Most people list “traveling” as one of their favorite activities. You would be hard pressed to find anyone who doesn’t like going to beautiful or exotic destinations and spending a week enjoying them. It’s precisely that aspect of human nature to which timeshare companies appeal. They draw you in with promises of not just endless vacations but “vacation ownership.”
The truth about timeshares, though, is that they are far more complicated and difficult to own than timeshare resorts represent. Their group, the American Resort Development Association (ARDA), plays up the “fun in the sun” aspects of ownership while glossing over the steep costs and drawbacks of vacation ownership.
This article will take a look at the downsides to vacation ownership that you probably aren’t going to hear at a sales presentation when you ask, “Are timeshares a good investment?” We’ll look at the upfront costs and ongoing fees of timeshare units to scrutinize the idea that they are a good financial decision. After that, we’ll turn our eyes to the investment value of timeshares.
Finally, this article will look at what happens when unhappy timeshare owners try to get out of their units and find, too late, that it’s more difficult than they were led to believe. While selling a timeshare is practically impossible, we’ll look at some other exit options you may have.
Are Timeshares Worth It, Considering the Costs?
Are timeshares worth it: piggy bank and a blue suitcase
High-pressure sales tactics at endless timeshare presentations often obscure an important fact: Timeshares are expensive. Of course, there are the upfront costs to worry about — what you might think of as “buying the timeshare.” But you also have to think of ongoing maintenance fees and assessments, which can turn a temporary vacation home into a long-term money pit.
1. Timeshare Purchase Price and Financing
The first major cost to consider is the price of the timeshare itself. According to ARDA, the average price of a timeshare is $22,942. That is a major chunk of change for most of us. It’s so large, in fact, that you probably don’t have that much cash on hand. As with a home or car purchase, that means you would probably need a loan.
Timeshare financing, though, is very different from the average house or car loan. With those loans, your car or house serves as collateral for the loan. In other words, if you stop making loan payments, the bank can come after you and repossess your car or foreclose upon your home to get the loan proceeds repaid.
Timeshare loans are different because, unlike a car or a house, timeshares do not have much value. While some, like fixed-week intervals, may be deeded real estate interests, some points-based vacations clubs are not. Either way, a timeshare is a “right to use” rather than a property ownership interest. That fact generally makes timeshares very poor security for a loan.
Banks, therefore, tend to refuse to give loans for timeshare purchases. This means that if you need a loan, you are probably going to have to ask for one from the company selling you the timeshare. And the company will make you pay through the nose for that loan.
Timeshare salespeople won’t tell you that interest rates on financing are high. They can go well over what you might be used to paying for house or car financing — as high as 25%!
So, on top of the $20,000-plus purchase price, get ready to pay the timeshare company a fortune in interest for years to come. In practical terms, let’s say that the price of your timeshare is $25,000, and you want to get a standard 120-month (10-year) loan. Using a conservative 17.9% interest rate, the total cost of your timeshare would more than double to $53,862.57.
2. Maintenance Fees and Special Assessments
Having to pay through the nose for a loan is bad enough, but get ready to pay even more in the form of annual timeshare maintenance fees. These fees often make timeshares disastrous from a personal finance perspective.
Get ready to shell out an average of $980 per year every year until you get rid of the timeshare or die (whichever happens first). Even that amount doesn’t take into account that these fees will rise yearly. Assuming that your $980 annual fees rise the average 5% every year, in 10 years you will be paying $1,520.30. In 20 years, the fee will be $2,476.41.
And if you give the timeshare to your family after you pass, they’ll get to pay every year. Yes, the rates will still keep increasing for them as well.
Keep in mind that these maintenance fees aren’t connected to the use of the property, so you (or your family) will have to pay them whether or not you use the timeshare in any given year. When you factor these “non-use” years into the total cost of your timeshare, your vacations’ actual costs are much more expensive than they seemed at that timeshare presentation.
That’s not all. If there is a major problem at the property that needs repair, your annual maintenance fees won’t cover that. You’ll be charged a special assessment that you’ll have to pay on top of the yearly maintenance fees. If you fail to pay any of these fees, you’re asking for foreclosure and other legal troubles.
Are Timeshares Actually Good Investments?
Timeshare investments would be bad investments, if they could be considered investments at all. Unlike a home or most other deeded real estate interests, timeshares do not gain value over time. To the contrary, you’ll find owners desperately trying to unload their timeshares on eBay or Craigslist for as little as $1.
Therefore, if you paid the average amount of $22,942 for your timeshare, selling it on eBay or Craigslist could represent a loss of 99.9% of the amount you paid to purchase the unit. And that doesn’t even include the amounts you paid for annual maintenance fees and special assessments.
Also, even in the very unlikely event that you manage to sell your timeshare, the resort will want you to pay for the privilege of the sale. You’ll need to shell out several thousands in transfer fees to the timeshare company, making the sale even more of a financial loss than it already was.
“But maybe,” you think, “timeshares could be worth it when I consider the amount I am saving on vacations every year! Doesn’t that have value?” Of course, vacations can give you priceless memories. The sad truth, though, is that you can usually make those memories for cheaper with a hotel room or even by renting a timeshare instead of buying.
