll explain here.
The I.R.S. will actually expect depreciation to eventually be calculated from the sale of an investment property in order to increase the amount of taxable gains the owner realized on the property. This is true even if you didn't claim the deduction. Thus it’s in your best interest to make sure you take advantage of depreciation during ownership.
Not only can you depreciate the building, but you can depreciate any additional capital investments you made as well, which carry a minimum depreciation schedule of three years. These are commonly referred to as capital expenditures or CAPEX improvements. Here are examples of what can be depreciated besides the building itself:
(For more on how your investment property can be depreciated, see Landlords Guide to Tax Deducting Long-Term Assets.)
You will note that land is not included in the list. Land is not a depreciable asset and you cannot take deductions on it. After all, the land was there before the buildings and improvements were put on it, and it will remain once they are long gone.
You also can’t depreciate repair costs or service contracts. Those can be deducted from your net income as expenses, but are not depreciable items.
The timeline for deducting depreciation depends on the type of investment. If the property is a commercial property, then the depreciation period is 39 years (as opposed to 27.5 years for residential property). Using a straight line depreciation method for a commercial property costing $2 million dollars, for example, you would receive an annual deduction of $51,282 ($2M / 39 = $51,282). Your annual net income is thereby reduced by that amount, for tax purposes, reducing the amount of taxes you owe to the IRS.
Unlike the building itself, items such as appliances or equipment typically fall on a shorter 5- or 7-year depreciation schedule, because of their expected life. Furnaces, on the other hand, typically carry a depreciation schedule in line with the building itself, whether it is a residential or commercial property.
For a breakdown of depreciable items and their corresponding schedules, see Chapter 2, Depreciation of Rental Property, in IRS Publication 527, Residential Rental Property. Chapter 2 is relevant for commercial properties; however, additional detail can be obtained on commercial investments from Chapter 4 in IRS Publication 946, How to Depreciate Property.
]]>Even though Missouri law provides quite a few protections for timeshare purchasers, you still need to be cautious when buying a timeshare. And you should understand that if you take out a mortgage loan to buy a deeded timeshare and stop making the payments, the lender, usually the resort developer, will probably foreclose.
Also, timeshare owners typically have to pay annual maintenance fees and special assessments. If, as an owner, you don't pay the fees and assessments, you might face a lawsuit for a money judgment or a foreclosure of your timeshare. (With a right-to-use timeshare, people generally sign a contract and agree to make monthly payments. While a developer may foreclose a deeded timeshare, a right-to-use timeshare is typically repossessed, which is a different legal process than a foreclosure.)
In Missouri, a timeshare purchaser has five days after the date of the agreement to cancel the purchase. (Mo. Rev. Stat. § 407.620.)
Your cancellation notice must be in writing and, if sent by mail, addressed to the timeshare seller at the address shown on the purchase agreement. The cancellation is effective when postmarked. If you mail your cancellation, it’s a good idea to send the letter by certified mail, return receipt requested. (Mo. Rev. Stat. § 407.620.)
A timeshare purchaser can’t waive the right to cancel. (Mo. Rev. Stat. § 407.620.)
Timeshare sellers are notorious for getting people to attend sales presentations by offering free gifts or awards. Missouri has strict requirements and content restrictions on the use of promotional devices and programs, including any sweepstakes, gift awards, drawings or display booths, or any other such award or prize inducement items, to advertise or sell a timeshare.
Under Missouri law, each promotional device, program, and notice must include the following information:
This information must be provided to the prospective purchaser in writing or electronically at least once within a reasonable time period before a scheduled sales presentation. But the required information doesn’t need to be included in every advertisement or other written, oral, or electronic communication provided or made to a prospective purchaser before a scheduled sales presentation. (Mo. Rev. Stat. § 407.610(2).)
Additionally, a timeshare salesperson may not use deception, fraud, false promises, misrepresentation, unfair practices, or the concealment, suppression, or omission of any material fact in connection with a timeshare promotional device, advertisement, or sale. (Mo. Rev. Stat. § 407.020 and § 407.610 (4).)
Sometimes, timeshare sellers don’t provide promised gifts or prizes to potential buyers after the presentation. Missouri law bans this practice.
In Missouri, if a prospective purchaser or purchaser doesn’t receive the gift or prize (or a cash equivalent), that person may bring a civil action to recover damages and, if they prevail, receive at least five times the cash retail value of the most expensive gift offered (not to exceed $1,000) in addition to such other actual damages as may be determined by the evidence. (Mo. Rev. Stat. § 407.610(6).)
If you take out a loan to purchase an interest in a deeded timeshare and fail to make your mortgage payments, the lender (again, typically, the developer) might foreclose. In addition to monthly mortgage payments, timeshare owners are ordinarily responsible for maintenance fees, special assessments, utilities, and taxes, collectively referred to as "assessments." You might also face a foreclosure (or a lawsuit for a money judgment) if you fall behind in the timeshare assessments.
A few of the various options to avoid a timeshare foreclosure include:
If you want more information about timeshare laws in your state or need assistance canceling a timeshare, consider talking to a real estate attorney. If you're facing a timeshare foreclosure and have questions about the process or your options, contact a foreclosure attorney.
]]>Each of these options has benefits and drawbacks, largely related to the scope of the owner's anonymity and liability protection. In making this choice, you might also wish to consider the type of property you are buying, the number of tenants you will have at that property, and your time horizon for holding onto the investment property before reselling it.
A trust is a legal vehicle used to pass assets, in which trustees hold title to the property for the benefit of one or more beneficiaries. This arrangement is widely used as a tool to disguise owner names, to help with estate planning, or to allow a group of people to invest in a property without getting taxed differently.
Here's why a real estate trust can be a good option for some investors:
The downside to a trust is that the rules around how much can be put into a realty trust for estate planning purposes change frequently, and partners of a realty trusts will also have modifications they need to make in the future. These possibilities will require additional legal fees to manage down the road, on top of the original fees.
An LLC is a business entity that is separate from its owners, like a corporation. But unlike a corporation, which must pay its own corporate taxes, an LLC is a "pass-through" tax entity, which means that business profits and losses pass through to its owners, who report them on their personal tax returns (just as they would if they owned a partnership or sole proprietorship). Because of an LLC's unique benefits, an LLC is often the best way for some investors to purchase property. Here's why.
The key drawback to an LLC is financial: Most states charge a fee to file an LLC, normally anywhere between $75 and $500.
For details on LLCs, including how members are taxed, state rules on LLC protection for members' personal debt and asset protection, and more, see Nolo's LLCs section. Nolo also offers a comprehensive online LLC package to form an LLC.
Of course, the most obvious way to purchase real estate (like any other form of property) is simply in your own name, without any other legal vehicle. Here are factors to consider:
The key drawback to buying under your own name is liability; your personal home and other financial assets are exposed to lawsuit risk. Be sure to obtain an appropriate insurance policy to limit your level of risk in case someone is injured on the property.
]]>Understand the full pros and cons of investing in commercial properties is important so that you make the investment decision that’s right for you.
Commercial properties might refer to:
There are nuances to managing each of these types of properties. To paint a general picture, let’s examine the pros and cons of investing in a single-story commercial retail building, such as a community “strip mall.”
Here are some of the pros of buying commercial real estate over residential property.
Income potential. The best reason to invest in commercial over residential rentals is the earning potential. Commercial properties typically have an annual return off the purchase price between 6% and 12%, depending on the area, current economy, and external factors (such as a pandemic). That's a much higher range than ordinarily exists for single family home properties (1% to 4% at best).
Professional relationships. Small business owners tend to take pride in their businesses and want to protect their livelihood. Owners of commercial properties are usually not individuals, but LLCs, and operate the property as a business. As such, the landlord and tenant have more of a business-to-business customer relationship, which helps keep interactions professional and courteous.
