Timeshares are a popular vacation ownership option, but they often spark debates about their value and financial practicality. These agreements allow multiple individuals to share rights to use a property—usually a resort or vacation home—during specific time periods each year. While they promise consistent vacations and luxurious amenities, timeshares also come with significant costs and complexities.
Let's dive deep into the workings of timeshares, analyze their financial commitments, and weigh the pros and cons to help you decide whether or not timeshares are worth it.
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What Are Timeshares and How Do They Work?
A timeshare is a shared ownership arrangement where multiple parties purchase the right to use a property for a set period annually. These periods are typically a week but can vary depending on the type of timeshare:
- Fixed-Week Timeshares: Owners have rights to the same property during the same week each year. While predictable, this setup lacks flexibility.
- Floating-Week Timeshares: Allows owners to reserve a week within a specified timeframe or season, offering more adaptability.
- Points-Based Systems: Instead of owning a specific property, buyers acquire points that can be redeemed for stays at various locations. This provides maximum flexibility but may involve additional costs.
Ownership Types
Non-Deeded (Right-to-Use): Owners purchase the right to use the property for a specific period, often ranging from 10 to 50 years. Once the agreement expires, ownership reverts to the developer.
Deeded Ownership: Owners hold a fraction of the property, similar to owning real estate. This ownership is typically perpetual and can be sold or passed down. Deeded ownership is generally rare in the timeshare world.
What Do Timeshares Cost?
One of the most critical aspects of evaluating timeshares is understanding their true cost. Here’s a breakdown of the expenses involved:
1. Initial Purchase Price
The upfront cost of a timeshare varies depending on the location, type, and amenities of the property. According to the American Resort Development Association (ARDA), the average price of a timeshare was $23,940 in 2022. However, prices can range significantly—luxury properties may cost much more, while resale options can sometimes be acquired for pennies on the dollar.
2. Annual Maintenance Fees
Maintenance fees are recurring costs that cover property upkeep, landscaping, utilities, and renovations. In 2022, the average maintenance fee was $1,170 per year, reflecting an annual increase rate of approximately 5%. These fees can fluctuate based on:
- Property size and location
- Amenities offered (e.g., pools, gyms, or on-site restaurants)
- Financial health of the homeowners’ association or management company
3. Special Assessments
Owners may face additional charges in the form of special assessments, levied to cover major repairs, unexpected damages, or upgrades. For instance, if a resort undergoes hurricane damage, owners might be billed for restoration costs, which can range from a few hundred to several thousand dollars.
4. Investment and Resale Challenges
While many consider their timeshare to be an investment, timeshares are notoriously difficult to resell. The resale market is flooded with owners eager to offload their shares, often at steep discounts. It’s not uncommon for owners to sell their timeshares for as little as $1, just to escape the ongoing maintenance fees.
Pros of Timeshares
Despite the high costs, timeshares do offer several advantages:
1. Guaranteed Vacations
For families or individuals who enjoy returning to the same destination year after year, timeshares provide a consistent and familiar vacation spot.
2. Vacation Commitment
According to the American Resort Development Association (ARDA), timeshare owners take over three vacations per year, with 77% planning at least one vacation around their timeshare package. This suggests that timeshare ownership may encourage individuals to vacation more frequently, possibly due to the structured nature of timeshare agreements and the desire to utilize their purchased time effectively. This can be a huge benefit for those who struggle to plan or take vacations.
3. Luxury Amenities
Most timeshare properties are located in popular vacation destinations and offer amenities akin to high-end resorts, including pools, spas, and concierge services.
4. Predictable Costs
Unlike booking hotels, where prices fluctuate seasonally, timeshares offer predictable expenses. Once the initial purchase is made, owners know what to expect annually in maintenance fees.
5. Destinations
Points-based timeshares can have a variety of destinations. This comes in handy for those who enjoy creating new experiences in new places. Having the timeshare also eliminates the worry of finding quality accommodations.
6. Potential for Rental Income
Some timeshare owners rent out their weeks if they are unable to use them, potentially offsetting some of the annual costs.
Cons of Timeshares
The downsides of timeshares can outweigh the benefits for many potential buyers:
1. High Initial Costs
Spending $20,000 or more upfront for a vacation property can be a significant financial burden, especially when more flexible options, like Airbnb or vacation rentals, are available.
2. Long-Term Financial Commitment
Annual maintenance fees and special assessments are unavoidable, even if you don’t use the timeshare for a particular year. These costs can add up over decades.
3. Inflexibility
Fixed-week timeshares tie you to a specific week each year, which can be inconvenient if your schedule changes. While points-based systems offer more flexibility, they can also be more expensive.
4. Poor Resale Market
Selling a timeshare can be challenging, with many owners receiving only a fraction of their initial investment. Some owners even resort to paying companies to take their timeshares off their hands.
