What Is a Timeshare?
Timeshares can be a great purchase for the right person. However, before putting money into buying a timeshare, consumers should do the necessary research to identify what a timeshare is, which type is right for them, and the logistics of how to buy, sell, and rent a timeshare.
Below is a comprehensive overview of everything you need to know about timeshares to determine if they’re a good choice for you and your family.
Image source: Big Stock
A timeshare is a type of vacation ownership where multiple people have the right to use one property in one specific timeframe. It is often used as an alternative to owning a year-round vacation home, since it alleviates some of the cost, responsibility, and time needed to own a property as the sole owner.
Timeshare vacations have been around since 1969 and generate $7.9 billion a year in annual sales, according to the American Resort Development Association (ARDA). In 2014, about one in every 12 people owned or rented a timeshare.
However, timeshares are also associated with gimmicky, high-pressure sales tactics. Once you buy a timeshare, it can be difficult to sell it. Maintenance fees for timeshare properties can also be exorbitant and can increase year after year, whether or not you use the property.
Types of Timeshares
There are four main types of timeshares:
- Fixed Week – In this type of timeshare, the buyer owns the right to a unit the same week of the year, for as long as the contract determines. Some buyers like the predictability of this type of timeshare, but it also doesn’t afford much flexibility. This type of timeshare is typically best for highly desirable timeshare locations since the owner can rent out a unit for a block of time or rent the timeshare by trading with other property owners.
- Floating – Timeshares that are floating mean that the buyer can rent the timeshare during any time of year. This affords the consumer more freedom than a fixed week option, but other shareholders may rent prime time periods and leave you with less than desirable vacation weeks.
- Right-to-Use – In this type of arrangement, the buyer can lease the property for a given amount of time each year for a specific set of years. The developer still maintains ownership of the property in this type of timeshare.
- Points Club – Like the floating timeshare option, this is a flexible arrangement where buyers can rent timeshares at various locations depending on the number of points they’ve accumulated. Typically, points can be accrued by buying into a specific property or through purchasing points from the club.
Benefits of Timeshares
- Often, timeshares offer better accommodations and amenities than non-timeshare properties. They’re typically suited to larger families in need of more space and features, so most homes include washers and dryers, separate living spaces, and more.
- Timeshare owners don’t have to worry about year-round maintenance or the cost associated with it.
- Timeshares are a fantastic option for families who enjoy a specific type of vacation–say, a beach–and aren’t looking to branch out. Staying at the same place can save thousands of dollars year over year. Additionally, families can ensure that they know what they’re getting into and can save the logistics-related headaches that come from choosing new vacation locations each year.
- For those who don’t enjoy going to the same vacation spot year after year, there’s a chance that your family can trade times and locations with other timeshare owners, which will allow you to enjoy new places.
- Once you buy a timeshare, you can loan its use to whomever you like. Some people like to offer its use to family or friends, or put it up for auction for charity.
Cons of Timeshares
- Timeshares do not increase in value like most real estate; therefore, they count as a depreciating asset. Additionally, if you sell a timeshare at a loss, the IRS doesn’t allow you claim a capital loss like you would with most other real estate.
- Though some options listed above do offer some flexibility, most timeshares are fairly strict about what time they can be used, which can be problematic for busy families.
- It can be costly if you don’t buy a timeshare through a broker or on the resale market, especially when you factor in the additional fees.
- Timeshares are often associated with steep annual fees; often, those who buy or rent a timeshare have no control over annual increases. According to Howard Nusbaum, CEO and president of the American Resort Development Association, the average annual maintenance fee for a timeshare is about $660.
- Many potential timeshare buyers are wary of the stigma and stereotypes associated with timeshare sales. The Better Business Bureau has also issued a warning about potentially fraudulent timeshare resale schemes.
- Buying a timeshare in a foreign country presents its own sets of challenges, including lack of law enforcement and consumer protection laws.
Image source: Big Stock
How to Buy a Timeshare
Even with the potential drawbacks to buying or renting a timeshare, it can still be a good purchase for many buyers. Below are a few tried-and-true tips to successfully buy a timeshare:
- Never pay full price. Price is usually negotiable on timeshares, as it is with most real estate. Those looking to buy a timeshare are probably familiar with “hard sale” techniques typically used by companies, which are prevalent because of the competition in the industry and astronomical sales and marketing costs.
Because of this, timeshares are usually an impulse buy. Don’t fall into this trap. You will do well to carefully research and vet your options before starting a conversation with a salesperson. By doing this, you get the best chance at being able to negotiate down to a reasonable price to property. According to MarketWatch, timeshare prices usually average around $16,000; stay close to this number and you can be confident you’re getting a solid deal.
