You've probably heard about timeshare properties. In fact, you've probably heard negative buzz about them. But is owning a timeshare really something to avoid? This article will review:
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.)