ATLANTA - Timeshares make perfect sense. Instead of paying a hotel some outrageous rate for a week at the beach, find exactly what you want and share the cost with 50 other couples. Each couple gets a week a year, and the benefits of ownership too, right? Unfortunately, the reality often falls short of the dream.
Here to unravel the good, the bad and the ugly of timeshares is real estate expert John Adams.
Question: The concept of a timeshare makes perfect sense. Just spread out the cost of ownership among like-minded families, and everybody wins, right???
John Adams: A timeshare gives you a partial ownership of a vacation property. You pay an upfront price to purchase your unit and then an annual maintenance fee. This gives you access to the property for a certain period of time, which is usually the same time slot each year. When you are not using the timeshare, other owners with a similar interest are.
The average sales price for a one-week timeshare today is approximately $20,940, with an average annual maintenance fee of $880 per unit and boasts 132 units, according to industry stats. That equals over a million dollars for what is essentially an apartment. That also equals a building annual budget of over $45,000 per year per unit for tax, insurance, maintenance, and repairs. Pretty pricey!
Most timeshare agreements are indefinite contracts, meaning that you’re obligated to pay the maintenance fee indefinitely, which is a big financial commitment.
Q: OK, so you said there were four major problems?
Adams: It’s a great idea that just usually does not work out. There are four major problems with timeshares.
1. The concept is too complex
Ownership of real estate involves lots of decisions. And when you have 25 owners of each unit and 100 units in a building, you have 2,500 owners trying to decide when to mow the lawn.
Timeshare deals are complex transactions. They are not simple to understand and usually require the help of a timeshare attorney to fully understand. But even an attorney can not predict the future.
So, if the economy changes, and owners need income, should the timeshare allow individual owners to rent out their unit for their specified weeks? Who decides? Can they have pets? And this is just the beginning…
2. Things happen in life, and you might not be able to use your assigned week.
If you want to use your unit for another week, you must “bank” your week and exchange it for another time or location.
Except that the locations that accept you banked week don’t offer anywhere you might ever want to go. Or all the good weeks are already gone. Or worse, they offer you POINTS you can use for airfare or gift cards in exchange for your week this year. And the exchange rates are outrageous.
And even if you do not use your week at all, you STILL have to pay the annual maintenance fee, which is outrageous (and goes up every year).
3. Timeshares don’t generate income.
The marketers of timeshares often tout the wonderful benefits of investing in real estate, but with a timeshare, you don’t get most of those benefits.
There is typically no income, no depreciation, no equity build-up, no appreciation, and no leverage. In short, the profit is made by the salesman and the developer, not YOU.
4. Timeshares offer almost NO liquidity.
At one point or another, you will want or need to sell your timeshare. So learn now that there is almost ZERO market for your resale unit. And if you are lucky enough to get an offer, it will likely be less than half what you paid.
To make matters worse, more units are being built all the times, and existing owners have flooded the market wanting to get out.
Q: John, what’s the bottom line?
A: I have a better idea: SKIP the timeshare, use the cash to buy solid investments, and go to a nice hotel wherever you choose when you choose. You’ll end up WAY ahead in the long run.