5. Limited Customization
Unlike owning a vacation home, timeshares don’t allow for customization or personalization. Your experience is limited to what the property and developer offer.
Timeshare Investment: Asset or Liability
An asset is typically defined as something that appreciates in value or generates income. Timeshares, however, rarely fit this definition.
Why Timeshares Fall Short as Assets
- Lack of Appreciation: Unlike traditional real estate, timeshares rarely increase in value. In fact, most depreciate significantly after purchase.
- Weak Resale Market: The resale market is oversaturated, with many owners struggling to sell their shares—even at steep discounts.
- No Passive Income: Unlike rental properties, timeshares do not generate consistent income unless rented out, which can be difficult and subject to restrictions.
While they offer intangible benefits like guaranteed vacations, timeshares are not typically considered financial assets in the traditional sense. Their upfront cost, ongoing fees, and lack of liquidity classify them as a liability.
Key Questions to Ask Before Buying a Timeshare
If you’re still considering a timeshare, ensure you ask the following questions:
- Are timeshares worth the investment? What is the total cost, including annual maintenance fees and potential special assessments?
- What is the cancellation policy, if any?
- Are there restrictions on when and how the timeshare can be used?
- Can I rent out my week(s) if I’m unable to use them?
- What is the process for resale, and how has the property performed on the resale market?
- What alternatives might make better sense for my situation?
Alternatives to Timeshares
1. Vacation Rentals
Platforms like Airbnb and Vrbo allow you to rent properties without the long-term commitment of a timeshare. These options are often more flexible and can be tailored to your budget and travel plans.
2. Vacation Clubs
Vacation clubs, like Marriott Vacation Club or Hilton Grand Vacations, operate on a points-based system similar to timeshares but with fewer strings attached. Members can book stays at multiple locations without being tied to a single property.
3. Buying a Second Home
If you’re looking for a consistent vacation spot, purchasing a second home may be a better investment. While the upfront cost is higher, the property appreciates in value and offers complete control over its use.
4. Cruise Ships
Cruises can be another option to travel while having the benefit of quality accommodations and amenities. Lines such as Carnival, Royal Caribbean, Norwegian, and Princess can offer different guest experiences and amenities.
Still Convinced You Need a Timeshare? Buy on the Resale Market
If you’ve weighed the pros and cons and are still set on purchasing a timeshare, consider buying one on the resale market. This approach offers significant advantages:
1. Drastically Reduced Costs
Timeshares on the resale market often sell for a fraction of the original price—sometimes as low as $1—because owners are eager to escape their financial obligations.
2. Avoid the High-Pressure Sales Tactics
By purchasing a timeshare from a private seller, you can avoid the high-pressure sales presentations and make a decision on your own terms. A timeshare purchase should not be an impulse buy.
3. Same Access, Lower Price
Resale buyers typically gain the same access to properties and amenities as those who purchase directly from developers but at a much lower cost.
How to Buy on the Resale Market
- Research Reputable Platforms: Look for online marketplaces such as RedWeek, eBay, or Timeshare Users Group (TUG), which specialize in timeshare resales.
- Understand the Contract: Ensure you fully understand the terms, including maintenance fees and special assessments.
- Negotiate: The resale market is often negotiable, so don’t hesitate to make a counteroffer.
Conclusion: Are Timeshares Worth It?
Timeshares can be a worthwhile investment for those who:
- Value consistent vacations in a specific location
- Appreciate resort-style amenities
- Want to vacation more
- Are financially prepared for the upfront and ongoing costs
However, for most people, the financial downsides and lack of flexibility outweigh the benefits. Given the high initial costs, recurring fees, and weak resale market, it’s essential to carefully evaluate your vacation habits and financial situation before purchasing a timeshare.
For those seeking flexibility, alternatives like vacation rentals or vacation clubs may offer a more practical solution. Before making any decision, weigh your options, explore alternatives, and ensure you fully understand the long-term commitments involved. If you are still set on having a timeshare, buy on the resale market.
Feeling Uncertain? Meet with a Financial Advisor
If you’re seeking tailored advice to align with your unique goals and circumstances, White Cloud Wealth Management is here to help. As fiduciaries, we prioritize your best interests, offering comprehensive financial planning designed to inspire confidence in your financial future. We can help analyze your timeshare purchase plans to be sure it is the best option for you.
Whether you prefer an in-person meeting or a remote consultation, we’d be delighted to discuss your goals and answer any questions you have. Let us help you maximize your financial potential and create a plan you can trust.
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By Jacob Nye, Wealth Management Advisor
Disclosure
This blog reflects the personal opinions, viewpoints and analyses of the White Cloud Wealth Management employees providing such comments, and should not be regarded as a description of advisory services provided by White Cloud Wealth Management. The views reflected in the blog are subject to change at any time without notice. Nothing in this material constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security.