Should I Buy A Timeshare?
If you are someone who travels with a group of four or more individuals at a time then buying a timeshare is a better option than renting a hotel room. However, I would like to stress that it is not the concept of "timesharing" that gives you extra space and helps you save money but rather the condo in itself. You will later understand as to why this distinction is important. For now, let's look at the benefits of staying in condo over a hotel room:
Extra rooms and space: Couples can enjoy time together in a separate room when the kids go to sleep or are playing in the living room. And from the children’s point of view they have their own space where they can play and run around.
If you are traveling with a group then you can follow your own schedule. Wake up at anytime, watch TV or just relax in your own personal space. You will not be disturbed by the activities of your friends who will have their own separate rooms.
There will be extra storage space in the form of closets and dressers. This gives you the option to completely unpack and hang your clothes for the duration of your stay. Also, there is enough space to put away your luggage in a corner instead of having it take up space in the bedroom.
The bathrooms are usually bigger than those found in hotels and have vanity areas which give guests a place to keep their cosmetics. Some bathrooms come with Jacuzzis/Hot tubs and equipment such as blow dryers, straighteners and curling irons.
Privacy: There is no need to lock up your valuables every time you leave the condo and you don't have to take a shower and get ready by a certain time so that you can allow the maid to come in and clean the room. The staff will not knock on your door unless you call and ask for assistance.
Convenience: A kitchen area provides families with the option to choose their breakfast time. They can wake up and eat whenever they want to.
Most condos come with washers and dryers. You can pack light and take a minimum change of clothes. After finishing the day you can throw the clothes and towels in the washer and wear them again later in the week. You can go back home with clean clothes instead of worrying about washing a huge pile as soon as your vacation ends.
Peace and Quiet: Condos are usually more secluded and hence quieter than hotel rooms. Moreover, almost all resorts are situated away from the hectic city life.
Savings: First, you can save money on the actual accommodation. For a family/group of more than 4 a condo will be cheaper than renting multiple hotel rooms.
Second, you will be able to save money on food because you can cook and eat in. Visit the local farmer's market and grocery stores to buy ingredients that will help you cook food with some local flavor. You can order food for dinner and heat the leftovers for lunch the next day.
Third, you can save money on entertainment as most resorts have a number of on-site recreational facilities. Some families like to go to resorts just to enjoy the amenities.
Lively: Many people say that they like the "electric" environment that resorts offer. There is always something going on in a resort especially during the holiday season. Kids can play in the games room or the playground and there is usually more than one on-site pool. On top of that the resort staff usually plans activities such as arts and crafts, T-shirt making, family games shows and movie nights to keep their guests entertained. Couples can enjoy time together when the children are busy with the resorts' activities.
This is not to say that condos are always the best option. You can get similar benefits with a vacation home but there are a couple of drawbacks:
- You are away from the resort energy and facilities. As mentioned above, there is always something happening at a resort and the there are a number of facilities (games rooms, pools, playgrounds, tennis courts, etc.) to choose from. This is not the case when it comes to vacation homes.
- You do not have staff-at-call to take care of any emergencies and requests. If there is a problem with your vacation home or if you want to get something fixed then you will first have to call the vacation home owner who will then call the appropriate person to take care of your needs.
However, it's not all peaches and cream when it comes to timeshares. What am I talking about? Watch the short news clip below to learn more:
I was quite shocked when I saw the above video and was determined to learn more before "taking the plunge".
Why? Because I understood that the decision to buy a timeshare is something that will affect NOT ONLY my financial standing and vacation happiness but also those of my family.
I went through numerous books, catalogues and even talked with friends to learn more about the subject but all I got was the same generic information over and over again which is why I had to resort to other sources of information such as online forums, blogs, news archives etc. that are scattered all over the internet.
After months of research, going around in circles and struggling with difficult timeshare jargon I was able to collect the information that helped me make sense of all the facts in the above video. The information presented here is somewhat "hidden" from the crowd. I am not afraid to say that 95% of timeshare owners would not have known about the topics discussed here when they made the purchase.
I assure you that if you go through this information then there will be no confusion left in your mind. Remember, if you make the correct decision then your family's travel lifestyle will improve considerably.
If you want to delve deeper then read on. On the other hand, if you understood all the information in the above video then you can jump to the conclusion.