Public eye on the property. Retail tenants have a vested interest in maintaining their store and storefront, because if they don’t, it will affect their business. As a result, commercial tenants and property owner interests are aligned, which helps the owner maintain and improve the quality of the property, and ultimately, the value of their investment.
Limited hours of operation. Businesses usually go home at night. In other words, you work when they work. Barring emergency calls at night for break-ins or fire alarms, you should be able to rest without having to worry about receiving a midnight call because a tenant wants repairs or has lost a key. For commercial properties, it is also more likely you will have an alarm monitoring service, so that if anything does happen at night, your alarm company will notify the proper authorities.
More objective price evaluations. It's often easier to evaluate the prices of commercial property than residential, because you can request the current owner’s income statement and determine what the price should be based on that. If the seller is using a knowledgeable broker, the asking price should be set at a price where an investor can earn the area’s prevailing cap rate for the commercial property type they are looking at (retail, office, industrial, and so forth). Residential properties are often subject to more emotional pricing. See Evaluating Cap Rate: Is that Residential Real Estate Investment Property Worth It? for more on the subject.
Triple net leases. There are variations to triple net leases, but the basic concept is that you, as the property owner, do not have to pay expenses on the property (as would be the case with residential real estate). The lessee handles all property expenses directly, including real estate taxes. The only expense you’ll have to pay is your mortgage. Companies like Walgreens, CVS, and Starbucks typically sign these types of leases, as they want to maintain a look and feel in keeping with their brand, so they manage those costs, which means you as an investor get to have one of the lowest maintenance income producers for your money. Strip malls have a variety of net leases and triple nets are not usually done with smaller businesses, but these lease types are optimal and you can’t get them with residential properties. For more on common lease terms, such as net leases, see Commercial Leases: Negotiate the Best Terms and related articles in the Your Business Space & Commercial Lease section of this site.
More flexibility in lease terms. Fewer consumer protection laws govern commercial leases, unlike the dozens of state laws, such as security deposit limits and termination rules, that cover residential real estate.
While there are many positive reasons to invest in commercial real estate over residential, there are also negative issues to consider.
Time commitment. If you own a commercial retail building with five tenants, or even just a few, you have more to manage than you do with a residential investment. You can’t be an absentee landlord and maximize the return on your investment. With commercial, you are likely dealing with multiple leases, annual CAM adjustments (common area maintenance costs that tenants are responsible for), more maintenance issues, and public safety concerns. In a nutshell, you have more to manage; and just as your tenants have to worry about the public eye, you do as well.
Professional help required. If you are a do-it-yourselfer, you'd better be licensed if you are going to handle the maintenance issues at a commercial property. The likelihood is you will not be prepared to handle maintenance issues yourself and will need to hire someone to help with emergencies and repairs. While this added cost isn’t ideal, you’ll need to add it on to your set of expenses in order to properly care for the property. Remember to factor in property management expenses when evaluating the price to pay for a commercial investment property. Property management companies can charge between 5-10% of rent revenues for their services, which include lease administration. Evaluate beforehand whether you want to manage leasing and the relationships yourself or outsource those responsibilities.
Bigger initial investment. Acquiring a commercial property typically requires more capital up front than acquiring a residential rental in the same area, so it’s often more difficult to get your foot in the door. Once you’ve acquired a commercial property, you can expect some large capital expenditures to follow. Your property might be humming along for a few months and wham, here comes a $10,000 bill to address roofing repairs or a new furnace. With more customers there are more facilities to maintain and therefore more costs. What you hope is that the gains in revenue outweigh the gains in costs, to support purchasing a commercial property over a residential one.
More risks. Properties intended for commercial use have more public visitors and therefore have more people on the property each day that can get hurt or do something to damage your property. Cars can hit patrons in parking lots, people can slip on ice during the winter, and vandals can spray paint the sides of the building. Incidents like these can occur anywhere, but chances of experiencing something like these events go up when investing in commercial properties. If you're risk adverse, you might want to look more closely at putting your money in residential properties.
]]>One of the most common measures of a property’s investment potential is its capitalization rate, or “cap rate.” As we'll discuss below, the cap rate is a calculation of the potential annual rate of return—the loss or gain you’ll see on your investment. We'll also discuss:
There is more than one way to calculate an investment property's cap rate, but we’ll look at the most common here. The basic formula is:
Cap Rate = (Net Operating Income)/(Current Fair Market Value)
Let’s break that down:
Net operating income: Your net operating income is your gross rental income (the total amount of money you receive from rent) minus your operating expenses (such as payroll and costs of repairs). To arrive at this number, do the following:
Current fair market value: You can use either the asking price or the price you’d offer.
Example: You’re considering a two-bedroom house that’s listed for $325,000. The current tenants pay $2,000 per month. Gross rental income is 12 (months) x $2,000 (monthly rent) = $24,000.
You anticipate annual operating expenses to be $5,800: $3,800 in property taxes and $2,000 in maintenance and other expenses.
Your estimated net operating income is $24,000-$5,800 = $18,200.
You then divide your net operating income by the property’s current fair market value (we’ll use the list price of $325,000) to get the cap rate: $18,200/$325,000 = 5.6%.
If your estimates are correct, this two-bedroom property would give you a cap rate return of 5.6%.
The cap rate calculation above assumes that you’re receiving full rent each month—in other words, that the property is 100% occupied 365 days of the year (and that your tenants keep up with the rent). While 100% occupancy might happen regularly for a single-family home, it’s less likely for a multiunit building with more turnover. So, whenever possible, you’ll want to account for a less-than-100% occupancy rate when calculating your cap rate. Here’s how:
Adjust the formula for net operating income to the following:
Net Operating Income = [(Gross Rental Income) x (Occupancy Rate)] – (Operating Expenses)
Most real estate investors build a 5-10% anticipated loss of rent into their calculations. So, if you were to assume a 90% occupancy in the above the example:
Net operating income = [($24,000) x (.90)] - $5,800 = $15,800. (Note that a 10% reduction in occupancy results in $2,400 less net income.)
Cap rate = $15,800 / $325,000 = 4.9%
When you consider reduced occupancy, the two-bedroom house now has a cap rate return of roughly 4.9%, making it a slightly less attractive investment.
The cap rate is a helpful metric when you’re assessing a property that you expect to yield regular, relatively predictable income. For example, you’d want to calculate the cap rate for a 4-unit apartment building occupied by tenants with year-long leases.
You’ll want to calculate and compare the cap rates of similar potential investment properties you’re looking at. For example, if you’re weighing the pros and cons of two duplexes located in the same downtown area, comparing their cap rates can help you determine which property will be a better addition to your portfolio.
Knowing the cap rate of a potential investment also helps you decide if the asking price is reasonable—if it’s overpriced based on your cap rate calculations, you might be able to negotiate a lower price.
Calculating the cap rate of a property isn’t particularly useful if you’re planning to flip it, offer it as a vacation rental, or rent it out on a short-term basis. When you flip a property, one of your goals is to hold onto it for as short a time as possible—making the cap rate’s 12-month frame of reference less relevant. For vacation or short-term rentals, you’re likely going to experience swings in income and occupancy, not to mention operating expenses that fluctuate due to seasonal maintenance or repairs resulting from high tenant turnover. These factors combine to affect your net operating income, which in turn results in an unreliable cap rate calculation.
Also, the cap rate is calculated on the assumption that you’re paying all cash for a property—not taking out a loan. Therefore, it doesn’t take into account any costs associated with a mortgage, such as interest or points paid. It also doesn’t take into account the other costs of acquiring the property, such as closing costs and brokers’ fees.
