Better alternatives of timeshare

In theory, when you buy a timeshare, you have a fractional interest in the property the rental is situated on. But it’s important to understand that this does not give you all the advantages that owning real estate normally has.

For starters, you have an interest in the same unit as other people who participate in the timeshare. Your interest, therefore, is not standalone ownership. You are not free to do with the unit as you please.
For example, there are strict limits on the time during which you have physical occupancy of the unit. Unlike a true vacation home, you’re not able to rent it out during the rest of the year when you’re not occupying it for personal use.

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We can think of a timeshare as having a partial ownership interest in a single vacation property or unit. It’s nothing like owning a vacation property outright, with the benefits that come as a result of having it.
According to the ARDA, timeshare owners are tending to be younger and more ethnically diverse than when the industry started and targeted an elderly crowd. The median age of recent buyers is 39, and 34% of owners are either Asian-American or African-American. Nearly two-thirds have college degrees. Their median income is $81,311.
However, it seems to me that the timeshare market targets the financially inexperienced. Sadly, timeshares tend to become vacation properties for people who can’t afford vacation properties. The sales materials are made to appear more about the bling and “living the good life” than about the investment return. That’s because there is no return.

If you are spending money for the future, it should be considered an investment. If it’s not generating income, it’s an expense — plain and simple. You may get enjoyment out of it, but it’s still not an investment.


Timeshares Aren’t Very Liquid

It’s usually only after you’ve purchased a timeshare that you realize there are more people looking to sell them than buy them. The likelihood of recovering your initial investment is very low — to say nothing of recovering many years’ worth of maintenance fees.
There are websites that timeshare owners can use to try to sell their property, such as RedWeek, but they charge a listing fee and an annual membership fee to use the site — and there’s no guarantee the timeshare will sell.

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And there’s a substantial amount of fraud in the reselling industry. Scammers prey on timeshare owners by promising to sell the property for you — for an upfront fee — and once you pay the fee, you never hear from them again.

If you’re able to sell the timeshare (and that is never certain), you probably will get only a fraction of what you paid for it. There are two fundamental problems when it comes to selling them:

1. More are being built/offered all the time, flooding the market, and
2. Existing owners are selling them to get out of debt or once they realize that it isn’t the deal they thought it was when they bought it.

If you still think buying a timeshare is a good idea, and you want to avoid paying more than you will ever sell it for, buy one on the secondary market. There are many websites where you can buy a used timeshare.

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Timeshare companies know that you can likely find cheaper options from existing buyers on websites such as Timeshare Users Group and RedWeek. So the companies usually offer closing incentives and other perks. But those perks don’t usually recoup the money you would save from buying from an existing owner.

The Better Alternative to a Timeshare

In my opinion, you’re better off staying at a local hotel than buying into a timeshare. Take my parents’ timeshare as an example. They paid $10,000 for the initial purchase, and if you add the $750-per-year maintenance fee paid over a 10-year timeframe, there is a total investment of $17,500 in that timeshare.

Over the last 10 years, their timeshare provided a stay of one week each year — seven days and six nights — for a total of 60 nights, which averages out to $291 per night to vacation in the same unit each year. If you were to rent a decent quality hotel room at about $175 per night, the total price paid for the timeshare would buy you 100 nights of hotel stays. Not only does it cost less per night to stay in a hotel, but you would also be able to add variety to your vacation by staying at hotels located in different destinations.

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And you would also be able to take advantage of frequent user rewards programs and other discount pricing being offered by the hotels. Chances are you’d get a whole lot more than 100 nights of hotel stays.

Best of all, you’d have sunk no capital in the timeshare, and the money to pay for the timeshare could be invested to earn a return on your investment. At a conservative 5% return compounded annually (starting with $10,000 and adding $750 per year), you’d be sitting on more than $26,000 right now. That’s a much better deal from where I sit.

Expenses of Buying and Owning a Timeshare

Although owning a timeshare means you won’t need to throw your money at rental accommodations each year, timeshares are by no means expense-free.

First, you will need a chunk of money for the purchase price. If you don’t have the full amount upfront, expect to pay high rates for financing the balance. Since timeshares rarely maintain their value, they won’t qualify for financing at most banks.

If you do find a bank that agrees to finance the timeshare purchase, the interest rate is sure to be high. Alternative financing through the developer is typically available, but again, only at steep interest rates.

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A timeshare owner must also pay annual maintenance fees (which typically cover expenses for the upkeep of the property). And these fees are due whether or not the owner uses the property. Even worse, these fees commonly escalate continuously; sometimes well beyond an affordable level.

You might recoup some of the expenses by renting your timeshare out during a year you don’t use it (if the rules governing your particular property allow it). However, you might need to pay a portion of the rent to the rental agent, or pay additional fees (such as cleaning or booking fees).