Timeshares: Dream Vacation or Money Pit?

Fact checked by Jared EckerReviewed by Doretha ClemonFact checked by Jared EckerReviewed by Doretha Clemon

Timeshares can be great for people who enjoy regularly vacationing in the same location. However, they can be bad for those who prefer travel flexibility or may not use the property enough to justify the ongoing maintenance fees and commitment. Let’s dig into whether timeshares are a dream vacation spot or simply a money pit.

Key Takeaways

• A timeshare is a form of fractional ownership in a property, typically in a resort or vacation destination.
• While timeshares can be an exciting and perhaps cost-effective way to travel on a regular basis, they often have both up-front and ongoing costs that must be weighed.
• Timeshares should not be considered investments since the vast majority of timeshare contracts lose value in the secondary market, and they do not generate income for owners.

Understanding Timeshare Ownership

Timeshares are based on the concept of fractional ownership of a property. For example, if you purchase one week at a timeshare condominium each year, you own 1/52nd of the unit. If you purchase one month, you own 1/12th of the unit. Other buyers purchase the remaining fractions.

There are two general schemes:

• Deeded: You purchase an ownership interest in the property.
• Non-Deeded: You lease the right to use the property for a preset number of years, at a specific time each year.

From there, the various ownership structures become more complex. You can purchase a fixed week, which means that you own the right to use the unit during the same week each year, or you can purchase a floating week, which generally gives you the right to use the property during a predetermined period.

Some properties operate on a point system. These are often referred to as “vacation clubs.” With these, you purchase a specific number of points that can be redeemed at a variety of destinations. Some plans let you “bank” unused points. The costs of a timeshare will vary by unit size, location, deed, brand, and time purchased.

Timeshare properties can often feature larger and more luxurious accommodations than standard hotels and are generally located in desirable places.

Note

When you are standing in a beautiful condominium overlooking the perfect beach and sparkling blue water, it is easy to succumb to the sales pitch. Remember, timeshare salespeople are in the business of selling. Just because they tell you that you are getting a great deal, it doesn’t mean that you really are.

What a Timeshare Is Not

A timeshare is not an investment. Investments are designed to appreciate in value, generate income, or do both. A timeshare is unlikely to do either, despite what the salesperson says.

The huge volume of used timeshares on the market, the appeal of buying new versus used, and the marketing muscle of the firms selling new timeshares all work against the idea that you will make a profit reselling your used timeshare. Thus, selling for a profit is an uphill battle, considering you need to convince someone to pay more for a used unit and factor in all the fees you paid over the years.

The very nature of the sales process should be a hint about the reality of the issue. Have you ever heard of a mutual fund, municipal bond, or any other investment that offered you a free weekend in Miami just to give the product a try? A timeshare is not an investment. It’s a vacation. It’s also an illiquid asset that is likely to lose value—or depreciate—over time. Timeshare vacation properties depreciate quickly and can lose as much as 70% when resold.

Ultimately, timeshares are like swimming pools. If you buy one, do so because you love the idea of owning it, not because you expect to make a profit.

If you do take the plunge, remember that you are buying a repeatable vacation. Just as spending $3,000 on a trip to a tropical beach is not an investment, neither is spending $10,000 plus maintenance fees on a timeshare.

How to Buy a Timeshare

If you have found a vacation destination that you absolutely love and want to return to every year and have decided that a timeshare is a perfect way to achieve your goal, go ahead and buy one. But buy it used.

Current owners who are tired of the maintenance costs, tired of the destination, or have grown frustrated with their efforts to trade their slot so that they can visit a different destination may be willing to give their timeshares away at a fraction of the original cost. Just search “timeshare resale” and you’ll see dozens of offers that will let you choose less expensive timeshares in locations from Florida to Saint Martin.

Buying used gives you all the benefits of ownership at a fraction of the cost. Even if you choose a more expensive unit, you can save money by financing your purchase with a personal loan, which should offer you an interest rate that is considerably lower than the rate the timeshare company charged the original owner.

Like any major purchase, the decision to buy into a timeshare requires careful consideration. It involves a large amount of money upfront and considerable recurring costs. You should ask plenty of questions and take your time making a decision. And as the Federal Trade Commission (FTC) says in its Consumer Information: “The value of a timeshare is in its use as a vacation destination, not as an investment.”

Timeshare Concepts to Consider

Whether or not a timeshare is a dream vacation location or a money pit will vary from person to person. Below are the factors to consider. Towards the end of this article, we’ll summarize who timeshares are great for and who timeshares aren’t so great for.

Trading May Not Be Easy

Points-based systems come with no guarantees. Just because the salesperson tells you it’s easy to trade your week for another week or your property for another property, doesn’t mean it really will be easy. If you own a week in Hawaii, would you be willing to trade it for a trip to the blistering hot Las Vegas desert in August?

