Timeshares: Everything You Need To Know
Ashley Chorpenning8-minute read
November 10, 2020
Everyone vacations differently, but we all have one thing in common – we want to make the most of our vacation time and money. Many people have been warned about “free” weekends in return for a few hours of our time to hear a sales pitch. The sales pitches are typically for timeshares. Although we’ve generally been advised to avoid them, are timeshares all that bad?
Some people love timeshares and swear by them. Timeshares offer the option to vacation in a dream home for a set period each year. Additionally, they allow people to pay for their vacations over time rather than all at once. However, the sales methods used to sell timeshares can be off-putting, and tales about difficulty booking some popular vacation properties have made many people leery of buying into a timeshare.
What Is A Timeshare?
A timeshare is a vacation home ownership scheme in which multiple unrelated parties own a fractional share of a property and take turns using it. Sharing the costs in this way is far cheaper than buying a vacation home of one’s own, and requires less work. These factors make timeshares attractive to people who want to visit a location relatively often but are not financially able to or do not have the time to own a second home.
Timeshare resorts and timeshare properties are typically located in popular tourist destinations, including tropical islands, mountainside chalets, and everywhere in between. People who purchase timeshares often do not have the time or money to dedicate to buying a vacation home, but still want to get away each year.
How Do Timeshares Work?
Timeshares are not one-size-fits-all. Depending on the plan you choose, there are a few different ways that timeshares work. The following are some of the most popular types of timeshares, and the pros and cons of each.
Fixed week timeshares were the original timeshare scheme. With this timeshare plan, each owner receives a week to access the timeshare when they purchase it. Therefore, people who know they have the same week off work each year or enjoy predictability typically appreciate fixed week timeshares.
However, if something changes in your schedule and the week a buyer has purchased no longer suits them, they will have to find another owner to switch with. If everyone bought the timeshare with the expectation that they would have the same week every year, it might not be possible to exchange with someone. If all the weeks are full and you want to switch weeks, the management company might not be able to make it happen, and you could be out of luck for your annual vacation.
When timeshare managers realized that first-generation timeshare owners were complaining about the lack of flexibility, they began to offer floating weeks. Floating week timeshares allow timeshare owners to plan their weeks around their schedules. This way, timeshare owners can still make regular payments to pay for a week of vacation each year, but not be forced to keep to a rigid schedule.
Over the years, timeshares got increasingly popular. Their increasing popularity made hospitality chains take notice, and they leveraged their many locations into an even more popular points system.
Typically, with the points system scheme, a timeshare owner is awarded points that can be used at any of a hospitality chain’s properties. Many hospitality chains have affiliated themselves with timeshare developers to create a vast network of locations available to timeshare owners.
How Much Do Timeshares Cost?
Timeshares get a lot of criticism due to their related costs. There are some upfront charges and ongoing charges that can make them more expensive than paying for a week’s rent in a vacation home. However, timeshares also cost less than purchasing a second home, so many people continue to stand behind them.
Regardless of where the costs come from, the charges can add up quickly and change without warning. Here are some of the expenses that potential timeshare buyers should be aware of.
Upfront Purchase Price
As with all things real estate, location matters. Therefore, a timeshare in Orlando, Florida, can easily cost at least $20,000, but less-desirable locations might not reach that price. Therefore, buying into a timeshare might cost as much as a down payment on a second home.
Other costs to be aware of are any financing charges and interest. Neither banks nor non-bank mortgage lenders will finance timeshares. Therefore, unless the purchase price for the timeshare is paid in cash, financing will come from the timeshare developer at a steep premium.
While some prospective owners may deduct the interest that they pay on their financing payments, many will not. If you are considering a timeshare, you should check with your tax advisor to learn more about the potential tax benefits.
Monthly Maintenance Fees
In addition to upfront fees and financing, timeshare owners can expect to pay fees throughout the life of their timeshare ownership. Additionally, as the cost of living, including energy and other fees, increases, the monthly fees for a timeshare might increase as well.
Timeshare developers often hire new management teams once they meet their sales targets. These new teams can change the monthly fees and the level of service provided at their discretion.
Finally, there may be service charges associated with owning a timeshare. For example, vacation planning fees that owners incur each time they book a timeshare. Additionally, there could be point penalties for carrying points over to another year or using them with an affiliate location. Before purchasing a timeshare, potential buyers should take the time to understand what service charges they might incur and how much flexibility they will have as a result.
Are Timeshares Good Investments?