When you’re looking to buy an investment property, most of the time you want to see a higher cap rate. The higher the cap rate, the better the annual return on your investment. If you are looking to make at least a certain percentage of income off your investment each year, you should let that drive your decision to invest. You can divide your calculated net income figure by your target cap rate to determine the price you’d be willing to pay for a particular property.
The “cap rate” you should buy at depends on the location of the property you are looking to buy in and the return you require to make the investment worth it to you. In other words, you’ll want to gauge your aversion to risk. For example, professionals purchasing commercial properties might buy at a 4% cap rate in high-demand (and therefore less risky) areas, but hold out for a 10% (or even higher) cap rate in low-demand areas. Generally, 4% to 10% per year is a reasonable range to earn for your investment property.
Continuing with our two-bedroom house example from above, dividing the net operating income by a minimum acceptable cap rate of 5% will give you the top price you would be willing to pay:
$15,800/ 5% = $316,000. Because the current asking price is $325,000, this would not be a good investment for you—you’d be paying $9,000 more than you should to get your goal cap rate.
Whatever rate of return you are aiming for, make sure the projected income leaves you with a healthy amount of cash after the mortgage payment has been paid. If you have a tenant who doesn’t pay for a few months, and the cap rate on your prospective property is 2% or less, your investment property might quickly become a liability. Be sure to consider worst-case rent loss scenarios when calculating your potential return—that way, you’ll have a good sense of whether you can afford to carry the property when it’s unoccupied.
]]>For each state (and D.C.) the timeshare chart will provide the following information:
Can you cancel your timeshare purchase? In some states, if you buy a timeshare and then change your mind, you get a certain amount of time to cancel the purchase.
How long do you have to cancel a timeshare purchase? If you have the right to cancel the timeshare purchase, state law will give you a certain number of days to do so. Typically, the cancellation time frame begins on the date you sign the contract or the date you receive certain disclosures (whichever is later). If state law doesn’t provide you with the right to cancel, the timeshare contract itself may give you a certain number of days to cancel the transaction.
Are there any special protections for buyers when it comes to timeshare purchases? Most states require timeshare sellers to give a prospective purchaser certain disclosures, often in what’s called a public offering statement or a timeshare disclosure statement. State law may also require the timeshare seller to:
Learn the details about a particular state’s timeshare law, including disclosure requirements, the right to cancel, and special protections for timeshare purchasers, by clicking on the state link in the first column of the below chart. You can also access Nolo’s Buying or Selling a Timeshare area for general information about timeshare purchases, common timeshare scams, what to look out for when buying a timeshare, and timeshare foreclosures.
State |
Right to cancel? |
Time to cancel |
Special protections? |
Yes |
5 days (not including Sunday if that is the last day) after signing the contract |
Yes |
|
Sometimes |
15 days after receiving the public offering statement (unless the statement is received more than 15 days before signing the contract) |
Yes |
|
Yes |
7 calendar days after signing the contract |
No |
|
Yes |
5 days after signing the contract or up until receipt of the public offering statement |
Yes |
|
Yes |
7 calendar days after receiving the public report or signing the contract |
Yes |
|
Yes |
5 calendar days after the sale |
Yes |
|
Yes |
5 calendar days after signing and receiving a copy of the contract or receiving the timeshare disclosure statement |
Yes |
|
Yes |
5 business days after signing the contract |
Yes |
|
Yes |
15 days after signing the contract or receiving the public offering statement |
Yes |
|
Yes |
10 calendar days after signing the contract or receiving all required documents |
Yes |
|
Yes |
7 days (not including Sundays and holidays) after signing the contract or receiving the public offering statement |
Yes |
|
Yes |
7 calendar days after signing the contract or receiving the timeshare disclosure statement |
Yes |
|
Yes |
5 calendar days after signing the contract |
Yes |
|
Yes |
5 calendar days after signing the contract or receiving the public offering statement |
Yes |
|
Yes |
72 hours (not including Sundays or legal holidays) after signing the contract |
Yes |
|
Yes |
5 business days after receiving the required disclosures |
Yes |
|
Yes, if the transaction is a door-to-door sale |
3 business days after signing the contract |
No |
|
Yes |
3 or 5 business days after signing the contract |
Yes |
|
Yes |
7 days after signing the contract or receiving the public offering statement |
Yes |
|
Yes |
10 calendar days after the date of the contract (or conveyance) or receiving the disclosure statement |
Yes |
|
Yes |
10 calendar days after the contract date, receiving the public offering statement, or the date the unit is ready for occupancy |
Yes |
|
Sometimes |
3 business days after receiving the public offering statement (unless the statement is received more than 3 days before signing the contract) |
Yes |
|
Yes |
Before the unit is conveyed and 9 business days after receiving all required documents |
Yes |
|
Yes |
5 days after receiving a copy of the contract and the public offering statement (if project has more than 100 potential sales) |
Yes |
|
Yes |
7 calendar days after signing the contract or receiving the public offering statement |
Yes |
|
Yes |
5 days after purchase |
Yes |
|
Yes |
7 days after signing the contract or receiving the public offering statement |
Yes |
|
Yes |
3 business days after receiving the public offering statement |
Yes |
|
Yes |
5 calendar days after signing the contract |
Yes |
|
Yes |
5 days after the date of the contract or receiving the public offering statement |
Yes |
|
Yes |
7 days after signing the contract or receiving the public offering statement |
Yes |
|
Yes |
7 days after signing the contract |
Yes |
|
Yes |
7 business days after signing the contract |
Yes |
|
Yes |
5 calendar days after signing the contract |
Yes |
|
No (North Dakota does not have a timeshare cancellation law, however the contract may provide a cancellation right) |
See contract |
Yes |
|
Yes, if the transaction is a home solicitation sale |
3 business days after signing the contract |
Yes |
|
Yes |
5 days after receiving a copy of the signed contract and the public offering statement |
Yes |
|
Yes |
5 calendar days after signing the first written offer or contract to purchase (or, if no cancellation address is provided, until 5 days after the developer provides an address for cancellation purposes) |
Yes |
|
Sometimes |
7 days after receiving the public offering statement (unless the statement is provided more than 7 days before signing the contract) |
Yes |
|
Yes |
5 business days (excluding weekends and legal holidays) after signing the contract or receiving all required documents |
Yes |
|
Yes |
5 days after signing the contract or receiving the disclosure agreement |
Yes |
|
Yes |
7 calendar days after signing the contract or receiving the disclosure statement |
Yes |
|
Yes |
Until receipt of the public offering statement; within 10 days after signing the contract (if purchaser made an on-site inspection of the timeshare); or within 15 days after signing the contract (if no on-site inspection was conducted) |
Yes |
|
Yes |
6 days after signing the contract (and receiving a copy) or receiving the timeshare disclosure statement |
Yes |
|
Yes |
5 business days after signing the contract |
Yes |
|
Yes, if the transaction is a home solicitation sale |
3 business days after signing the contract |
Yes |
|
Yes |
7 calendar days after signing the contract (not including Sunday or a legal holiday, if that is the last day) |
Yes |
|
Yes |
7 days after signing the contract or receiving the disclosure statement |
Yes |
|
Yes |
10 days after signing the contract or receiving the public offering statement |
Yes |
|
Yes |
5 days after signing the contract or receiving the timeshare disclosure statement (and all amendments and supplements to the statement) |
Yes |
|
Yes, if the transaction is a home solicitation sale |
3 business days after signing the contract (so long as the buyer is given a copy of the contract; the name and address for cancellation; and a written statement of cancellation rights -- otherwise cancellation period begins when these items are provided) |
Yes |
I’m buying a condo with a great property management association, which should free me from a lot of the maintenance responsibilities of owning and renting out a single-family home. Is it true that the maintenance and repair of condos are easier to handle than other investment properties?
