Summer vacations often spark thoughts of getting a second home, and many travelers find themselves sitting through a pitch for a timeshare, a cheaper alternative in which you own a property with others and have a right to use it on specific weeks.
But these partial ownership deals have often been dismissed as poor investments that don’t produce the ideal vacations buyers expect. Many owners have found their properties hard to unload without big losses, or hard to unload at all. In fact, a web search reveals a sub-industry devoted to helping owners unload their timeshare properties.
Is it possible to have a happy timeshare experience?
“I am a wealth coach and I would never recommend to a client to buy a new timeshare,” says Rocky Lalvani, a web-based coach and podcaster at Richersoul.com in Harrisburg, Pennsylvania, who prefers renting to owning, or buying an older unit rather than a new one.
But Nancy Gaines, CEO of Gain Advantages, a Denver tax and business productivity consultant, calls her timeshare her “best investment ever.” Though her unit is in Mexico, she often applies her time to the network’s more expensive locations in places like Hawaii by vacationing off-season, and sometimes gets more vacation weeks than she originally purchased by trading for more modest units at other locations. Owning also gives her access to discounted weeks rented out by other owners, she adds.
In its simplest form, a timeshare involves owning a specific week or weeks at a given location such as a resort. You might be one of 52 people who share ownership of the property, and can start your evaluation by judging whether the unit is worth 52 times what you would pay.
[See: 9 Psychological Biases That Hurt Investors.]
Know your rights. Timeshares come in many shapes and sizes. In some, investors are not true owners but merely have rights to use the unit for a specific period or a given amount of time in periods each year. Some deals allow owners to apply their time to any of a number of properties offered by a parent corporation — typically a big-name hotel or resort chain.
Sometimes investors have the right to rent out their weeks, and Lalvani says he rents for many of his timeshare visits. “They are an awesome way to vacation,” he says. “You get very nice large units versus a tiny hotel room and usually spend less.”
Will you go there every year? For most buyers, the first question is whether the unit is someplace they want to vacation at every year — or if the deal includes rights to other appealing locations. Experts say many buyers are disappointed that they can’t always get the weeks they want in the best places, so it’s important to look closely at what is guaranteed and what is not, and think about how vacation priorities might change.
“The condo in Orlando made sense for when the kids were young and they vacationed as a family,” says Robert Moskovits, vice president of Business Development at Kars4kids charity, which has investigated many timeshares offered as donations. “Just a few years later they may never go to Orlando again and have a useless timeshare.”
Price is always an issue. As mentioned, you can start by multiplying the cost of a week by the number of weeks the firm offers per year, often a tad under 52 to leave time for maintenance, such as painting. Compare the unit’s total cost to that of a comparable property you might buy without sharing. Typically, the timeshare will cost much more, providing a handsome profit for the seller.
“A timeshare that costs $25,000 per week means the unit is selling for $1.3 million (52 weeks x $25,000),” Lalvani says. “No one in their right mind would buy the place for that much money as you could buy a much nicer vacation home for a fraction of that cost. … I put timeshare investing in dead last as a depreciating asset.”
On the other hand, the total cost for one week will be far less than you’d pay for the entire property, and you probably don’t have 52 weeks of vacation, anyway.
[See: 10 Skills the Best Investors Have.]
Will the unit hold its value? Lalvani says they usually don’t. “They depreciate faster than a new car driven off the car lot,” he says.
He therefore recommends looking for a timeshare resale. “There are many websites to buy a used timeshare, and unlike a used car you are getting the same thing new or used,” he says.
Often the sales pitch dwells on the compelling opportunity to freeze future vacation costs by buying now and avoiding rising rental prices. Of course, that must be weighed against opportunity cost — investment gains you could make by putting your money into something else.
Moskovits says his organization accepts all sorts of properties as donations, but rejects timeshares because unit prices and rental rates typically decline as the resort ages.
Know the fees. Then there’s the matter of fees, charged for maintenance, administration and other expenses — even for using a unit other than your own. Think about what you might pay in routine fees, or special assessments for upgrades.
“You have yearly maintenance, transfer club dues and then transfer costs to exchange a week,” Lalvani says. “Once the timeshares age you may also have to pay an assessment to update the timeshare resort.”
Typically, owners have no control over fee increases. So look into past practices, ask about any charges coming up, and look for contract language on the subject.
Note that as the resort ages and growing numbers of owners lose interest, the resort may boost fees to make up for owners who stopped paying, causing more owners to fall behind, Moskovits warns.
How much do you pay to vacation? What would you pay for vacations without the timeshare? Consider whether you’d really be able to sell when you want. Would you plan to leave the property to your children, or consider it an asset for helping with retirement? Remember that because a timeshare will never be your primary residence, you won’t be able to tap your equity with a reverse mortgage. You don’t want to be stuck with the property after you can no longer do the things that appealed to you when you bought.
[See: U.S. News & World Report’s 10 Top-Ranked ETFs.]
Look at rules for getting out. Could you put your unit on the market like any other property, with a realtor of your choice showing to prospective buyers? Or would the contract obligate you to go through the management company, which might not be so eager to help. Would there be any charges you wouldn’t pay with an ordinary property?
More from U.S. News
9 Dividend ETFs for Reliable Retirement Income
The Best ETFs Retirees Can Buy
7 Tips for Investing in Timeshares originally appeared on usnews.com