Table Of Contents
Costs Associated With a Timeshare
Costs Associated With A Timeshare
If you buy a new timeshare directly from a developer then the front-end cost will probably be in the range of $18,000- $32,000 for a prime week at a good resort. At these prices you are likely to go for financing.
The financing rate on a timeshare loan is the not the same as that on a housing loan. You will be provided with a spot-on loan that will have an interest rate between 15-20% per annum. A personal loan is another option but the interest rate in that case will also be very high. Yet another option is to go for a home equity loan but that would be possible only if you have already paid off a big chunk of your primary mortgage. The costs associated with acquiring and paying a loan are the first that you will face when you buy a timeshare. However, a much more important discussion is about the maintenance fees on timeshares.
Maintenance fee refers to the annual payment that you need to make for the maintenance and upkeep of the resort and condo. However, this fee is higher than the actual cost of running the resort because the homeowner's association (or developer) also needs to build up reserves which will be used to cover non-recurring costs such as replacement of furniture, appliances and upkeep of other capital assets that are subject to physical deterioration. This fee has to be paid annually irrespective of whether you use the condo or not.
To simplify things, think of a vacation home. Four people decide to put together equal amounts of money and buy this vacation home (I will refer to this example several times in the page as the "Vacation Home Example"). Since they have an equal share in the property they are equally responsible for its maintenance (paying the gardener, the pool cleaner, the cleaning lady etc). Moreover, they need to build a reserve which they can use for physical repairs and replacement of capital assets. The cost of these activities added is the Maintenance Fees of the entire house which each of owners is equally liable to pay.
Maintenance fee for timeshares is the same thing. The only difference is that there are thousands of owners at the same resort.
Now, according to the above video, maintenance fee rises with time. Why is that the case?
There are 4 main reasons:
- Inflation: The cost of goods goes up with time. What used to cost $1 a decade ago now costs $5.
- Wear and tear: A timeshare is like a car as far as maintenance is concerned. When a car is new you don't have to spend too much on its maintenance but this cost rises at an increasing rate with time.
The rate of deterioration is different for each resort. For instance, the ones that are close to the beach are subject to faster deterioration because salt water is corrosive which in turn means the maintenance fee will rise at a faster rate as compared to that of a resort which is in a city such as Orlando.
- Subsidies: In the beginning, when the resort is new, the developer is responsible for setting the maintenance fee. It is in his interest to set it at a level that is lower than the “required level” so that buying a timeshare at his resort looks like a good deal. But when the developer sells all the units and the homeowner's association takes over, the maintenance fee is bought to its "real" unsubsidized level. This, in most cases, is a sudden and big increase.
- Defaults: In the vacation home example, let's assume that Owner No. 2 loses his job and is no longer in a position to pay for the house's maintenance. Therefore, the remaining 3 owners now need to split the cost between them. This will inevitably lead to an increase in the amount that each person has to pay as the total maintenance fee for the house has remained unchanged.
The same is true for timeshares. A Timeshare owner is a part of a resort community. When one of the owners defaults others have to pay a higher maintenance fee. In other words, you are paying for someone else's mistakes. The higher the default-rate the faster will be the increase in annual maintenance fee.
All these factors add up to a maintenance fee increase of 10-15% each year under normal circumstances. Note that this Maintenance fee is compounded annually.
Also note that I used the words "normal circumstances." There can be abnormal or unusual circumstances such as hurricanes, earthquakes, water intrusion damages, accidents that lead to serious damages etc. In such a scenario the timeshare owners are responsible for the reconstruction of the resort just like our vacation home owners will be if their house collapsed in an Earthquake. These fees are referred to as special assessments and are levied when an unexpected cost for which there are no reserves has to be covered.
The important part is that these costs are not in your control. You can't control the rate of inflation, the deterioration rate, each other's financial situation or the occurrence of an Earthquake. Therefore, timeshare owners have no say when the homeowner’s association or developer sets the maintenance fees each year.
The next plausible question is "What happens if I don’t pay the maintenance fees?"
To answer this question it is important to understand that when a timeshare (or any condominium) is purchased, the owner is subject to the Governing Documents of the condominium association. Those documents make the owner responsible for payment of fees levied by the association.
If the fees are not paid, the association can place a lien on the ownership interest, and can foreclose for non-payment. In layman's terms, you are contractually obligated to pay the fees.
