A time share is a property that comes with divided ownership or use rights. Most often these are resort properties in which owners of the same accommodation gets an allotted period to use the property. Typically, the cost of the property is divided with other buyers. Timeshares have been around since the mid-1970s and began as a way of unloading excess condos. Over time, the industry has evolved. While timeshares sound great on the surface, and it’s desirable to have a getaway, digging a little deeper can expose some dirty little secrets. In most cases, people who buy timeshares don’t own the specific property outright, they are buying the right to use a property. So, if you’re considering a time share, do your homework and understand the commitment and risks you are taking.
Per Forbes, there are two main types of timeshare contracts available. These outline property ownership and how visits to the property work. The first is a shared deeded contract that divides property ownership between owners of the timeshare. Everyone gets a designated week or sets of weeks to use the property. A person may transfer the timeshare by selling, gifting, or bequeathing it. The second is a shared leased or right-to-use contract whereby the lease provides a right to use the timeshare for a certain number of years. Owners do not have the right to sell, rent, or give away any real estate interest. In other words, there is a lack of some “ownership” rights.
Timeshares can operate differently, too. For example, some offer fixed weeks where each owner is assigned specific dates and a location, generally for the same unit each year. In comparison, floating-week timeshares allow owners to use their timeshares for a week during a certain season at any point during the year. Some can be biennial, meaning that the property can be used for a week every other year versus yearly. Another way to operate a time share is on a point system. In this case, timeshare holders receive points per year that can be redeemed for stays at certain properties. The number of points a timeshare owner redeems depends on the resort, location, room size, vacation dates, and more. Higher demand properties typically require more points and people can purchase points upfront.
Timeshares can be bought directly from resorts or as resale, however resales may be sold with less “perks” upfront. They are available at varying price points depending upon the market, type of timeshare, location and size, week(s) and seasons chosen, and maintenance fees. According to the industry’s trade association, the average price for a new timeshare week (or equivalent points) is $23,000. Per Red Week, “…many brand-name companies are selling “average” points packages for $50,000 or more, according to recent presentations attended by the author.” Some developers offer credit card to allow buyers to pay part of the down payment. However, interest rates may be dangerously high. One must use financial caution even in resales, as sometimes maintenance fees may exceed resale values on some properties.
Buying timeshares is a complex matter and there are four vitally important factors to know. First, timeshares are prone to scams and unethical practices by con artists. So, it’s important to know and trust the parties with whom you are doing business. People who are selling timeshares are also at risk of being taken advantage of by scammers who promise a quick sale while charging high fees upfront. One must also fully comprehend the details of every transaction. Second, timeshares do not appreciate, thus they should never be purchased as an investment property. Unwanted timeshares usually sell for much less than its original purchase price. Third, timeshares are difficult to resell and get out of. Fourth, owners are subject to rising maintenance fees and special assessments which may add up. Also, folks may have to pay real estate taxes on the timeshare.
Buying into a timeshare sounds like an exciting vacation opportunity, and in some cases it can be. However, people should never be pressured into doing so. And buyers must understand that they don’t technically own the property. Per a study conducted by the University of Central Florida, 85% of timeshare buyers regret their purchase, with owners citing expense, maintenance fees, intimidation, and lack of use. Pacaso.com shares, “Whether regret sets in immediately or slowly sinks in over the years, timeshares are notoriously difficult to sell.” Another figure, shared by Ramsey Solutions, shows that it costs on average about $5,000 to $6,000 and takes 12-18 months to get out of your timeshare contract using a timeshare exit company. If you stop paying on your timeshare loan, you risk foreclosure whereby the lender files to take possession of the property and sell it at auction to recover the money you owe. Failing to pay timeshares charges can damage your credit. If an owner dies, a timeshare becomes part of that owner’s estate. The benefits, investment and obligations are passed to the beneficiary of the estate or to the next-of-kin. However, the inheritor has the legal right to disclaim.
Most timeshares generally offer a week each year at a vacation property. If the property cannot be used by the owners, it may possibly be rented or traded with another unit. However, rent collected may or may not cover the yearly expense of ownership. Regardless, owners are ultimately responsible for paying for the time share whether they use it or not. They are also responsible for maintenance and annual fees, and for special assessments. Here’s an example of the latter. If one purchases a timeshare unit at a resort in a hurricane prone area and the building is damaged by storm, timeshare owners may incur a “special assessment” which could be in the hundreds or thousands of dollars. Aging properties are also of concern as maintenance fees can rise.
Companies that sell timeshares often lure people in with free tickets to see a show, a special dinner, a free hotel stay, or takeaway gift. Their goal is to sell a lifestyle and sway people into buying. However, what sellers of timeshares often fail to explain is the lifelong commitment and risks that come along with the purchase. The bottom line to ask oneself is, “Does it make sense for me to buy a timeshare?” If you plan to use it yearly, crave going to the same place every year at the same specific time, expect to hold onto it for a long time, and don’t mind the financial risks and responsibilities that accompany owning a timeshare, then go for it. However, if you can’t afford it or have no cushion for fee increases, you dislike vacationing at the same place and same time every year, or you prefer something that will appreciate and grow in value, then skip the timeshare because it’s simply not worth it.
This article is for general purposes only and is not intended as financial or legal advice.
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