Purchasing A Time Share…With Your Eyes Open!
Timeshares have been around in the U.S. since 1969…The first one opened in Kauai, Hawaii. If you think about it, it was the first property sharing idea-long before Airbnb was even a glint in anyone’s eye. The difference was fractional ownership instead of rental — a way to own a piece of a vacation property that you can use, share, or trade away, usually once a year. Purchasing this investment, however, is often an emotional and impulsive decision.
Forbes writer and certified financial planner Ron Kelemen speaks of how investment experts often get questions from clients about timeshares, most calling after the fact — fresh and tan from a vacation — wondering if they did the right thing. But they’ve also had to deal with clients with cold feet or in financial distress wanting to get out of their investment.
Kelemen offers some factoids if you’re considering buying a timeshare, both pro and con. When considering buying a timeshare, you’ll be offered some choices, each of which have different price tags attached. The first is a fixed week arrangement. “This means a specific week is designated for a specific unit in the same week, year in and year out, for as long as the contract stipulates,” says Kelemen. “There is predictability, but also little flexibility and the potential for long-range boredom. With a fixed-rate timeshare, the owner can rent out his block of time or trade with owners of other properties. This type of arrangement works best if you have a highly desirable location.”
The next option is one where the buyer can reserve his own time during a given period of the year. This option is called floating and has more freedom than the fixed-week version. The only challenge is getting the exact time you want. Other shareholders tend to snap up many of the prime periods.
The third is right-to-use where the buyer leases the property for a given amount of time each year for a set amount of years. The developer maintains ownership of the property, however. It’s like making a deal with an Airbnb owner to use his or her property at an agreed-upon time and date for some years.
Points club is described by Keleman as similar to the floating timeshare. “But buyers can stay at various locales depending on the amount of points they’ve accumulated from buying into a specific property or purchasing points from the club. The points are used like currency and time slots at the property are reserved on a first-come basis.”
As for advantages of timeshares, unlike a vacation home which may be vacant part of the year, you only pay for what you use. “Thus, the use of a very expensive property could be more affordable; for one thing you don’t need to worry about year-round maintenance,” says Keleman. And it’s great to have predictability along with a guaranteed vacation destination. The flexibility of trading times and locations with other owners and the ability to travel to new places are enticing reasons to own a timeshare. And depending on the agreement, you may be able to rent out your block of time if you can’t use it with a website playing matchmaker.
As for reasons individuals are leery about a timeshare purchase, while you don’t need to worry about maintenance, you will need to worry about the annual fees and your lack of control over their annual increases, according to Keleman. “You pay that fee whether you use the property or not. In addition, you could be liable for special assessments. If you don’t pay up, the developer can foreclose on your timeshare.”
Another real concern is that timeshares are hard to sell. “Timeshare units are sold at a steep discount because there are so many on the market,” says Keleman. “To boot, if you sell your timeshare at a loss, the IRS doesn’t permit you to claim a capital loss as you would with other investments and real property. And keep in mind, that buying a timeshare in a foreign country presents special challenges.”
Keleman says to think of a timeshare purchase as a lifestyle purchase, and not an investment. Consider depreciation, travel costs and maintenance fees — on top of an uncertainty of use — the concept of “prepaying” for your vacations may not pencil out.