Therefore, there are serous repercussions if you don't pay the any of the fees:
- You will lose your right to use the timeshare
- Be turned over to a collection agency
- Have your credit score lowered such that it adversely affects your ability to get loans, insurance or rentals
- Be sued for foreclosure with claims for attorney's fees and court costs
- Added claims for interest on unpaid debt
A timeshare comes with hundreds of pages of iron-clad contract that is almost impossible to escape. This is why sometimes you will not even hear the words annual maintenance fees, special assessments etc in a timeshare presentation. One way to get rid of your timeshare is to deed it back to the resort
However, resorts aren't interested in deed-backs because they would have to sell the timeshare or pay for its maintenance from their own pockets. Another option is to sell i.e. deed it to a third party but a timeshare owner cannot sell his/her property like a vacation home owner can.
Questions to Consider:
- Am I willing to pay for something even if I don't use it?
- Am I willing to accept more financial uncertainty and risk?
- Am I willing to tie myself up in an iron-clad contract that will obligate me to pay annual fees as long as I own the property?
- Am I willing to pay more just because someone else can't pay his/her maintenance fees?
Next up: How hard is it to sell a timeshare?
Timeshare as an Investment
Before we begin I want to quickly summarize the points, some of them from the owner of the Timeshare User's Group (TUG2.net), made in the video:
- "Once you get a timeshare, it's not easy to get rid of it"
- "I started researching how to sell this asset that she thought was so valuable and discovered it was worth almost nothing"
- …when you walk out of a timeshare presentation, a timeshare has already depreciated by 50% or more..."
- "…a timeshare should not be bought as an investment..."
- You are never going to make money of a timeshare
- It's extremely hard to sell a timeshare because there are so many sellers than there are buyers.
- "Nancy tried to give her timeshare to a charity but they did not want it."
Before I expand on these points it is important to refresh our memories about how the price for a commodity is calculated.
Let's stick to our vacation home example. Would you agree with me if I said that the price of this vacation home will be higher if it's on a beach in Maui than in the middle of the Sahara Desert?
Why is that the case? Why is the price higher in Maui?
Maui is a beach destination, the Sahara Desert is a barren land. Life is possible in Maui, not so much in the middle of the desert. In other words Maui is more of a desirable location.
There are people who want to buy a vacation home in Maui. In other words, there is a demand for vacation homes in Maui. If this demand for vacation homes were equal to the supply then the appreciation rate on these vacation homes will be close to zero because there is no need to pay more than the current market price. If the demand were to double or the supply were to go down by half then the market price will double.
What I am trying to get at is that the forces of demand and supply determine housing prices and the price of almost everything in this world.
Things are not any different when it comes to timeshares and the Timeshare Resale market is a buyer's market. The number of sellers far exceeds the number of buyers. It does not matter if the week is a prime week at a prime location these timeshares go for pennies on the dollar. A quick search for timeshares on eBay is enough to determine this fact, there are a number of timeshares being sold for $1 with zero bids.
Some people try to get rid of timeshares by giving them to charities but no one wants them. Others are so desperate to get out of their contracts that they are willing to pay the processing fees, closing costs and a free year of maintenance fees. The desperation goes even further when they don't mind paying thousands of dollars upfront to resale companies or timeshare brokers who promise to sell the timeshare. This is why there are so many instances of timeshare resale scams.
One of the reasons as to why timeshares depreciate so quickly is that the upfront purchase price is very high to begin with because the developer has to cover the costs of sales presentation, the salary and commission of the timeshare salespeople and all the freebies that are offered to lure in prospects. This is why the value of a timeshare goes down by almost 50% the minute you walk out of the door.
What about the remaining 50%? The reason for that is negligible demand. But why is the demand so low?
Because of the financial obligations that come with a timeshare, obligations that we discussed in the previous section. After 10 years a timeshare has already seen 10 maintenance fee increments. You buy resale when the maintenance fees are already very high and will continue to go up every year. Then it will be even more difficult to get rid of the timeshare because not only are the annual fees sky high but the resort is also old and worn down which means that a high special assessment can be imposed anytime. Buying a resale timeshare is a huge financial risk. Hence, the demand is almost close to zero leading to a market full of desperate sellers.
As a result, it is not a good idea to think of a timeshare as a real estate investment. There is no capital appreciation and more often than not you have to face negative equity.
At the end of it all, the only thing that you own is the obligation to pay maintenance fees and special assessments each year, an obligation which might also get transferred to your children. More of this in the next section.