If you wouldn’t, chances are no one else will either. It’s also important to remember that everybody wants to travel to the same places and in the same weeks that you do. The desirability factor aside, trading often results in an additional fee.

Fees and Charges

In addition to the monthly loan payment, which comes with a high interest rate when financed through the timeshare company, the annual maintenance fee will also set you back a few hundred dollars a year.

Also, if the property needs a new roof or a new sewage line, a “one-time” assessment will be levied. Some properties also charge miscellaneous fees, such as a publication fee if you want to view other properties that may be available for trade, and additional fees if they help you sell your property.

Management

While a lifetime of vacations sounds great, will the management company that sold you the timeshare be around three decades from now? If you are considering a timeshare in a foreign country, you must also understand the laws and know what the result will be if the timeshare management company closes.

Enjoyment

Another major consideration is your health. That condo on the ski slopes may look great today, but five years from now when you are caring for a baby or are in pain from a herniated disk, your days on the slopes may be over, but the bills for the timeshare will continue. Consider that your desire to hop on a plane may wane as fuel costs rise and airport security becomes more onerous.

Why Are Timeshares Great?

With the factors mentioned above (and with some additional concepts sprinkled in), let’s consider situations where timeshares are great. Timeshares are ideal for individuals or families who vacation consistently in the same location.

These vacationers benefit from the convenience of a guaranteed stay, often at a lower cost than renting hotel rooms for extended periods. Timeshares also offer access to resort amenities, making vacations feel more luxurious and stress-free.

People who value consistency and predictability in their travel plans find timeshares especially appealing. Since most timeshare arrangements allow owners to choose specific weeks or periods during which they can stay, it simplifies vacation planning.

Additionally, timeshares often operate within larger networks, enabling owners to exchange their weeks or units for stays at other locations within the same program.

Retirees or individuals with flexible schedules may find timeshares particularly beneficial. With more free time for leisure travel, these buyers can take advantage of longer stays or plan multiple visits throughout the year. Many timeshares also offer optional upgrades or bonus weeks, allowing owners to extend their vacation time if people find themselves with a little extra time on their hands.

Why Are Timeshares Bad?

Let’s look at the other side now. Timeshares can be a bad investment for individuals who value flexibility in their travel plans.

Since many timeshare agreements lock owners into a specific location and time each year, it limits the ability to travel elsewhere or during different seasons. Additionally, if the owner can’t use the timeshare during their designated time, renting it out can be difficult, and it often leads to wasted vacation time and money.

The financial obligations associated with timeshares can also make them a poor choice for some. In addition to the initial purchase price, owners must pay annual maintenance fees which can increase over time. There is also the potential for unexpected assessments for property upgrades or repairs.

As we talked about above, selling a timeshare can be challenging and can result in significant financial loss. The secondary market for timeshares is notoriously weak, with resale prices typically far lower than the original purchase price. Many owners find it difficult to sell their timeshare quickly or at a price that recoups their investment.

Timeshares can also create complications when it comes to estate planning and inheritance. If an owner passes away or no longer wishes to hold the timeshare, their heirs may inherit not only the property but also the ongoing financial responsibilities tied to it.

This can be an unwanted burden for family members who do not wish to use the timeshare or cannot afford the fees. However, as mentioned above, it might be difficult for the estate to receive “fair value” for the timeshare due to the traditional timeshare market.

What Is a Timeshare and How Does It Work?

A timeshare is a form of property ownership where multiple individuals share the right to use a vacation property for a set period each year. Owners typically purchase a specific week or set of weeks during which they can use the property. Timeshare owners also pay ongoing maintenance fees and have the option to exchange their usage with others in the same timeshare network.

What Are the Different Types of Timeshares?

Timeshares come in various forms, the most common being deeded and right-to-use. A deeded timeshare grants partial ownership of the property, which can be passed down or sold. A right-to-use timeshare gives the owner the right to use the property for a specific period, usually for several years, without ownership rights. 

What Happens If I Can’t Use My Timeshare One Year?

If you cannot use your timeshare for one year, you typically have several options. You may be able to rent it out to others, trade it through an exchange program, or bank the time to use it in a future year, depending on the timeshare terms. Some companies also allow you to transfer the usage to family or friends. You generally still have to pay annual maintenance fees.

Why Are Timeshares Bad?

Timeshares are often considered a bad investment due to high upfront costs, ongoing maintenance fees, and limited resale value. The rigid scheduling can be inconvenient for those who prefer travel flexibility, making it difficult to use the property. Additionally, the resale market is notoriously weak, making it hard to sell a timeshare when it’s no longer wanted.

The Bottom Line

Timeshares offer the advantage of guaranteed vacation accommodations, access to resort amenities, and the potential for long-term cost savings compared to frequent hotel stays. However, they come with high upfront costs, ongoing maintenance fees, limited flexibility, and difficulty in resale, often making them a bad financial investment for some.

Read the original article on Investopedia.