Since their introduction in the mid-1960’s in the Swiss Alps, timeshares have grown into annual US sales of nearly $8 billion. It’s probably safe to say, though, that the question of whether a timeshare is a good deal for the buyer hasn’t been settled over the 50-year history.
A timeshare (sometimes referred to as “fractional ownership”) is literally ownership of a small piece of a larger property. The time period of ownership can range from one week a year to as much as three months and entitles the owner to use the property for those periods. Timeshares can be deeded (physical ownership which can be transferred or paused to heirs, usually with no time limit) or leased (a right of use for a specified number of years, typically 30). Some properties allow the time of use to “float” so the owner has some flexibility while others are fixed at the same dates each year. For larger developers with multiple properties, ownership can earn “points” that can be used to spend time at multiple properties. High demand periods (a week in winter at a Florida beach resort, for example) command higher prices than less popular periods at the same property.
The fundamental advantage of a timeshare is that unlike owning a vacation home, you are only paying for the time you use. While owning a timeshare still includes proportional shares of taxes, maintenance and other costs, those costs are far lower than owning a second home. Assuming the timeshare location is desirable, ownership offers a guaranteed vacation destination. For those who want more vacation variety, “exchange” companies allow timeshare owners to swap their weeks for other destinations (for a separate membership and exchange fee). Family and friends can use the vacation time, or it can be donated to a charity for auction. Some resorts maintain a rental pool through which they will rent time that can’t be used, or it can be rented through a service or directly by the owner.
The idea that owning a timeshare will encourage the owner to take annual vacations can be either good or bad. Clearly, taking vacations can reduce stress and contribute to positive family time, and Americans take the fewest days off from work of almost any nation. On the other hand, this idea implies that the expense has been incurred and it would be a waste if the timeshare were not used, hardly the most positive motivation.
The average annual maintenance fee for a timeshare is $660, according to the American Resort Development Association, and that fee is due whether you use the property or not. Special assessments may be levied for large maintenance or improvements, and if all fees are not kept current the developer can foreclose on the timeshare, with a significant impact on the owner’s credit report. Timeshare sales practices are notoriously high-pressure and take advantage of the goodwill generated when potential buyers are already on vacation; marketing and commissions can add as much as 50% to the timeshare’s cost. The pitch often employs “fuzzy math” such as comparing the cost of the timeshare (lodging only) with full vacations (including travel and food). And while a timeshare involves many years of potential use, the quality and upkeep of facilities and services are completely out of the timeshare owner’s control and could decline over time.
Disposing of a timeshare is particularly difficult. Some lucky timeshare owners are able to simply surrender their timeshare to the resort, but that option is purely at the discretion of the developer. The resale market is very “thin”, with far more supply than demand. Traditional realtors demand high commissions and a number of resale scams have demanded marketing fees upfront, only to produce no sale. Legitimate internet services have emerged but the sales prices are a fraction of the original cost if there are any buyers at all. Charities may accept use of a timeshare as an auction item but they are now less inclined to accept ownership of a timeshare as a donation because they have the same difficulties in selling as the donors.
Timeshare sales in the US peaked in 2007 at $10.6 billion, fell to $6.3 billion in 2009 and have grown 6% annually since then. In the first quarter of 2015, the average timeshare sale was nearly $19,000, with over 15% of those attending a full sales presentation actually buying. Developers often offer financing for the purchase but this comes at rates considerably higher than other real estate or personal loans. In 2014, over 10% of timeshare loans were delinquent, with over 6% more than 120 days overdue. Many advisers maintain that if a loan is required to buy a timeshare, the buyer has no business buying in the first place.
Not surprisingly, complaints about timeshares to the Federal Trade Commission increased threefold in 2010 from five years prior as the recession took its toll on timeshare buyers. A number of states have regulations specifically addressing timeshares, with provisions such as the right to cancel a purchase (up to 10 days in some states), penalties for false statements in sales pitches, prohibition on claiming a timeshare is a financial investment, and disclosure requirements for prizes and bonuses.
If higher priority goals like retirement and education saving aren’t compromised, a timeshare can be a reasonable discretionary purchase. That assumes an effort is made to take full advantage of timeshare benefits. Otherwise, a timeshare is likely to be an expensive impulse buy, and one with ongoing costs to boot.