Assuming you’ve run the numbers and the condo provides a good return on investment or “cap rate,” you may have a good deal.
But there’s a lot more to buying and renting out a condo than assessing the management responsibilities for maintenance and repairs.
While a condo, particularly a detached property located in a newly developed cul-de-sac, may look like a low-maintenance opportunity for your money, you should take a careful look before investing.
Here are five extra things you’ll have to manage with a condo that you wouldn’t have to with a single family home:
Legally speaking, a timeshare is a way for a number of people to share ownership of a property, usually a vacation property such as a condominium unit within a resort area. Each buyer usually purchases a certain period of time in a particular unit. Timeshares typically divide the property into one- to two-week periods. If a buyer desires a longer time period, purchasing several consecutive timeshares might be an option (if available).
Traditional timeshare properties typically sell a set week (or number of weeks) in a property. Buyers select the dates they want to spend there, and buy the right to use the property during those dates each year. Choosing a fixed date is especially appropriate if, for example, you always want to spend your birthday or a particularly holiday at the property.
Some timeshares also offer “flexible” or “floating” weeks. This arrangement is less rigid, and allows buyers to choose a week or weeks without a set date, but within a certain time period (or season). The owner is then entitled to reserve a week each year at any time during that time period; subject to availability.
For example, a buyer might purchase a week during “high season,” which entitles the buyer to reserve any week during the property’s designated busy, popular season each year. Since the high season might stretch from December through March, this allows a bit of vacation flexibility.
A major potential downside of buying a flexible timeshare is that, if you don't act quickly enough, you might find all the weeks that work for you reserved before you can get them. But if you need a bit of flexibility yourself, and can plan ahead, the flexible structure might still be best for you.
What kind of property interest you’ll own if you buy a timeshare depends on the type of timeshare purchased. Timeshares are typically structured either as shared deeded ownership or shared leased ownership.
With shared deeded ownership, each timeshare owner is granted a percentage of the real property itself, correlating to the amount of time purchased. The owner receives a deed for a percentage of the unit, specifying when the owner can use it.
This means that with deeded ownership, many deeds are issued for each property. For example, a condominium unit sold in one-week timeshare increments will have 52 total deeds when fully sold, one issued to each partial owner.
An important aspect of shared deeded ownership is that it normally comes with the right to sell or otherwise transfer your timeshare to another. But this feature also make them pricier than shared leased ownership, as discussed next.
If the timeshare is structured as shared leased ownership, the developer retains deeded title to the property, and each owner holds a leased interest in it (similar to a rental tenant). Each lease agreement entitles the owner to use a particular property each year for a set week, or a “floating” week during a set of dates. Your interest in the property typically expires after a certain term of years, or at the latest, upon your death.
A leased ownership also typically places more restrictions on property transfers than a deeded ownership interest does. This means as an owner, you might be restricted from selling or otherwise transferring your timeshare to another. That's why a leased ownership interest can often be purchased at lower cost than a similar deeded timeshare.
With either a leased or deeded type of timeshare structure, the owner buys the right to use one particular property. This can be limiting to someone who prefers to vacation in a variety of places.
To offer greater flexibility, many resort developments participate in exchange programs. For example, the owner of a week in January at a condominium unit in a beach resort might trade the property for a week in a condo at a ski resort this year, and for a week in a New York City accommodation the next.
Exchange clubs can involve challenges, however. Usually, owners are limited to choosing another property classified as similar to their own. Plus, additional fees are common, and popular properties might be tricky to get.
If you don’t have the full amount of the timeshare purchase price upfront, expect to pay high rates for financing the balance. Since timeshares rarely maintain their value, they won’t qualify for financing at most banks.
If you do find a bank that agrees to finance the timeshare purchase, the interest rate is sure to be high. Alternative financing through the developer is typically available, but again, only at steep interest rates.
Although owning a timeshare means you won’t need to throw your money at rental accommodations each year, timeshares are by no means expense-free after the initial purchase. A timeshare owner must also pay annual maintenance fees, which typically cover expenses for the upkeep of the property. These fees are due whether or not the owner uses the property.
Even worse, such fees commonly escalate continuously; sometimes well beyond an affordable level.
You might recoup some of these ongoing expenses by renting your timeshare out during a year you don’t use it (if the rules governing your particular property allow it). However, you might need to pay a portion of the rent to the rental agent, or pay additional fees (such as cleaning or booking fees).
Purchasing a timeshare as an investment is rarely a good idea. Since there are so many timeshares in the market, they rarely have good resale potential. Instead of appreciating, most timeshares depreciate in value once purchased. Many can be difficult to resell at all. Instead, you must consider the value in a timeshare as an investment in future vacations.
If saving or making money is your number one concern, the lack of investment potential and ongoing expenses involved with a timeshare are definite drawbacks.
There are a variety of reasons why timeshares can work well as a vacation option. If you vacation at the same resort each year for the same one- to two-week period, a timeshare might be a great way to own a property you love without the high costs of owning your own home. (For details on the costs of resort home ownership see Buying a Home in a Resort Community: Pros and Cons.)
Timeshares can also bring the comfort of knowing just what you’ll get each year, without the hassle of researching, reserving, and renting accommodations, and without the fear that your favorite place to stay won’t be available. Your time has economic value, too.
Additionally, some timeshares offer perks and shared amenities, such as the right to use fitness rooms and hot tubs. Some offer on-site storage, allowing you to conveniently stash equipment such as your surfboard or snowboard, thus avoiding the hassle and expense of carting them back and forth.
And, the fact that you might not use the timeshare every year doesn't mean you can’t enjoy owning it. Many owners enjoy periodically loaning out their weeks to friends or relatives. Some donate the timeshare weeks, as an auction item at a charity benefit, for example. (Unfortunately, such a donation offers no tax deduction.)
If you don’t want to vacation at the same time each year, flexible or floating dates provide a nice option. If you’d like to branch out and explore, consider using the property’s exchange program. (Just make sure a good exchange program is offered before you buy.)
]]>Whether or not you consider yourself an investor, you no doubt want your second house purchase to be a sound financial move. Yet many second-home owners complain that the house -- including not just the purchase price, but ongoing expenses -- ended up costing more than they'd ever imagined. You'll want to tally up your likely expenses, factoring in any extra costs based on the fact that you won't be there every day (such as hiring a management company and the relatively high cost of hazard insurance). Then you'll need to build up your cash reserve, and, if you plan on renting out the property, determine how much you can expect from rental income (it's often not enough to cover your monthly costs).
A home in a badly chosen location won't serve anyone's goals -- an investor can't resell or rent it, a vacationer won't enjoy it, and a future retiree may have to pick up and move again. You'll need to rely on both market research and your own personal preferences. Look into factors like the strength of the local economy, trends in house resale values, convenience and amenities, property tax rates, the quality of local schools and medical care, and more.
The type of home you buy is similarly important. The costs and demands of owning a single-family home are different from those of owning a condominium, townhouse, or co-op. Which type serves you best will depend on factors such as cost, location, and upkeep. For example, condos, townhouses, and co-ops typically require less maintenance, since the areas of the property outside your unit are governed and maintained by a community association (of which you'll be a member). However, you'll pay for that maintenance in the form of monthly fees and special assessments.
Second-home owners need to worry about both property taxes (which vary by state and locality) and, if renting out the place, income tax. Though taxes are inevitably a burden, a little advance planning during the house-hunting process can save you thousands of dollars a year. For example, sometimes buying a home just over a town's border can significantly trim your annual property tax bill. And if you're renting out a vacation property, the amount of days you yourself spend there can make a difference in how much you'll owe in income tax.
Particularly if you'll be buying in a different state or country than where you live, you might also want to check in with your estate planning attorney. Different laws might apply regarding how the property will pass to your beneficiaries. Also see 8 Reasons to Update Your Estate Plan.
