There are more than 157 million Americans who take part in the U.S. workforce. Each one of them looks forward to their vacation each year. In planning a vacation to a sunny, sandy beach town with waving palms or a ski trip with amazing runs and a hot toddy waiting at the chalet down below, it’s not unusual for someone to think, “I could live here forever.” That’s what gets people thinking about timeshares in locations that they love.
The first reaction is ‘This could be an investment. I can sublet it! I’ll be making money by not buying the whole house.” While it is understandable that someone could think this way, that’s not the experience that most people who own timeshares experience.
It’s a small investment that can be used for a period of time each year. Many timeshare properties also offer flexible dates when the timeshare can be used. However, if you miss that opportunity window, you’re still paying the maintenance and other fees without enjoying the property. Getting out of a timeshare can also be a difficult proposition as many of them require a locked-in period with heavy fees for pulling out early.
The Timeshare Process
Many people tend to purchase timeshares while on vacation when they are relaxed and dreaming of returning to a special locale. According to the American Resort Development Association (ARDA), since its beginnings in 1969, the timeshare business has grown into a $9.2 billion industry.
When you purchase a timeshare, you own a part of the vacation property similar to owning stocks. Then you are responsible for yearly maintenance fees. This gives you the right to the property for a period of time, usually the same time each year. In 2016, about 66% of all timeshare owners stated that they wanted to cancel a timeshare because the maintenance fees were too expensive.
According to the ARDA, the average timeshare costs $20,940 for an annual one-week stay. The maintenance fees average $880 each year and often rise at a pace higher than inflation. This timeshare and maintenance contract is for an indefinite period of time making it an ongoing financial obligation.
Downside of Timeshares
Be clear, the people who benefit from timeshares are the salespeople and resort owners, not you. Here’s why:
- Units have little resale value. If it does sell, it will be a fraction of the initial investment.
- Timeshares devalue over time, just like cars.
- Over time, timeshares decrease in value, not increase.
- Timeshares have high yearly maintenance fees that increase more than the inflation rate.
- Timeshares don’t generate income – even if you sublet during your available period.
- There are liability issues. The person injured in a slip and fall must prove that the property owner or other party involved had a concealed defect that caused an injury.
Looking Closely at Timeshares
Many of the people who invest in timeshares are not experienced in finance. Perhaps they can’t afford a vacation property, so a timeshare is an attractive option. Once in a timeshare, many reasons that the maintenance fees can be a burden. That’s when they realize that there are more people trying to sell portions of property than they are trying to buy them.
There are Better Options
The best option is to invest in other finance options that will provide a greater return. Then consider staying in a hotel room or an online home rental such as Airbnb or Vrbo. When you break down the costs it makes better sense.
If you invest $10,000 initially for your portion of the property and then pay about $750 yearly in maintenance fees, the costs add up. Over a ten-year period with only yearly one-week visits, the cost for each night is approximately $291 per night. Nice hotels cost less, and you can choose where you want to visit.
So, when you are on vacation and get hit up to purchase a timeshare. Get back home with a clear mind and logically think through the finance of the matter. That will help you make the best decision.