Question to Consider:
- Am I willing to take on a financial obligation which I may have to bear for the rest of my life?
Next Up: What happens to a Timeshare when the owner passes away?
Timeshare As A Willable Asset
Quotes from the video:
- "One of the big selling points is that not only do you have this investment for the rest of your life but you can also pass it on to your heirs, the double edged sword is what if your heirs don't want it?"
- "A lot of these are deeded properties, it's just like buying a house, so when you get this deed it goes into your family and if you were to pass away and your children were to inherit your estate, that is part of your estate"
Purchasing a timeshare is like buying a real estate property that comes with a deeded contract. Therefore, until you transfer the ownership to someone you are legally tied to that property and thus responsible for it.
When the timeshare owner passes away the timeshare won't disappear just like a house won't disappear, that timeshare is a part of the deceased's estate. Until all the property has been transferred to the heirs the estate is responsible for paying the maintenance fee. Once the transfer has been made the heirs will pay the maintenance fee which will, by then, be in the thousands of dollars.
As mentioned before, one way to avoid this responsibility is to sell the timeshare which we already know is a formidable task. Other options are to let go of the entire estate or to declare yourself bankrupt (an option for European Union residents only).
Question to Consider:
- Am I willing to leave my kids with such a difficult decision to make?
This section completes the discussion of the 3 main topics discussed in the video. However, there are 3 more features, exchange ability, vacation insurance and savings, which a salesman would use in his presentation. It is therefore important to look deeper into these 3 topics.
Timeshare As An Exchange Tool
A typical timeshare sales pitch:
"This is a high-demand resort in a city such as Las Vegas which is amongst the top tourist destinations in the world. Also, your week will be in the prime season when everyone wants to come to Sin City. You can trade for almost anything in the world.
You have tremendous flexibility. You can go on Ski-Trip one year and Disneyworld the next. You can travel the world with this timeshare."
Sounds Logical. Las Vegas is indeed a top tourist destination, I am buying in the high season and the resort looks top-notch and has a good brand name. I was convinced that this is how things are done.
Nonetheless, I decided to dig deeper until I found out how things are really done.
If I want to trade my week then I can either put out an advertisement or I can go through an exchange company. The first method is not practical which leaves me with the second option - an exchange company.
The timeshare trading sphere is dominated by 2 companies: RCI (Resort Condominiums International) and II (Interval International).
Both require you to pay a membership fees. Also, you have to pay a fee every time you make a trade. The membership and trading fees have risen in the past and will continue to do so in the future.
So, how can I find out the trading power of my week?
I would like to go back to the concepts of supply and demand. I want to use the example of Orlando which a few years ago was the "best place to own if you were interested in trading." In other words, the demand for timeshares was considerably higher than the supply.
However, due to the influx of tourists each year developers kept on building resorts until Orlando reached an "overbuilt" stage. “Overbuilt” by definition means that the supply is much higher than the demand. In simpler terms, there were a lot of people trying to trade out of Orlando but not enough who were willing to trade into it.
This in our vacation home example would have led to a decrease in the price of the property and in this trading example will lead to a decrease in trading power. Therefore, a top tourist destination does not necessarily mean high trading power. Most tourist destinations are overbuilt and if they are not so at present then there is no guarantee that they won't be so in the future.
However, trading power is not as simple as figuring out the demand and supply.
Trades are also based on a number known as Vacation Experience Profile or VEP. This VEP is calculated using the scores that resorts receive on cards filled out by exchangers. Since RCI and II have been in operation long enough they have the historical data to calculate VEPs for most resorts.
How is this VEP calculated? The answer - nobody knows. The formula for calculating VEP is proprietary knowledge just like the recipe for coke or the search engine algorithm for Google. Moreover, this VEP has very little to do with the rating of the resort, destination or time of the year. Yes, these factors are taken into consideration but have a negligible effect.
Therefore, there is no way to know the trading power of a week until the time you actually deposit your week in the system.
Furthermore, since these resorts want people to get "fair trades" they are very strict about these VEP numbers. You are restricted to a tiny range in which you trade into weeks that are a little worse or equivalent to your week. The system won't allow you to trade up but it also won't allow you to trade down.
In a nutshell, the system more often than not can't find a suitable trade because your VEP is either too high or too low.