Most people pay for their home with a combination of a down payment and a loan for the remaining amount. The higher your down payment, the lower the loan, and the more house you can therefore afford. In order to come up with down payment cash (which should be at least 20% of the purchase price), you may need to get creative. Using the equity in your primary home, borrowing against a life insurance policy, or refinancing your car are among the possibilities.
Most buyers will also need to get a home loan to help with the rest of the financing. Shop around: By reviewing the various mortgage options and sample payment schedules and factoring in your own short- and long-term goals, you should be able to find a mortgage that suits you.
One unique way to help finance your second home is to tap the "Bank of Family and Friends." Borrowing from parents, siblings, or close friends lets you keep the tens of thousands of dollars in interest you'll pay over the life of your mortgage loan within your circle, rather than handing it over to a bank.
Another money-saving approach is to partner with another purchaser; for example; sharing a vacation home in the sun. Shared ownership is a growing trend -- but not one to rush into lightly. You'll want to start by determining whether co-ownership with a particular person is likely to work. Then draft a written agreement to spell out how ongoing costs will be split and deal with other potential sources of contention, such as what happens if one of you wants out after a few years or if one of you dies.
Some second-home owners plan to rent out their properties long-term with the idea of eventually turning a profit (rental properties usually take some years to make money). Others just want to rent out their property periodically as a means to offset expenses. Either way, you're taking on the role of a landlord, which means more than just following your instincts. Finding good tenants or trustworthy vacation renters, understanding and preparing leases or short-term rental agreements, and dealing with ongoing management and repairs are just a few of the practical and legal issues involved. Also, the obligations of managing a long-term rental are quite different from those of a periodic rental.
For more on becoming a landlord, see First-Time Landlord; Renting Out a Single-Family Home, by Ilona Bray, Janet Portman, and Marcia Stewart.
Protecting your property starts before you buy and continues long afterwards. For example, you'll want to get a proper home inspection prior to purchasing, so as to deal with some repair issues up front and get a sense of what other repairs may be looming.
You may need to purchase title insurance -- typically required by the lender -- in case problems such as past ownership or debt claims on the property surface after the purchase.
Your lender will also require that you carry hazard insurance, to protect your property against damage from such causes as theft, fire, flooding, or windstorms. The cost of insurance for second homes is usually higher than for first homes, since you won't be there as much. You will probably want to add liability insurance, covering you and members of your household for accidental injuries to your visitors. (Together, hazard plus liability insurance add up to the standard homeowners' insurance package.) Taking these protective steps will guard not only your home, but your peace of mind.
]]>As with all real estate investments, the answer depends—on the particular property, location, market, and other factors, such as the annual return you expect on the investment, or cap rate.
Some of the relative pluses of single-family homes over condos include:
With all the above said, some condos are better investments than single-family homes, including the following:
If you are going to live in the condo yourself and the low-maintenance lifestyle that condo ownership presents is worth the added cost to you, you might want to buy a condo instead of a single-family home. But if you are looking to use a property as a college fund for the kids, retirement fund, or additional income generator, your money is much better served looking into opportunities for single family homes, multi-family homes, or commercial real estate.
]]>Also, Hawaii law provides consumers with several protections when it comes to timeshare transactions. For instance, timeshare salespeople can’t use deceptive tactics to get you to buy a timeshare or offer a free gift without first telling you that they’re offering it to try to sell you a timeshare. Sellers also have to disclose specific information to you in a timeshare disclosure statement.
Even though Hawaii law provides quite a few protections for timeshare purchasers, you still need to be cautious when buying a timeshare, and you should understand that if you take out a mortgage loan to buy a deeded timeshare and stop making the payments, the lender, usually the resort developer, will probably foreclose.
In addition, timeshare owners typically have to pay annual maintenance fees and special assessments. If, as an owner, you don't pay the fees and assessments, you might face a lawsuit for a money judgment or a foreclosure of your timeshare. (With a right-to-use timeshare, people generally sign a contract and agree to make monthly payments. While a developer may foreclose a deeded timeshare, a right-to-use timeshare is typically repossessed, which is a different legal process than a foreclosure.)
In Hawaii, you can cancel a timeshare contract within seven calendar days after the later of when you:
The timeshare disclosure statement must contain the following information, among other things:
You can cancel a Hawaii timeshare contract by:
The notice is considered given on the date that you hand-deliver or mail the cancellation. (Haw. Rev. Stat. § 514E-8).
The timeshare contract can’t contain a waiver of your right to cancel. (Haw. Rev. Stat. § 514E-11(7)).
Timeshare salespeople are known for using hard-sell tactics and misrepresentations to get you to make a snap decision about buying a timeshare. To protect potential purchasers, Hawaii law requires timeshare sellers to have a license, limits how sellers can use free gifts when trying to sell timeshares, requires sellers to use an escrow account in timeshare sales, and prohibits deceptive sales practices.
Timeshare sellers often use free items or complimentary recreational activities to get people to attend sales presentations. Hawaii has strict requirements and restrictions on the use of promotional devices, including entertainment, prizes, gifts, food, drinks, games, transportation, luaus, ocean recreational activities, land recreational activities, aerial recreational activities, tours, or other inducements in selling timeshares.
Oral notification is required. In Hawaii, timeshare salespeople can’t offer a promotional device without first telling you that the device is being used or offered for the purpose of selling you a timeshare. (Haw. Rev. Stat. § 514E-11(2)).
Written disclosure is also required. If, in order to claim the prize, the prospective purchaser must attend and complete a sales presentation, the timeshare salesperson must provide the following information in writing:
It’s also illegal for a timeshare salesperson to offer any tourist activity, like a helicopter tour or scuba diving trip, at less than the actual cost of the activity to induce you to purchase a timeshare plan or to attend a timeshare marketing event. (Haw. Rev. Stat. § 514E-11(13)).
Under Hawaii law, among other things, a salesperson may not misrepresent:
Timeshare sellers must also inform each purchaser orally, and in writing, at the time the purchaser signs the contract, of the seven-day right to cancel the contract to buy the timeshare. (Haw. Rev. Stat. § 514E-11.1).
In Hawaii, only licensed real estate brokers may complete timeshare sales. (Haw. Rev. Stat. § 514E-2.5).
The timeshare developer must put any money you pay in connection with a timeshare purchase into an escrow account. (Haw. Rev. Stat. § 514E-16).
It must release the funds:
In Hawaii, if you take out a loan to purchase an interest in a deeded timeshare and fail to make your mortgage payments, you will likely face a foreclosure.
In addition to monthly mortgage payments, timeshare owners are ordinarily responsible for maintenance fees, special assessments, utilities, and taxes, collectively referred to as “assessments.” In Hawaii, you might also face a foreclosure if you fall behind in the timeshare assessments. (Haw. Rev. Stat. § 514E-29).
A few of the various options to avoid a timeshare foreclosure include:
If you want more information about timeshare laws in your state or need assistance canceling a timeshare, consider talking to a real estate attorney. Contact a foreclosure attorney if you're facing a timeshare foreclosure and have questions about the process or your options.
]]>Here is a breakdown of the most commonly taken approach, which discussed the main questions you'll be asked and how your tax will then be calculated.
The income and expense form itself typically requests commercial property owners to provide details on all of the rents received (income) and expenses incurred the past year.
Income and expense forms typically ask owners to break out their rental income into the following category types:
The income and expense form will also likely ask you for information regarding your purchase of the property and whether any significant changes have occurred since the purchase, such as a capital improvement (including a building addition or new structure) or a demolition of a structure that previously existed.
Local governments use this information to calculate whether additional (or less) property value was unaccounted for in past assessments. Your tax assessment could change as a result.