- Purchase on the resale market or rent. Timeshares purchased “secondhand” typically offer the same benefits and locations as those purchased through a vacation or a resort brand but eliminate unnecessary expenses. If you buy a timeshare from a sale-by-owner process or through a timeshare broker, you can save up to 80 percent off of the original selling prices.
Similarly, renting from a timeshare owner will offer similar financial benefits. Consumers who rent timeshares can select from hundreds of properties that suit their needs for locations, amenities, and time frame needs.
- Analyze your financial means. If you have to borrow to buy a timeshare, general best practices state that you probably shouldn’t go through with it. Because timeshares depreciate in value so quickly, banks will usually not provide loans for them. Some developers will arrange financing at a steep interest rate.
In the event of a timeshare foreclosure, the balance for the outstanding mortgage along with the unpaid maintenance fees are typically higher than the value of the timeshare, which causes a deficiency that allows lender to try to seize your other assets.
- Do your research. Before buying a timeshare, put your due diligence into evaluating the location and the condition of the property. Visit other properties in the area to talk to other owners about their experiences, and check for complaints about the developer and management company with the State Attorney General.
Additionally, research the seller and developer before you buy, and ask for a copy of the current maintenance budget for your records. You should ensure that everything the timeshare salesperson has promised is in the contract, and be sure to inspect the terms outside of the presentation environment. If possible, get a second pair of eyes from someone well-versed in real estate contracts to look over it for you.
- Know your rights. In the case of most U.S. timeshare sales, you’ll receive a deed to the property when you buy a timeshare, also known as a “timeshare estate.” This gives you the right to sell, exchange, rent, or pass on your timeshare to anyone, like any other deed in real estate.
However, in timeshares outside the U.S. (like in Mexico), the rights you hold with your timeshare are typically only “right-to-use” and are called “memberships” or “timeshare licenses.” This means that you cannot pass it on or of your own accord. Timeshare buyers should also be aware that if you do not sign a timeshare contract within U.S. borders, it will not be protected by U.S. law.
How to Sell a Timeshare
The hard truth is that it can be difficult to sell your timeshare. The main reason is because of supply and demand: supply on the resale market greatly outweighs the demand for timeshares, thanks to a lack of awareness about timeshare resale and ever-increasing maintenance fees.
However, when it comes time to sell your timeshare, there are a few things to keep in mind to make sure you get the best deal and sell your timeshare successfully.
- Watch out for of scams. Many people who have tried to sell a timeshare have encountered phone calls with offers much higher than their original asking price.
These callers will collect hundreds of dollars in “marketing” or “deed transfer” fees but then never complete the sale. If something smells fishy about an offer you receive, check the Federal Trade Commission guidelines on how not to be taken advantage of during the process.
- Know your timeshare’s “saleability.” A new website called Sharket now provides timeshare market research and helps you see what your timeshare is worth on the resale market. It’s helpful to know the going rate to avoid getting scammed when selling your timeshare.
When you input the details of your timeshare, Sharket assigns it a score based on how easy a unit will be to sell. Bob Schmidt, chief data officer for Sharket, suggests that owners with timeshares that score between 8-10 contact a broker help
Properties with scores of 7 or below can still be resold, but these owners should go to a platform like eBay, RedWeek, or the TimeshareUsers Group.
- Check out your reseller before agreeing to any terms to sell your timeshare. As with buying a timeshare, do your research in the sales process. The FTC has cautioned consumers about real estate brokers and agents who use fishy sales tactics to try to get you to work with them. Some claim that they are overwhelmed with buyer requests, promise to sell your property within a specific time, or say they have buyers lined up ready to buy your timeshare. Be wary of these kinds of promises.
Search online for complaints against your reseller, and verify that the agents are licensed with the State Real Estate Commission. Once you’ve vetted them, ask for all information in writing and get details about how your property will be advertised.
- Triple-check your contract. Your resale contract should have all terms and conditions outlined in writing for your timeshare sale. This should include services, fees you must pay and when, whether you can rent or sell the timeshare on your own, and the length and term of the contract to sell your timeshare.
- Consult your other options. If you’re not able to resell your timeshare, you still have a few options. To help cover costs, you can rent out your timeshare to vacationers until the market is in a better place to sell. You can also give away your timeshare for free; at least you’ll be saving the maintenance costs, and sometimes friends or family will want to use it.
Occasionally, some timeshare associations will buy back your timeshare or will let you cancel your contract for a fee. Often these fees can be exorbitant, so look at other options before resorting to this.
Timeshares can be a wonderful way to save money, vacation in a beautiful area, and spend time with family–but there are precautions you need to take before buying a timeshare. Use these tips and you’ll come away with a smart purchase.
AdvisoryHQ (AHQ) Disclaimer:
Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.
Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.Note: Empower Personal Wealth, LLC (“EPW”) compensates AdvisoryHQ Account for new leads. AdvisoryHQ Account is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.