So, why do timeshare salespeople tell you that red weeks (prime weeks) have high trading value? Because they need a reason to sell those weeks for a higher price. RCI and II don't intervene because if they did then the developers would be unhappy which means less timeshare sales and therefore less business for these exchange companies.
Moreover, RCI has been accused of renting out these deposited weeks for a profit. At the end of the day it has to do something with those weeks.
Questions to Consider:
- Am I willing to go to same location and resort by the same company each year?
- Have I worked out the logistics to reach this same destination each year?
Next Up: To use timeshares as a vacation guarantee?
Timeshares As Vacation Insurance
Vacation Insurance simply means a vacation guarantee. Things will become clearer with the help of an example:
Let us suppose that you are an avid golf fan who does not want to miss the Heritage Classic held at Hilton Head each year under any circumstances. Nonetheless, you do end up missing the event this year because all the hotels and resorts in Hilton Head are filled to the brim and you can't find an accommodation. You decide to buy a timeshare in Hilton Head which you believe will help you get that guaranteed accommodation each year.
The last statement is partly true. Many people will say that it will be true when you buy a fixed week. However, there is caveat there as well which I will get to in just a bit. For now, I want to discuss the other option - a floating week.
A floating week means that you own a week at a particular resort but the week number is not pre-determined. You can book week 15 this year and week 51 the next. The problem with floating weeks is that you are not guaranteed an accommodation. You are constrained by availability and need prior booking, sometimes 8-10 months in advance, to be guaranteed an accommodation. In other words, a floating week is a roll of the dice and is not the right option for our Golf fan here. Also, not getting a week does not mean that he won't have to pay maintenance and special assessments fees which are obligatory for all types of timeshares.
The other option is to go for a fixed week. In this case you are entitled to a particular week at a particular resort each year for the number of years you own the timeshare. But one thing that people miss is that weeks change. This would not be a problem if timeshares allowed check-ins on the day on which the week starts. But that is not the case, check-ins are usually allowed only on Fridays or Saturdays.
“Timeshare Week” 33 in 2012 starts on Aug 17th whereas Week 33 in 2016 starts on August 12th, that's a one week jump backwards! Tournaments and festivals dates change each year. If you have children then your vacations will be subject to the school's schedule and school districts usually change the start/end date of the school year which leads to a change in the schedule for the entire year.
Also, your needs are likely to change with time. A spring break week may look good right now but what happens when your son grown older and wants to practice soccer in spring break? What will happen 10-20 years from now when Orlando is not fun anymore because your children have grown up? What happens to that week in Las Vegas when the charm of gambling has withered away? Remember exchanging or selling a timeshare are extremely difficult tasks.
Questions to Consider:
- Am I someone who is comfortable planning 8-10 months in advance or sticking to a fixed schedule year after year?
- Do I know that my vacation interests and needs won't chnage 10-15 years from today?
Conclusion
This ends our analysis of timeshares. The decision to buy a timeshare ultimately rests in your hands and you need to weigh in the pros and cons to arrive at a decision that best suits your needs.
For me the financial uncertainty and obligations that come with a timeshare were the deal breakers. You can never have enough information when you purchase a timeshare.
However, staying in a cramped hotel room was also not an option and I sure didn't want to miss the amenities and facilities of a resort by staying in a vacation home. I knew that rejecting the concept of timesharing does not mean that I can't enjoy the benefits of a condo. (This is why a I earlier made the disctinction between the concept of timesharing and staying in condos.)
One option and an expensive one was to go through sites such as Travelocity, Expedia, Orbitz or Agoda. Therefore, I decided to dig deeper until I discovered a hidden alternative.
If you are interested in learning more about this alternative then watch the video below:
The above video serves as a prelude to a free DVD in which you will discover:
- How to enjoy all the benefits of a timeshare without any of the hassles and risks...
- How to get exclusive year round access to over 5000 resorts all over the world at 298-799/Week including brand names such as Marriott, Wyndham, Sheraton and Starwood without having to be the owner and regardless of the time of the year...
- The secret tool that allows you to take last-minute luxury vacations irrespective of the time and location...at below rock bottom prices...
- How to have LIFETIME/100 year access to all the above benefits without paying any recurring fees or getting tied up in obligations...
Here's what a former timeshare junkie has to say about it:
Sounds interesting?
Then enter your name and E-mail address below to gain access to this free 37-Minute video that will explain things in detail. I will also send a copy of the DVD to your inbox in case you don't have the time to watch it right now.