On Timeshares, Beware

This a short and totally off-topic post on the pitfalls of buying timeshares.

Out of pure curiosity, Laura and I sat through a timeshare sales pitch back in 2009 during our last trip to Hawaii (it was at the Wyndham resort in Waikiki).

I get why timeshares are popular with certain types of vacationers. If you find yourself enjoying the same place year after year, or if you really like the various network of locations that a timeshare company offers, they can be--in some cases--a way to save some money on travel.

But there are problems you have to watch out for.

First, taxes and maintenance fees usually grow far faster than you expect. In the prior three years, the fees at the timeshare project we looked at in Waikiki had a double-digit growth rate per year. At that rate in 30 years the annual fees would exceed the entire purchase price of the timeshare!

Second, you have to calculate out the price of the timeshare on a per-square foot basis and compare to market prices. In other words, take the price of the two weeks of time you're going to buy, multiply by 26 to annualize it, and then divide by the square footage of the unit. The unit style we looked at was triple market prices. Triple.

Third, if you think you can resell your timeshare at some point in the future and recoup your investment (or more delusionally, make money), remember the part above about paying triple. And then read this article from SmartMoney magazine. People struggle even to give these things away, especially during an economic downturn. It's those pesky and steadily growing maintenance fees: they simply destroy the value of the asset.

There are other problems to watch out for with timeshares, but to me those are the three biggies. If you pay triple market price for an asset, and if it has a negative dividend with a huge growth rate... Well, in the future you may find yourself wanting to give it away too.

Readers, what do you think about timeshares?


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12 comments:

The Calico Cat said...

I don't know enough about them to comment. But I have a follow up question: What did you get for sitting through the time share schpiel?

(That is the value in my opinion. Assuming you got tickets to a Luau...)

Emmy said...

Never, never again.

Judy said...

I'm with Calico - 3 fast passes each at Disney was worth the one hour (while it was raining) of our time - plus Max loved the ice cream at the end! Dan, I still think a family timeshare - buy the property then each fam unit gets a couple of weeks!

Daniel said...

Calico Cat, heh, good question. We received a gift certificate worth $100 that we could use in a wide range of stores and restaurants in Waikiki. Way better than a luau if you ask me.

Judy, I hear you. I think there are instances where this form of ownership can work for certain types of vacationers, but I still can't get past the fee structure and the huge premium over market price.

I'm actually hoping more readers will disagree with me so I can see what I'm missing.

DK

chacha1 said...

We've gotten several free weekends, gas cards, restaurant vouchers, etc by sitting through timeshare presentations. :-)

And we own one! Actually we own two. So here is our experience.

For our second anniversary we went to a resort in Mazatlan. We booked it as a hotel but they did the timeshare presentation. And we ended up buying, because A) it was relatively inexpensive B) it was a life ownership, and we're young C) it was readily exchangeable within the RCI network and D) it was someplace we would have been quite happy to return to often (though in fact we've only been back once. Too busy bouncing around California wine country).

The annual maintenance fees have increased slightly but are still under $600/yr. The exchange fee is $180. Our 7-night week can be used at any time and the properties are generally equivalent to $250/night hotels. So for roughly $800/yr we get a vacation "worth" $1750. Plus they have kitchens, which means we can save A LOT of money on food.

Our second purchase was cheaper, for a one-week-every-two-years affair on comparable terms. We are well aware that maintenance fees will continue to go up, but so would the rates at hotels we might choose, and we really like being able to spend a week in a full-size 2 BR/2 BA condo with kitchen and W/D for so much less than a hotel room.

We use the resort properties as a base of operations. So far we've stayed in Sedona, Angels Camp (CA) twice, Arnold (CA), Sonoma, Cocoa Beach (FL), and Port Townsend (WA). And we are about to leave for a week in Sapphire (NC) near my sister.

It definitely depends where you buy. If you buy at a very high-demand location like Hawaii, you get a much worse deal.

If you buy at a very over-built location like Orlando, you also get a much worse deal (because the exchange terms are going to be much weaker).

We would advise anyone considering a timeshare to be sure they would actually be content to visit their home resort over and over again, and not to buy based purely on exchange options, but above all not to buy anything that would cost more and/or provide fewer services/amenities than the type of hotel they ordinarily use.