In general, timeshares are not considered a good investment. They typically have high costs and fees paired with low resale value. However, while a timeshare is not a good traditional investment, it’s one way to pay for a vacation home and pay less than a person for a second property or mortgage.
Is There A Way To Save Money On Timeshare Ownership?
Purchasing a timeshare from a current owner is much cheaper than buying one from a timeshare developer. The reason is that timeshare developers are attempting to eliminate their debt from developing the property.
Another way to save money is to consider renting from a current owner first. Renting from the current owner will help potential buyers ensure that they meet their standards and enjoy the property. Then, they will be able to decide if they want to own a portion of the property. Several websites are dedicated to timeshare re-sales that prospective buyers can browse to get an idea of what is available to them.
Types Of Timeshare Ownership
Some people go into timeshare ownership, assuming they own the property. However, each type of timeshare ownership is different. Understanding what a timeshare owner owns is key to determining whether there are tax or other benefits of timeshare ownership. There are two main ways owners can purchase the right to vacation at a timeshare resort: deeded and nondeeded ownership.
Some timeshares are a real estate purchase by the owner, who holds a deed to a fractional piece of the timeshare property. For example, if a person purchases a week’s worth of vacation at a given property, they own 1/52 of the property. Owning a deed to the property may provide a timeshare owner some tax advantage, like deducting the financing interest payments and the portion of the monthly fees that go to taxes.
A leased timeshare is a method of acquiring a right to stay at a property for either a fixed or floating week over a specified number of years. A leased timeshare is also known as a nondeeded timeshare. In this arrangement, the deed remains with the timeshare developer, not with the timeshare owner. A leased timeshare does not confer any tax benefits to the owner. It is also important to note that the value of the timeshare decreases over time.
Now that you have a full understanding of what types of timeshares are available and how to own them, you might have a few more questions. Here are the answers to some of the most popular questions that people have about purchasing a timeshare.
Can I Rent My Timeshare To Someone Else?
In many resorts, timeshare owners can rent out their week at a property. The ability to rent out their week depends on the terms in their timeshare agreement. People interested in buying a timeshare at a resort can typically rent there for a week to see if purchasing is something they would like to pursue further.
Timeshare owners should read through their agreements to make sure that rentals are allowed. Some management companies may charge a set number of points or an additional fee to rent a timeshare.
Can I Sell My Timeshare?
People who already own timeshares should refer to their timeshare agreements to learn about the conditions under which they can sell their timeshares and other things that they can and can’t do. Most timeshares can be sold, but typically at a steep discount over what was initially paid.
Future timeshare owners should pay close attention to the provisions of a timeshare agreement before signing it. Anyone’s financial situation can change at any time, so it is essential to know what options are available when it comes to selling or renting a timeshare unit.
Can I Bequeath Or Transfer The Ownership Of My Timeshare?
If a person who owns a timeshare dies, they can bequeath the ownership of their timeshare to an heir or beneficiary. Additionally, if a timeshare owner decides to transfer ownership of their timeshare through gifting, it’s generally possible. However, every timeshare management company has unique rules, so each owner should follow the provisions in their timeshare policy.
Is A Timeshare Right For You?
Ultimately, nobody can decide if a timeshare is right for you except for you. Each prospective timeshare owner should evaluate their goals and determine what they want to get from owning a timeshare. If their goals are not reachable by owning a timeshare, then they should look at other vacationing options.
It’s a good idea for a prospective owner to vacation at their timeshare’s location before buying into a property. This way, they can decide if they love the property and want to visit each year. Visiting will also give them a good idea of what the property is like, how it is managed, and the fees and other expectations.
A prospective timeshare owner should also look at their finances. They should consider the costs and benefits of a timeshare, including what they are willing to pay for and how much they want to allocate toward timeshare ownership. For example, they might be willing to pay a premium for the access, convenience and certainty that a timeshare provides.
Vacationers have many more choices today than they did when timeshares were first offered. Younger people may not want to lock into a lifetime of visiting the same property or be limited to one hotel chain for accommodations. There are plenty of vacation options available for people on any budget, and timeshares are just one option.
Timeshares started as fixed week schemes that allowed people to buy a portion of a property in exchange for a set week each year at the property. Over time, they evolved to floating week options and points options. Although the prices vary between timeshares, they all typically come with fees that make them a poor investment when it comes time to sell. However, the benefits may outweigh the costs depending on your style of vacationing.
If you have more questions about buying second homes and other homeownership questions, be sure to visit our Learning Center.
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