What is a Timeshare?
December 19, 2018
Great question. Many places on the Internet provide answers. This question is posed by an author who works for The Street.com - which is a website that focuses on all sorts of financial matters. The article is an interesting, short read and provides a very good summary of what it is we Grand Luxxe Residence Club members own. Enjoy!!
What Is a Timeshare and Is It a Financial Risk in 2019?
Author: Brian O'Connell, Dec 17, 2018 7:06 PM EST
A timeshare can offer a good, reliable vacation experience, or lead to significant financial risk.
A timeshare is a unique, and financially risky way to own a vacation property that's reserved strictly for you, at a specific time of the year.
The most important item on your timeshare "checklist" isn't really where to buy or how much to - although those are very important issues, too.
Instead, the best move is to thoroughly vet your potential timeshare experience, and not pull the trigger until you know exactly what you're getting into when buying a timeshare.
Manage that and you'll likely make the right decision on a timeshare, and avoid the legal and contractual entanglements that come when you buy a timeshare on impulse, and come to highly regret that decision down the road.
While warning potential buyers about the risks of timeshare ownership is the right call, given the hard history of owners being unable to get out of those timeshares, it's fair to say there are good timeshare experiences, too.
Your best strategy is to get educated, know what your legal obligations are when you sign a contract, and leave yourself some flexibility in getting out of toxic time-share scenario. That starts by knowing what a timeshare is, and what it could mean for you.
What's a Timeshare?
Think of a timeshare as a regular dinner reservation at an eatery you might not like, but are obligated to go there and spend money, anyway - all because you signed a contract saying you would.
In that regard, a timeshare is a form of vacation property ownership where more than one owner has the legal right to use the property, under the terms of the timeshare contract.
By and large, timeshare owners get their vacation homes in lush, sun-splashed and gorgeous locales, like Hawaii, the Bahamas, and the Florida Keys, among other places. Winter resorts offer timeshares for skiers and hikers, too, with timeshares in winter wonderlands like Colorado, Utah and Vermont commonplace.
Different Types of Timeshares
No matter where you land with your timeshare, it's the type of timeshare and contract that really matters, with four models most often purchased by buyers.
- Fixed Contract
With a fixed week contract, the timeshare owner gets the same property (think a villa, condo or even single-family home), at the same exact time on the calendar, for the entire length of the contract.
- Floating Contract
With this contract, the timeshare owner can gain some flexibility in choosing his or her timeshare week. That said, the "floating" owner should know other timeshare owners of that same property may have the same option, and may snap up the best time periods quickly.
- Right-to-Use Contract
Like a floating contract, the right-to-use contract offers a timeshare investor com wiggle room on dates. The owner can either choose a specific week or a range of weeks to use on a leased basis. That means the timeshare investor isn't an owner, but does have a settled contract to lease the property as long as the contract allows.
- Travel Points Club Contract
This contract enables a timeshare flexibility in the actual property they choose as a vacation spot. If the buyer accumulates enough points from weeks spent as a timeshare owner or vacation points club user, he or she can elect to stay at different vacation hot spots on a year-to-year basis. One year you can spend the week skiing in Utah and the next year you're on a beach in Maui - that's a good option for buyers who may tire of the same place every year.
Are Time Shares a Good Investment Idea?
We'll examine the upside and downside the timeshare ownership experience below, but in general, timeshare investments offer more risk than reward.
Let's review the risks, one at a time:
- Bad reputation. There's a good reason why so many timeshare developers have to up the ante and offer lavish dinners and goodie bags just to get you to attend a sales pitch. Timeshare companies regularly show up on the list of industries that attract complaints among consumers. That's why it's so important to vet timeshare companies, as many are legitimate, but are viewed with suspicion thanks to scam artists. Check out the Consumer Affairs ranking of timeshare brands before buying .
- High rates and costs. Yes, you do get to buy a piece of property that you would likely not be able to afford. But timeshare purchases don't involve mortgages and regular mortgage rates. Instead, the buyer is usually at the mercy of the timeshare company if you need a loan. In that scenario, interest rates can skyrocket. Add to that annual fees, and the "silent" costs of timeshare ownership can rear their ugly head.
- You'll probably lose money. Timeshares are among the worst financial investment a consumer can make. They rarely appreciate in value and actually, are more likely to see their value decrease over time, since demand for timeshares is hardly robust.
Benefits of timeshares
Here are a few:
- You can get more bang for your vacation buck. Since timeshare owners only pay for one week a year, and don't otherwise own the property, they have more cash available to stay at a vacation spot they otherwise may not have been able to afford.
- It can work within your work calendar. If you have a job that keeps you busy at specific time periods each year, and with more free time in "soft spots" in your work calendar (like a landscape company owner in New York who is busy in the spring/summer but largely off in the winter), a timeshare offers some reliability. You can stay in the same spot and at the same time, year in and year out.
- Tradability. Most timeshare contracts allow timeshare owners who share the same property to trade weeks during the year. That helps when timeshare weeks coincide with other big calendar dates, like a family wedding or college graduation, and need to be switched out.
- As a charitable donation. Timeshare contracts are usually amenable to letting owners give a week away for charity. Make sure to check your specific timeshare contract before assuming a charitable donation is allowable - you don't want to find out there's a problem after the fact.
Downsides to Timeshares
Anyone who's had a bad experience with a timeshare can tell you there are multiple drawbacks, too.
- Locked-in effect. If you have a fixed contract, you might be stuck in the same time share property for the same exact week each year. To timeshare investors who value some flexibility, being locked in can be a shock to the system, and encourage the investors to want out of the timeshare deal. That may not be possible anytime soon, contract-wise.
- Watch out for fees. The glossary brochures and elegant websites will leave fees and charges in the fine print, but rest assured, they exist. For example, timeshare owners can expect to pay over $600 in annual maintenance fees that go above and beyond basic ownership costs. If you don't like high fees, you likely won't like a timeshare.
- Good luck selling your timeshare. Selling a timeshare can be like threading the proverbial eye of the needle. It's tough to do and it's difficult to make your money back, given the high inventory of timeshares that regularly flood the vacation real estate property market.
- No tax advantage. Under IRS rules, selling your timeshare property at a loss isn't like selling your home at a loss - you can't claim any capital loss on a sale where you lose money.
Timeshare Buying Tips
If you're interested in becoming a timeshare owner, check the red flags listed above and proceed cautiously. Start your timeshare buying with these tips below:
- Think fun, not finance. If you go into a timeshare purchase with the mindset that it's going to be a financial windfall, you're likely to be disappointed. Instead, focus on the "fun factor" and don't look at the property as an investment.
- Check your work schedule. One of the worst moves you can make with a timeshare is to agree to a fixed contract, including a weekly date, then find out you can't get that week off at work. Job one is to clear any timeshare weeks with your employer before signing any contracts.
- Pay cash or don't pay at all. Timeshares are ideally paid for upfront, with cash. Borrowing money to purchase a timeshare is not a smart financial move, given the high interest you'll pay and the likelihood that you'll never recoup your original investment.
- Don't sign at the sales presentation.!! Timeshare companies aren't above plying you with good food and adult beverages at the sales presentation. The rule of thumb is to never make an impulse purchase and always ask for a contract "grace period" where you can back out if you change your mind.
- Visit the property. Yes, this isn't always easy and practical, but if you really want to get the best value for your timeshare, go and see it with your own eyes. Then, and only then, can you be sure the property is in good shape and the vacation there will be a memorable one. A good tip while you're there - talk to other timeshare owners at the property and get their outlook on the timeshare experience.