We are self-indulgent, so the timeshare has been a cost-effective solution for us.

Daniel said...

Thanks Chacha for the other side of the debate. Love it.

DK

Nate Roberts said...

Comparing a timeshare to a hotel or traditional real estate is like comparing apples and oranges. Timeshares are typically much bigger than a hotel room. With traditional real estate, not only are you locked into vacationing at the same place every year, you are also responsible for the maintenance and upkeep of your 2nd home. With timeshare ownership, all maintenance and upkeep is taken care of. You check in, check out, go home and start planning your next vacation.

There are many different timeshare (vacation ownership) programs available on the market. If you like to vacation and stay in bigger accommodations, there is probably a timeshare ownership program that's right for you.

There are TREMENDOUS buying opportunities available on the resale market right now. It is not something you should buy as a "real estate investment" (if there even is such a thing in the current economy). You should buy a timeshare because you want to actually go on vacation and use it.

I am a licensed real estate broker and I have specialized in timeshare resales for over a decade. I am also a timeshare owner. That is the reason I started my career in the timeshare industry - because it's how we vacation and we love it. We have taken vacations in travel destinations we have never even heard of simply because a cheap week was available through our exchange memberships. Those have turned out to be some of the best vacations of our lives!

Given the choice we would choose to stay in a huge timeshare unit EVERY TIME over a hotel. There's nothing better than having a refrigerator for milk for the little one and lunch supplies for the days at the beach, a living room you can actually sit down in to watch tv (instead of the edge of a bed) and separate rooms for the kids and ourselves at the end of a long day of play (instead of them in a bed next to us).

Sure, there's not a timeshare resort every single place we want to vacation and sometimes they aren't available in the location we want when we want to go, but if you get the ownership program that's right for your family's vacation style it can be one of the best "investments" you ever make; the commitment to take quality vacations with your family on a regular basis.

Timeshare may or may not be right for you and your family. Whatever you do, do your due diligence before you purchase and always remember... "Friends don't let friends pay retail for timeshare!!!"

Erin said...

I also don't know enough about them to comment knowledgeably, but...

My friends bought one for Las Vegas, and they are fed up with it, mostly because they aren't able to switch out to other locations (this is my understanding).

And... my parents-in-law just bought a form of timeshare for us and their other son. I'm not happy about it, as they didn't ask us if we wanted to be part of it. Thankfully, we don't have to pay them anything, and are just supposed to "use it" whenever we can.

As I said, I'm not really knowledgeable about how it works, but it seems like such a scam that I can't foresee ever really wanting to use one. I'd rather save my money for other things.

Daniel said...

Nate: point(s) taken, thank you for sharing them. Like I said above, this form of ownership clearly can meet certain peoples' needs. And you might be on to something thinking about taking the other side of the trade: if there are so many people looking to unload theirs at any price then there could be an opportunity there.

But the real problem to me is that you don't really control the asset, nor do you have control over the costs of maintaining that asset.

Erin: nah, it's not a scam. I was just walking through the things you need to be extremely mindful of if you're the type of vacationer who can see themselves making use of this form of property ownership.

DK

The Calico Cat said...

I have another question. Are there Cruise time shares? I'd rather someone else cook - good bad or indifferently - for me while I am on vacation & I don't need a lot of space, if I'm going to watch TV, I'll do that at home.

Thanks to those of you who shared the Pros - I now for certain know that timeshares aren't for me. (I generally don't care to return to the same place over & over.)

Charles Berger said...

Timeshares can be a terrific purchase for some families, as they also can be a giant rip off for others. 50 years ago, also known as Holiday Home Sharing or timeshare travel, timeshares were created with the idea of offering fully furnished accommodations for a lower price than a full-time ownership. Nowadays, timeshares have become a very popular vacation option, yet lots of people do not completely understand how timeshares operate. This is a good article about timeshares:

http://www.timesharescam.com/blog/141-how-do-timeshares-work/

Ann Moore said...

Timeshare fraud has been around since the timeshare idea was created, but they increase during poor economy. When times are difficult, timeshare owners are stuck with properties they can´t travel to or even afford. Desperate to recoup some money to pay for bills, they can easily become victims to scams artists pretending to be their timeshare salvation who will take upfront fees -as much as five number figures in some cases- but fail to fulfill their promise.