Going on vacation and being bombarded daily to purchase a timeshare. In this particular hotel where I was staying, they offered timeshare units. I decided to do a little more research on the pros and cons of timeshares.

Wikipedia definition of a timeshare:

A timeshare is a property with a particular form of ownership or use rights. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each sharer is allotted a period of time (typically one week and almost always the same time every year) in which they may use the property. Units may be on a partial ownership, lease, or “right to use” basis, in which the sharer holds no claim to ownership of the property [1]

Personally I have seen how many timeshare sales people entice a potential timeshare buyer into buying “the dream”.

Before you jump onto the timeshare ownership wagon, there are several things you should consider.

1. What form of ownership will you hold? There are many forms of timeshare ownership and the more you know about each one, the more of an informed decision will you be able to make.

Keep in mind you never will own the unit you are purchasing as a timeshare. A timeshare purchase is not like purchasing a condo unit where you would own the unit when you paid your note/loan in full. In a timeshare you are only purchasing the right to use a specific unit for a specific amount of time.

a. Some of the timeshare ownership forms could be that you only have a fixed week of the year which you are able to use the timeshare. This is called a fixed week timeshare.

b. Another one is that you have a certain length of time in any month you can use your timeshare, this is known as a floating timeshare.

c. Another form of ownership is that you can use your timeshare anytime of the year for a certain amount of time for a limited time of years, known as a Right-to-use timeshare.

d. One form could be that you are part of a points club and you can use your timeshare points at any timeshare property that is part your points club, known as the points club. 

Timeshare sales agents might call their offer something different than what I have listed but in general all timeshare offers will fall into one of the four listed categories. Here is a short glossy of other terms a salesperson might be using.

2. Location of the timeshare. The better location a timeshare has, the higher the timeshare price will be. An average timeshare could run you about $20,000 for a 20 year usage, and nicer units could run you between $20,000 and the mid $30,000 range.

3. In what condition is the property in you are thinking of buying your timeshare in? Take time to walk around the property without the sales agent and check out the property itself. Is the property in good repair or does it lack on everyday maintenance? One example I can give you personally was as a sales agent stepped into an elevator that had two lights out and I pointed the maintenance issue out to him, his statement to me was “I did not even notice”. 

 4. Find out what the maintenance fees are. Timeshare maintenance fees can run you as little as $300 but as much as $600 a month. Also, the maintenance fees can increase on a yearly basis and the increase could be higher than the annual inflation rate. And don’t forget the taxes. You have to pay the fees regardless of whether you are using the timeshare of not.

 5. Is the timeshare in a location you are planning to vacation in every year? If you purchase a timeshare, buy it because you like the location and not because you think it is a good deal.

6. Run your numbers. If you purchase a timeshare for a 20 year timeframe, and you are required to spend $30,000, you may need to take out a loan. Who really has $30,000 readily available?

Then you have the maintenance fees ($300- $600 a year) that could increase every year. This could be as little as 1% and as high as the seller wants, and you the buyer has no control over that.

When you go on vacation you still have the cost of the flight, entertainment and food you are purchasing while you are on vacation.

Here is an example for a timeshare where the destination is not reachable by car and you have to take a flight.

Purchase price of timeshare with a loan

Purchase price of Timeshare		$20,000
Interest rate on loan		8%
Time		20 years
Total monthly payment		$167

 

Monthly cost of a timeshare

Monthly Timeshare maintenance		$600/12= $50
Monthly timeshare payment		$167
Local taxes		8%
Total monthly cost year 1		$234.36

 

Vacation cost when you using your timeshare once a year for week

Yearly Timeshare maintenance		$600
Yearly timeshare payment		$167×12= $2004
Local Taxes		8%
Subtotal		$2,812.32
Roundtrip flight for 1 person		$500 per person
Food for a week	Breakfast, lunch, dinner @ $15	$315 per person
Extra spending money		$1000
Total		$4,627.32

 

Make sure you ask a lot of questions. You may also consider buying a timeshare from the secondary market. Pricing may be much less and you may be able save the commission cost that is built into the purchase of a new timeshare. That could be as much as 50% of the purchase price. Timeshare sales agents are paid on commission and the resale of a timeshares is a lot harder than you might think because there are many timeshare sellers out there who are looking to sell.

When you have any question about the purchase or selling process of Real Estate feel free to contact the Settles Team.