The idea of owning a vacation home where you can unwind every year can be alluring, but purchasing and maintaining a property comes with a number of considerations. A timeshare is an alternative that offers the benefits of a vacation home but also has some drawbacks.
Here are some things to consider if you are thinking about purchasing a timeshare.
What is a timeshare?
Purchasing a timeshare entitles you to the same week or weeks of annual use of a vacation residence. This idea costs a tiny fraction of what it would cost to own it year-round. It also eliminates the expenses and concerns associated with annual maintenance. In a sense, you are purchasing vacation time.
You can purchase a timeshare and use it yourself, rent it out, give it away, sell it, or leave it to someone else if you choose. The basic idea behind timeshare is present in many different forms. Other names for it include “club time,” “vacation ownership,” and “holiday ownership.”
How a Timeshare Works
There are two types of timeshare contracts available. Let’s take a look at them.
Shared Deeded Contract
Property ownership is divided between you and everyone else who owns the timeshare under a shared deeded timeshare contract. Each person typically receives a specific week or range of weeks to use it. You also have the option to transfer ownership through sales, gifts, or bequests under a share-deeded contract.
Shared lease or Right-to-use Contract
With a shared lease or right-to-use agreement, you and all the other timeshare purchasers share access to a property. The lease grants you permission to use the timeshare for a specified number of years. It does not grant you any ownership rights, the ability to rent or sell your timeshare, or any interest in real estate.
Types of Timeshares
Timeshares typically use one of the following three systems:
Fixed Week
With a fixed-week timeshare, the purchaser is granted exclusive use of the property for a particular week (or weeks) each year. The primary benefit of this arrangement is that the buyer can schedule an annual vacation at the same time each year, but the drawback is that it might be extremely challenging to switch the fixed week to a different time frame if necessary.
Floating Week
A floating-week timeshare gives the buyer exclusive use of the property for a week or weeks during a predefined period or even throughout the year. Although the “floating week” is more flexible than the fixed week system, it may not be available during the busiest times of the year and may need to be scheduled far in advance to ensure availability.
Points
Based on variables like resort location, vacation property size, and time of availability, the points system assigns points to represent timeshare ownership. Developers use points to make timeshare exchanges possible, either within their own resorts (internal exchange) or with other resorts (external exchange). Although the points system gives users more options for their vacations, the points that are given to different resorts vary greatly because of the aforementioned factors.
Advantages of Timeshares
Familiar location
The majority of timeshares are owned by sizable corporations and are situated in popular tourist destinations. Owners of timeshares can take comfort in knowing they can vacation in a familiar place each year without worrying about unpleasant surprises.
Resort-style features
Timeshare properties frequently feature resort-style features and are expertly managed. A timeshare property is likely to be significantly larger and have many more amenities than a typical hotel room, making for a more comfortable stay.
Hassle-free vacation booking
Timeshares may be a good option for those who would rather take a vacation in a familiar location each year rather than having to plan their next trip in the midst of uncertainty.
Disadvantages of Timeshares
High costs
After accounting for the sizeable down payment and yearly maintenance fees, which typically increase on a percentage basis year after year, the disadvantages of a timeshare are that the ongoing costs can be significant. The deeded timeshare owner is also responsible for paying their proportionate share of the monthly mortgage. As a result, compared to booking a week at a comparable hotel or resort in the same area without owning a timeshare, the total cost of owning a timeshare may be quite high.
Limited flexibility in the contract
A fixed-week timeshare has little room for change, and a floating-week timeshare must be reserved far in advance because confirmation is typically given on a first-come, first-served basis. Even then, floating weeks might not be available during the busiest seasons of the year. Additionally, a timeshare contract is legally binding, so the owner cannot simply break it because their financial or personal situation has changed.
Difficult to resell
If the contract permits resale in the first place, it is notoriously challenging to sell a timeshare, and this lack of liquidity may put off potential investors. Due to two factors, a timeshare resale may bring in a significantly lower sum than the purchase price. Timeshares have a tendency to lose value quickly, and because so many owners are looking to break their contracts, there is an imbalance between supply and demand.
How much does a timeshare cost?
Data from the American Resort Development Association shows that the average price of a timeshare is $22,942 per interval. The cost of annual maintenance is typically $1,000, but it can differ depending on the size of the property.
Examine your finances to see how you will pay for the timeshare if you decide to go through with the purchase. It might be preferable to use savings as opposed to borrowing money. This is because most banks will not lend money for a timeshare because the properties often depreciate in value.
Timeshare property developers may offer financing, but it is typically offered at a much higher interest rate than a bank and for a short period of time. A short-term personal loan is another option for financing, but be prepared for high interest rates.
Does it cost money to get out of a timeshare?
You can return your timeshare for free and without paying an exit fee to some timeshare companies. Some Timeshare companies, however, will require you to sign a disclaimer that forbids you from filing a ‘No Upfront Fee Claim’.
Bottom line
Take your time and conduct thorough research if you are thinking about buying a timeshare. Take into account how frequently you want to visit the property and whether you have the money to do so. It might be wiser to limit yourself to one-time vacations if the timeshare’s costs are out of your price range.
Check with the timeshare company you are considering using to see if the current owners are satisfied before signing on the dotted line. Consider choosing a different property or business if owners complain about excessive fees or feel misinformed, for instance.