It cannot be emphasized enough how critical it is for commercial property owners to identify any and every expense related to operating their property. The form should guide you on expenses to provide; but, whether they're listed or not, you should include the following expenses as applicable:
If you understate your bottom line, you risk a higher valuation, resulting in higher property taxes. Cities and towns naturally want as much tax revenue as possible, but they also want your property to reflect positively on the town. Taxes that are too high place an unnecessary burden on commercial property owners and inhibit their ability to properly maintain and improve the property.
Follow one simple rule when listing your expenses: List everything! Let the assessors determine that a cost isn’t relevant, if they so wish.
When local tax assessors receive a property owner's income and expense report, they often use a relevant "cap rate" to determine what the initial value of the property is. See Evaluating Cap Rate: Is That Residential Real Estate Investment Property Worth It? for more on the subject.
For example, say your property is a “class A” office building in an area where the market determined that an 8% cap rate is a proper valuation tool for that commercial property type. If your net income last year was $100,000, then the assessed value of your property using the market’s cap rate of 8% is calculated as follows:
$100,000/.08(cap rate) = $1,250,000
Now let’s take the assessed value figure to determine your expected local taxes on your commercial property for the upcoming year.
If, for instance, the town your property operates in has a $12 tax rate for every $1,000 in assessed value, the taxes you could expect to pay would be determined as follows:
$1,250,000/$1,000 = $1,250
$1,250 * $12 = $15,000 in expected taxes
The example above is meant to give you a quick, “back of the envelope,” method for understanding how your commercial property taxes are determined. Assessors will likely approach the valuation with a little more complexity, by removing the taxes you currently pay out of your net income and then adjusting the cap rate to reevaluate the property.
Sticking with the example above, let’s say last year you paid taxes of $12,000. The assessors will add the $12,000 back to your $100,000 net income figure. Now, let’s say that the assessed value of your property last year was $1 million.
Here’s how you get the additional tax rate to be added to the 8% cap rate to properly value the property:
$12,000 / $1,000,000 = .012 tax rate
.08 Cap Rate + .012 tax rate = .092 (your adjusted cap rate)
Using the new, adjusted cap rate of .092 (or 9.2%), and the adjusted net income of $112,000 (removing the original $12,000 from our bottom line), we get an assessed value as follows:
$112,000 / .092 = $1,217,391.30
$1,217,391.30 / $1,000 = $1,217
$1,217 x $12 = $14,604 in expected taxes
Knowing how local governments determine a property's value can help you do a better job of forecasting your property’s future performance. Every calculation tool you can utilize will lead to better property management and increase your ability to improve your return on investment (ROI).
]]>The developers who sell timeshares have found multiple ways to lure people in, like offering prizes or gifts (such as free flights or activities) if you attend a “timeshare presentation.” They then subject potential buyers to a lengthy sales pitch, made by sales agents who are expert at being pushy and hard to refuse. The sales agents are trained to rebuke any objections, and commonly offer special deals that require a purchase before leaving the premises.
Fortunately, some legal protections are in place that could help you.
Most states’ laws protect consumers who purchase a timeshare located there, and want out of the deal right after. These laws give timeshare buyers the right to cancel (“rescind”) the purchase contract within a specified period of time after signing (sometimes called a “cooling off” period). The time period is typically short, from three days to fifteen days.
The issue for someone who buys in Mexico is that most states' laws protect only people who buy a timeshare that's actually located in that state. When a timeshare is located in another country, it becomes a matter of whether buyers there are provided similar protection under the law.
Fortunately, timeshare sales agreements in Mexico are subject to a 5-day rescission provision. (For more information on your rights, see How to Protect Yourself When Buying a Mexican Timeshare”).
Double check the terms of your purchase agreement. Mexico law requires that the timeshares cancellation policy be made clear and accessible to consumers. If you're not seeing it, an attorney can help determine whether your purchase is subject to a right of rescission.
Although you might be tempted to look for help from the agent who sold you the property, this is not the best approach. These agents are highly skilled at convincing you of all the reasons not to cancel, and it’s possible the agent might employ delay tactics until it’s too late.
If your contract is subject to a right of rescission, don’t worry if you made a verbal promise, or agreed to a contract provision, waiving these rights. The right of rescission cannot be waived, regardless of what the contract says, or what a sales agent might have told you to the contrary.
If a provision or law gives you the right to rescind, and you are within the applicable time period, carefully follow all procedures required. Cancellation procedures typically require the buyer to provide written notice to the seller, postmarked or otherwise dated within the applicable “cooling off” time period. The notice usually must include information such as the property description, contract date, the buyer’s contact information, and a request to cancel the contract.
When providing the required notice, send copies of all documentation and keep the originals. Once the seller officially acknowledges and accepts the cancellation, you can hand over any information or original documents requested. Because of the importance of meeting all the legal requirements for a valid rescission, you might wish to contact an experienced attorney for assistance.
Upon receipt of an effective rescission, the timeshare seller must completely refund your purchase money. If you have effectively rescinded your contract, do not agree to pay any “penalty” or other amount requested or demanded by the seller without first obtaining advice from a qualified attorney.
If you have the right to rescind, and follow all the proper procedures, you should be able to walk away from a regrettable timeshare purchase with your money back, unencumbered by a property you didn’t want to begin with. And hopefully, next time you’ll think twice before being tempted by those freebies!
]]>There's no guarantee that your property will appreciate in value, but presuming you did your research and the property is in a desirable location, you can reasonably assume the value will hold, if not increase, by at least 1% per year. Economists suggest 3% to 5% is reasonable to expect, but conservative forecasting approaches are better to avert financial concerns down the road.
Ultimately, the return on your investment (ROI) will depend on many factors, including fluctuations in the market, your costs to maintain the property (such as taxes, maintenance, and insurance), the amount of rent you receive, the interest rate you obtained on your loan, and the type of property you purchased (such as a condo instead of a single-family home).
Real estate investment trusts (REITS) and other commercial property investment companies frequently target properties with a five-year outlook potential. Whether they are looking to develop these investments or sit and hold them, these companies are aiming to maximize the return for their investors in the shortest amount of time.
As an individual investor, however, you do not have that pressure hanging over you and can determine what’s more important to your needs. Say in five years your property is worth 10% more than what it is today and you decide to hold. If the subsequent five years earn no additional appreciation on your property, certainly, the additional five years you waited to sell would result in a worse return on your investment when it comes to raw percentages. But although there was no appreciation, your property was hopefully still actively earning you cash with which to pay off your mortgage and provide you a stable income.
Before buying investment property, it's wise to determine what your goal is for this particular investment and stick to that plan, pretty much regardless of where the market goes. Panicking and shifting course can be worse than riding out tough times.
Some goals to consider for yourself regarding when to sell are:
Whatever your goal is for your investment property, it’s important to remember that real estate is not a liquid asset. Always consider the worst-case scenario of not being able to sell your property within the time frame you want.
If your investment property is a single-family rental home, see Nolo's book First-Time Landlord for guidance on purchasing and managing residential rental property.
]]>Of course nothing is perfect, and while resort home ownership sounds dreamy, it also poses challenges. This article will address the pros and cons, focusing in particular on homes in places where tourism is a major part of the local economy.
Since resorts are typically situated in the most beautiful of places, they can offer advantages like:
Resort living can be great, but it typically doesn’t come cheap. Resorts commonly attract people with money to spend, and property prices tend to reflect this. To get an idea of the current price range of homes in the area you are interested in, contact a knowledgeable real estate professional in that area, or do some online research on Zillow or a similar site.
How good an investment your prospective resort-community home might be depends on many factors. You might wish to query a real estate professional in the area to get an idea about how the housing market in the community you are interested reacts during upturns and downturns in the economy. You also might try independent research to pick up pricing trends for the area (this will take some digging, however, since there is no central place to look).
