Real Estate Investment 101: Timeshares

Timeshares

As a real estate agent, I’ve seen many people consider timeshare options for their investment for personal use or for profit. While I’ve always held my own personal opinion on timeshares, I always try to be objective when talking to clients who ask about it and give them the most honest advice. And it’s my advice that, before going into a timeshare investment, buyers have to thoroughly understand different parts of the sale and what it is they’re exactly getting into.

It’s not that every timeshare opportunity is a scam; rather, a lot of these opportunities end up becoming losses, and a lot of buyers end up with the short stick and are having difficulty trying to get out of a contract that doesn’t benefit them.

In this article, I hope that I can best explain what a timeshare is, the advantages and disadvantages of buying one, and how to spot a good deal.

What is a Timeshare?

A timeshare model can apply to any large property – a house, a car, a resort – but for this article, we’ll solely focus on real estate.

vacation in FloridaNow, imagine you live in Washington but vacation in Florida. You and your spouse love taking yearly trips to Miami because there’s so much to do and see in that area. You visit so much that, it’s come to a point where you find it’s very impractical to go there and book a hotel because with all the money you’ve spent so far on nice hotels every year, you could have already made a down payment on an apartment.

Given that it’s much more practical to have a place of your own in Miami, you decide you and your spouse will buy a house. But that’s where it gets tricky. A house can cost hundreds of thousands of dollars, especially in choice locations in Florida. Also, you’ll only be in that house for a few weeks every year. At this impasse – where getting a hotel room each time is impractical but so is buying a house you won’t use for the rest of the year (and you’re not rich enough to own a “summerhouse”) –this is where timeshares come in.

Timeshares are properties where you and several other people pay to use the same property for a certain time of the year. These people can be people you know sharing the place with you, but it can also be other clients from the timeshare agent. So, if you spend around two to three weeks in Miami, your best option would be to pay a timeshare for about a month for a nice house in the area. It’s more practical for booking a hotel in a place you always visit and more affordable than buying your own house.

Is It an Investment?

You pay for a timeshare, but I wouldn’t consider it an “investment” if the definition of investment means it will bring you money back. The point of a timeshare is that you own a property only based on a certain time in the year. It’s not technically yours, so you can’t really sell the property, just the time you have.

Using our Miami example, let’s say that, for one summer, you decide not to go to Miami and go to Paris instead. You have the option to rent out your timeshare during your allotted time, or you can find someone to switch timeshares with you. The problem with that, though, is finding someone with a timeshare in Paris willing to switch for Miami. You’re not really making money off it, nor are all timeshares equal. Even a timeshare for one property has different values: a ski chalet in Aspen, for example, costs more during peak tourist season than it does on off-peak season.

Advantages of a Timeshare

If you’re not looking at a timeshare as something that you can profit from, a timeshare is your ideal option if you genuinely want a place of your own during that certain period of time. If you can’t afford to buy and own your own house and if you like the routine of visiting a place every year (or even if you know you’ll be visiting a place often for work) getting a timeshare will be worth it.

While I always warn my clients that a timeshare can be difficult to exchange if you want to travel elsewhere, it is possible if you have the right network. I also recommend my clients only deal with proven legitimate businesses because the timeshare sector is full of potential scams.

Disadvantages of a Timeshare

House

Don’t consider timeshares as an investment, because they really aren’t going to make a profit. Timeshares are hard to sell, so salespeople often put buyers in a high-pressured position to quickly say yes even if they don’t know all the facts. Whenever my clients ask, I strongly advise them to walk away from situations where they feel pressured to make a snap decision without time to consider; chances are, the sales person doesn’t want you to think too hard before signing any contract.

Another disadvantage is that timeshares easily depreciate. Apart from the fact that, like any building, your property will slowly depreciate, you will also be responsible for maintenance costs (which can increase as inflation rises), and other annual fees, which reaches around $700, according to the American Resort Development Association. And if you’re willing to pay fees that are supposedly increasing eight percent every year (the timeshare purchase fee isn’t included), you could be spending a lot more money.

Timeshare Scams

As mentioned earlier, there are a lot of genuine timeshare opportunities, but there are also timeshare scams that could cost you and leave you with nothing. I help my clients find genuine timeshare opportunities, and these lines are often signs that something is amiss.

“Get a Reward Just for Showing Up.”

accommodationsTimeshare salespeople would often invite potential leads to a sales presentation, offering huge rewards just for showing up. This could be a car, luxury hotel accommodations, or other privileges that entice people to listen to the presentation. However, if it sounds too good to be true, it probably is. They may promise a guaranteed reward, but the moment you arrive, it turns out to be a “chance to win” the prize, or they’ll only give you the prize if you buy a timeshare.

Once there, it’s common for them to apply high-pressure tactics. They’ll pressure you to decide on the spot and leave you with no time to think it through or call an attorney for advice. Despite what they say, don’t fall for the fast sale and walk away. Timeshares are a huge expense on your part, so only deal with businesses that allow you to decide.

“An Easily Traded Investment”

Some salespeople will give you the idea that timeshares are similar to stocks or shares in a company. It’s not. As mentioned earlier, not all timeshares are equal. A timeshare in Miami, for example, isn’t the same as a timeshare in South Dakota. There are a lot of factors that affect the value of timeshares, so they’re not easily tradable with one another.

TimesharesTimeshares are also only beneficial for vacations, but not so much if you’re looking at it to grow your money. It’s not an investment. You can try to resell your timeshare at a higher price to offset your costs, but who would buy it? The market is oversaturated with timeshare holders looking to sell their timeshares, and the few buyers are more interested in dealing with timeshare businesses, not re-sellers. So, you either have to sell at a high price, wait for the unlikely chance of a willing buyer, and keep paying the incurred fees; or sell it at a lower price, take the losses, but get rid of the timeshare responsibilities.

I’d like to repeat: a timeshare can be a good idea, but it’s not for everyone. If you’re looking at it as a convenient way of owning a home you’ll use for only a specific amount of time, it is a safe option if you deal with a legitimate business. But don’t think you’ll be earning thousands back when you resell – assuming you resell at all.

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