Everybody loves a vacation every now and then, so why not invest in your own enjoyment and purchase a timeshare. Knowing the ins and the outs of timeshare ownership can help save you hundreds if not thousands of dollars. There is a lot of confusion and bad stigma regarding timeshare ownership. We will try to bring clarity and help you to understand what a timeshare is and what ownership really means. Understanding some key concepts will help you to better determine if your family should own one. You’ll understand what to expect if and when you purchase your vacation getaway by the time you finish this guide.
What A Timeshare Is And Isn’t
So, we’ve all heard the term before, but what really is a timeshare?
Well, a timeshare is sometimes called a vacation property, which we will dive deeper into that later. Essentially it’s a property with a divided form of ownership or use rights. For example, your timeshare might be worth 1/52th of the property. You would, therefore, own and be able to stay one week out of 52 a year in that property. Timeshare can also be set up a number of different ways so someone else’s experience might differ from yours.
Types Of Timeshares
There are different types of timeshares and timeshare contracts that make things seem a bit confusing. Overall there are four different types of timeshares available to choose from, fixed-week, floating, right-to-use, and points club. There are also two types of timeshare contracts, either Deeded and non-deeded.
1. Deeded Contracts
With timeshares, deeded contracts, also called fee-simple contracts, are a lot like buying a house. You can resell, rent, or pass down to your children your share of timeshare ownership. The majority of timeshare contracts are deeded. Typically, fixed-week and floating timeshares often use deeded contracts.
2. Non-Deeded Contracts
Non-deeded contracts or as they are often called right-to-use contracts are very similar to signing a lease. You are simply buying the right to use the property and have no stake in ownership whatsoever.
3. Fixed-Week
The fixed-week timeshare works very much like it sounds if a buyer chooses to go with this option. The buyer usually owns the rights to a specific unit in the same week, year in and year out, for the life of the contract. Although it is predictable, it can help make things easier for planning the trip. On the other hand, it does not offer much flexibility due to your time being locked in for whatever specific date you choose. You can, however, rent out your block of time or trade it with other owners.
4. Floating
With the floating timeshare, the buyer can reserve their time during a certain time of the year. Having this option gives buyers a bit more freedom than the regular fixed week version. The hardest part about selecting this timeshare option is getting the exact date that you want. It can be difficult when other shareholders are also waiting to try to book many of the prime-time periods.
5. Right-To-Use
The right-to-use timeshare often uses the non-deeded contracts and typically involves signing a lease to share the property. The lease is set for a number of years, typically 20 to 99 years, depending on the developer or seller.
6. Points Based
With a point-based system, a buyer can purchase a number of points each year that they can later trade in for reservations at timeshare properties. The points that are earned are treated as currency and the number of points you use depends on when and where you visit. You will use up more of your points if you book longer stays, visit more popular locations, or travel at peak vacation times like weekends or holidays.
One thing to remember is that under the points system timeslots at the property are reserved on a first-come basis, so it’s similar to floating timeshares. Because they offer more options and variety with their investment, point-based systems are becoming more common. Owners can join a timeshare exchange companies like RCI and Interval International where they’ll swap locations with other timeshare owners.
Before You Buy A Timeshare
Before you choose a timeshare and purchase it, it’s a good idea to look at all the pros and cons to decide if owning one make financial sense for your family.
Timeshare Costs
Rising costs are the number one reason people choose to get rid of their timeshare, so it makes good sense to understand what are all the expected costs associated with timeshare ownership. For those truly interested in timeshare ownership, you have two fixed costs despite what type of timeshare that you buy. You will end up paying an upfront fee for the actual purchase of the property and then you will have an annual maintenance fee that is paid once a year for the life of the contract.
The exact cost does vary based on a lot of factors, including the location, the unit size, the property’s condition, and the timing of your stay. According to the American Resort Development Association, they estimate the average up-front cost at $19,000, with around $660 in maintenance fees annually. Aside from maintenance fee, which can prove to be the biggest headache, you also may have additional costs that you’re required to help pay for like mandatory property assessments, which determine any upgrades or repairs the resort needs.
Pros Of Timeshare Ownership
There are a number of pros when it comes to owning a timeshare. For instance, unlike a real vacation home which may be vacant part of the year, you only pay for what you use with timeshares. Also with timeshares, more expensive properties are more affordable because you don’t have to pay year-round maintenance.
You have a guaranteed vacation destination every year that won’t cost you any more to actually visit. Having predictability makes it that much easier for planning. You’ll have fewer things to plan or worry about which will make your time on your trip more enjoyable.
You have the option of letting your friends or family use their timeshare for free or offer even a charity auction. You also may be able to rent out your block of time if you can’t use it, although some timeshare contracts may not permit this so make sure to check with your contract.
Cons of Timeshare Ownership
Of course, you cannot have the good without the bad and there are some limitations to timeshare ownership that you should be aware of.
One big misconception is that a timeshare is a vacation home or that it is an investment. A vacation home is an actual investment, while a timeshare is not. When you buy a vacation home, you own the entire building and property outright. You can sell, rent, make upgrades to it, anything you want to do with it you can. However, a vacation home requires a much larger investment and sits vacant when not in use, unless you choose to rent it out.
Timeshares, on the other hand, tend to be in more popular destinations than vacation homes. They require less of an initial investment and you only pay for the time that you are actually there. Also, the money spent on the maintenance of a timeshare will not appreciate the same way as upkeeping with the maintenance on a vacation home.
Timeshares are also hard to sell for a number of reasons. Most private sellers don’t have the same ability to offer all the special perks you might get for buying directly from a developer. Also used timeshare units are sold at a steep discount usually because there are so many listed on the market. Plus, even if you do manage to sell your timeshare at a loss, the Internal Revenue Service doesn’t let you claim a capital loss as you would with other investments and real property.
Whether you use the property or not, the rising annual maintenance fees and your lack of control over their annual increases can quickly become a problem and even a financial burden. If you are not careful and you fall too far behind or you simply don’t pay up, the developer can foreclose on your timeshare.
In Conclusion
Knowing the ins and outs of timeshare ownership can really end up saving you thousands of dollars in the long run. The timeshare idea is perfect if you enjoy going to the same magical place year after year. However, if you like variety and the idea of exploring the world, then quite possibly the timeshare vacation may not be the right financial decision to facilitate your housing while you vacation.
As long as you do your homework and don’t buy impulsively, you should be very happy with your vacation purchase. Just pick places that you enjoy going to and would mind going there every year. I say every year because that is how you best get your money’s worth when it comes to timeshares. It takes a few years before timeshares pay off doing other traditional style vacations with accommodations. With a little patience and good planning, you and your family will discover the ins and outs and will be enjoying the ownership of timeshares in no time.