The daily cost of living in a resort is typically higher than average in a resort area, for everything from gas to groceries. Since these communities are less likely to have large chain discount stores (some actually ban chains or franchises), you’ll likely need to shop at smaller, more expensive stores (or use up fuel and time travelling to nearby cities to do your shopping).
Taxes are often higher in resorts, as well. In many states, in addition to any state and county sales taxes, tourist areas (places with a high number of visitors as compared to full-time residents) are allowed to impose a “resort area tax” on goods and services sold within them.
These taxes are meant to avoid overburdening the residents of tourist areas with individual expenses stemming from the impact of tourists on the infrastructure. The good side of the higher taxes is that resort communities tend to keep their infrastructure up to date. They work hard to put on a good face for visitors, so you will likely get to enjoy clean streets, no potholes, smooth sidewalks, and fresh flower baskets or seasonal decorations on the main streets.
Normal home-maintenance expenses are necessary for any home, of course. Many homes in resorts are part of planned developments, in which case the homeowner must also pay periodic dues and assessments. In return, the common areas around your place will be maintained. These ongoing expenses are necessary even if the home is only occasionally occupied.
A part-time homeowner might also need to hire an on-site manager to handle ongoing maintenance. Some part-time owners also choose to hire a property manager to ensure that their vacation home is cleaned, stocked with groceries, and heated upon their arrival.
While resort living might be just what you’re looking for during peak season, you might find the area unattractive during the off-season. Many resorts have “shoulder seasons,” where the weather is uncooperative and the activities scarce. “Mud season” in the Colorado mountains, for example, means there is no snow for skiing and the mountain paths are too muddy for pleasurable hiking or biking. And while lying out at the pool at your Arizona condo might be fabulous in December, in August you might avoid going outside for fear of heatstroke or burning your hands on the swimming pool railing.
If you plan on using a resort home part-time, such seasonal fluctuations might be fine. But keep in mind, your expenses will continue while the home is vacant, and the chances of renting it out during the off-season are slim.
Even during peak season, weather is an issue worth a careful look at. Blizzards, below-zero temps, and black ice can make life in a mountain area hazardous and uncomfortable, while homeowners at beach resorts might suffer from temperature spikes and intolerable insect swarms.
It’s easy to overlook these issues when looking at a gorgeous home in beautiful weather. It’s wise, therefore, to visit the resort in all seasons before buying, to get a taste of what the area is like in many different conditions. If possible, renting a property in the community and living there awhile before making a purchase is an excellent idea.
Accessibility can also be an issue with resort areas. A secluded mountain home might seem charming, for example, until you are stranded in it for weeks due to spring flooding or winter snow drifts. Some areas have no airports nearby and require lengthy drives over poor, slick, or windy roads—which get backed up on Fridays and holiday weekends. Resort homes on islands, of course, must be accessed by expensive flights or boat journeys.
Reaching these areas once a year might not be a big deal, but owning a home in an inaccessible place is a different story.
If a resort home is used only as a vacation home, an owner might expect to recoup some expenses by renting it out. While this can be a great solution, renting can also pose challenges.
Some developments will not allow its owners to use the property as a rental. Renting might also give rise to tax issues (for example, you might have to pay a lodging tax if you rent out your home, or renting the home might jeopardize a future 1031 exchange).
Finding reliable renters can be an iffy proposition. You might need to hire a good rental management agency to coordinate the rentals and check out potential renters. This expense, of course, takes a chunk of your profits. Also, the times you are most likely to rent the property successfully are usually the times you’d wish to use the home yourself (such as holidays and during peak seasons). Learn more about legal and practical aspects of Short-Term Rentals of Your Home.
Owning a home in a resort community definitely has both benefits and drawbacks. Before buying, take the time to look into the area and thoroughly weigh the pros and cons. Enlist the help of real estate professionals in the area to show you around and answer your questions. By doing your research before buying, you’ll increase the chances that the benefits will outweigh any problems and you can spend your future enjoying resort living.
]]>Riders are extremely common for purchase and sale agreements. The reason why attorneys add in a rider (or “addendum”) to the P&S agreement is because they are accustomed to certain language, which has covered their clients’ interests in the past better than a stock P&S form would normally account for.
When you look through the P&S rider, it might appear that some sections are redundant; in other words, that the topics covered match sections in the main P&S form. This is okay. These provisions might include buyer’s obligations, seller’s warranties, or instructions on when notice has officially been given to the buyer or seller. Upon a closer look, however, you'll likely realize that these provisions are not restatements but rather expansions on what’s in the original P&S agreement, ensuring that you are covered in the manner your attorney sees fit.
Your attorney should account for any dual topic coverage by adding a section in the rider noting that where there appears to be a conflict or a divergence in language between the rider and the original purchase and sale agreement, the rider wins out.
Example: “In the event of a conflict between the terms and provisions of the attached Purchase and Sale Agreement and Rider, the terms and conditions in the Rider shall prevail.”
If you are purchasing a commercial property you should fully expect to see a rider to the P&S, as it will cover nuances in the transaction that are likely not covered in the standard P&S forms. These might include, for instance:
While at first glance it might look like an attorney is padding the bill by adding more pages to the P&S, they are likely saving themselves time, and thus you money, by including the rider. Rather than having to revise every section of the standard form, attorneys can utilize rider provisions that have been appropriate in other transactions they’ve handled and reference them when creating the rider for your P&S.
In fact, a well-written rider is an indication that your attorney has experience. You may have more to worry about if a rider were absent rather than present, particularly when buying an investment property.
]]>While you might be able to get a sweet deal on a timeshare this way, go into the foreclosure auction with your eyes wide open, because there are several downsides to this as well. Read on to learn more about how timeshare foreclosures work, what to watch out for when making the purchase, and tips for buying a foreclosed timeshare.
A timeshare is a form of shared property ownership where several owners have the right to use the property for a certain amount of time during the year. Sometimes, a timeshare purchaser will take out a mortgage to purchase the timeshare interest. The purchaser is then deeded a small portion of a property, typically a certain number of weeks every year.
In addition to making monthly mortgage payments, the timeshare owner will also be responsible for paying annual maintenance fees, special assessments, and utilities pertaining to the property.
When facing a rough patch economically, one of the first things that people tend to cut out of the family budget is payments on a timeshare mortgage and annual maintenance fees. The timeshare can then go into foreclosure.
(Also see, Can a Timeshare Be Foreclosed for Nonpayment of Fees or Assessments?)
The foreclosure will either be judicial or nonjudicial, depending on state law. Some states, like Florida and Illinois, allow nonjudicial foreclosures for timeshares even though residential foreclosures are judicial. Either way, the timeshare interest will ultimately be sold at a foreclosure auction to pay off the debt.
Notice of the timeshare auction will be given in the local newspaper. Once you find out when and where an auction will take place, you can attend the auction. If you are the high bidder, you will be the new owner of the timeshare. In this way you can potentially purchase a timeshare interest for far less than the normal timeshare prices offered by the resort.
While this might seem like a great way to get a timeshare for a bargain price, there are downsides to be aware of before you jump in and decide to purchase a foreclosed timeshare.
When you buy a foreclosed timeshare, you take on the responsibility for the annual assessments from that date forward. This means you’re stuck with this payment, which will probably increase each year, unless you resell the timeshare.
If you buy a deeded timeshare at a foreclosure sale, the timeshare could be subject to certain liens, such as tax liens, that aren’t eliminated by the foreclosure.
To make sure there aren’t any surprises on title after you purchase a timeshare, you might want to pay for a title search before bidding on the property, so as to ensure a clear deed is conveyed after the sale. However, if you plan on purchasing the timeshare interest for just a few hundred dollars, you might not want to spend a similar amount for a title search.
Timeshare owners are usually in default for quite a while before the association eventually decides to foreclose. (The association would prefer to attempt to get additional payments out of the owner before giving up and paying for a foreclosure.)
It is only once the association determines there is little likelihood of getting any more money out of the current owner that it will decide to pursue a foreclosure. So, there might not be a foreclosure sale occurring around the time you want to purchase your timeshare.
Even after considering the downsides, if you still want to purchase a timeshare at a foreclosure sale, here are a few tips to so you don’t make a mistake with your purchase.
If you plan to make a bid on a timeshare interest at a foreclosure sale, you should take the time to research the timeshare resort so you know what you’re getting into. Before the sale, you should obtain a copy of the public offering statement.
A public offering statement contains important matters to consider when buying a timeshare interest, such as:
Check the Better Business Bureau website (www.bbb.org) and run a Google search to find out whether there are complaints against the timeshare resort or developer.
Before purchasing a timeshare at a foreclosure sale, be sure to visit the resort and take a look at the facilities. It is also often helpful to speak with current timeshare owners about their experiences. Ask current owners about how easy (or difficult) it is to book time at the resort, find out about maintenance, and ask about resale value.
It might also be helpful to sit through a timeshare sales pitch at the resort. You don’t have to purchase from the resort directly, but this way you’ll have access to all of the pertinent information about the resort (including the public offering statement) and can ask all the questions you want.
Local real estate agents can be helpful resources for information about the resort. If you are having difficulty finding information on your own, speak to a licensed timeshare sales broker who is reputable and knows the market.
As an alternative to buying a foreclosed timeshare, you can also look for deals posted on sites like eBay.
]]>Here are the top ten reasons why it makes sense to do your research before purchasing a timeshare.
Many people go to timeshare presentations with no intention of actually buying a timeshare. Often, they want the promised free round of golf, spa treatment, or restaurant meal. Unfortunately, some of those folks walk out of the presentation as timeshare owners. Others might go into the presentation thinking they truly might buy a timeshare, but get pressed into signing a contract without carefully weighing the pros and cons or assessing the total cost of timeshare ownership.
Depending on where the timeshare is located, if this happened to you, you might have a right to cancel the contract if you act quickly. (To learn more, see Timeshare Cancellations: Can I Cancel a Timeshare Purchase?)
If you cannot afford to pay cash for the timeshare, you’ll have to get a mortgage. But read the fine print of the timeshare contract: You’ll be responsible for other costs in addition to the mortgage. In most timeshare contracts, you will be liable for special assessments, property taxes, maintenance fees, and utilities. If you don’t pay these, the timeshare developer can foreclose on your timeshare.
(To learn more about these other fees and costs and the consequence of not paying them, see Can a Timeshare Be Foreclosed for Nonpayment of Fees and Assessments?)
There are few buyers looking to purchase a timeshare in the after-market, which makes them very difficult to sell. The bottom line: You will likely lose money when you go to sell your timeshare.
If you want to buy a timeshare in order to enjoy your vacation time in a particular resort, great. But don’t buy one as an investment.
Because it’s so difficult to sell timeshare interests, a whole industry of scam artists has popped up, called "timeshare resale brokers." These folks tell you they have a buyer for your timeshare and can broker a sale; but not without a price. The scammers charge you hefty up-front fees and then, lo and behold, never manage to sell your timeshare.
Not all timeshare resellers are scammers. And some states have enacted laws that attempt to protect consumers from timeshare resale scams.
If you sell your timeshare at a loss (which is almost certain), you won’t be able to deduct the loss on your federal income tax return. There are a few exceptions. To learn about those, see How to Deduct a Loss on a Timeshare Sale.
When you buy a timeshare, you are, in many cases, purchasing an interest in real estate. If you take out a loan (mortgage) to pay for part of the timeshare price, you will face foreclosure if you default on those payments.
But that’s not all. If you default on your other timeshare financial obligations, like special assessments, taxes, and maintenance fees, you will also face foreclosure.
Foreclosures come with negative consequences, including a hit to your credit score, difficulty in getting another loan, and higher cost of future loans or credit. To learn more, see Consequences of a Timeshare Foreclosure.
In many timeshare foreclosures, the sale proceeds are not enough to cover the amount owed on the timeshare mortgage. The difference between what you owe and the sale proceeds is called the deficiency.
Luckily, some states prohibit timeshare mortgage lenders from coming after you for a deficiency after a timeshare foreclosure. But some states don’t. If you live in a state that allows for timeshare deficiency judgments, the timeshare mortgage lender can sue you after the foreclosure (or get a judgment in the foreclosure action if it’s a judicial foreclosure) for the amount you still owe, and then collect by garnishing your wages, attaching your bank accounts, and using other tactics available to judgment creditors.
(To learn more about timeshare deficiencies after foreclosure, see Options to Avoid a Timeshare Foreclosure.)
While many timeshare contracts allow the owner to rent the timeshare to others, the reality is that this can be difficult to do. There are usually many timeshares for rent and few people who want to rent them. In addition, some contracts don’t allow one to rent the timeshare at all, and others place restrictions on rentals.
If your contract is not for a specific property at a specific time of year, the sales presentation might make it sound like booking the timeshare resort when you want it will be a piece of cake. Unfortunately, this is not always true. In fact, misrepresentations about ease of scheduling became such a problem that some states passed laws specifically outlawing such deceptive statements.
Many people think that buying a timeshare is a great deal, saving them money over booking a hotel room. In fact, in many cases, if you factor in the additional costs that come with timeshares, like special assessments, maintenance fees, taxes, and the like, you’ll find that renting a room in a similar resort ends up being cheaper.
(For more on issues concerning timeshare contracts, visit our Buying or Selling a Timeshare topic area.)
]]>Below, we'll discuss:
(To learn more about the general topic, see Buying or Selling Timeshares.)
When you purchase a timeshare, you are purchasing an interest in a piece of real estate, most often a resort condominium.
Timeshare sellers are notorious for putting the hard sell on potential buyers. It’s not unheard of for a vacationer to attend a sales presentation solely to get a free bottle of wine or round of golf, and then walk out as a timeshare owner.
Others sign timeshare contracts with a bit more forethought, only to realize later that the deal is not as good as it originally seemed. For example, many timeshare buyers are unaware of their obligation to pay taxes, fees, and assessments on the property. When adding up the total financial cost, many people change their minds.
Because of the nature of timeshare selling, most states in the U.S. have enacted laws that allow timeshare buyers to cancel contracts if they act quickly. Some other countries (including Mexico) have also passed such laws.
This means that if you’ve entered into a timeshare contract and are having second thoughts, you have the legal right to cancel the contract.
Your timeshare contract should clearly state the number of days you have in which to rescind (cancel) the contract. If it doesn’t, or if you think the contract is wrong, check your state’s law on timeshare contracts. (To learn how to find your state's law, visit Nolo's Legal Research Center or contact your state consumer protection office.)
Usually, you must cancel a timeshare contract in writing. Even if a written letter or document is not required, it’s highly recommended. Include the following information in your cancellation letter:
In most cases, you don’t have to list a reason for canceling the timeshare contract.
Your contract should specify the manner in which you must deliver the cancellation letter. Sometimes you can hand-deliver the cancellation notice and other times you must deliver the letter by registered or certified mail.
Be sure to:
If you don’t include the correct information or deliver the letter in the manner specified in the contract, your cancellation might not be valid.
In certain states and in limited circumstances, you might be able to cancel your timeshare contract after the rescission period has passed. Usually, however, this will entail bringing a lawsuit against the timeshare company. Contact a real estate attorney for advice.
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