So I’m here sitting on the couch playing Mario when I overhear my someone talking about time shares and how they had to sit through a long sales pitch to buy one. Time what? Time shares are a pre-paid condominium-style resort development used for vacations. Why would anyone want to do that I wonder? Knowing me I needed to get to the bottom of this and found out that in most cases you probably don’t want to own one, or at the very least pay full price. In this post, I get into what they are, why you should avoid them, and the alternatives you should consider when looking at vacationing.
What are Timeshares?
A timeshare gives you partial ownership in a vacation property. They’ve been around in the U.S. since 1969 as a way for resort real estate developers to make more money by selling units to multiple joint owners rather than only one owner. They found that if they sold the unit into weeks and sold each week, they could gross at least twice as much money as if they sold it to a single buyer. Today the timeshare industry is a $9.2 billion industry according to the American Resort Development Association (ARDA). That’s quite a lot when the NBA brought in $7.4 billion in 2018, and Microsoft’s gaming revenue brought in $10 billion for fiscal 2018.
You can think of a timeshare as a prepaid condominium-style resort development. You are paying upfront in addition to an annual maintenance fee to have partial ownership in a vacation property that you can use for a select time of the year. When you are not using the timeshare, others who also purchased a timeshare are. Timeshares typically costanywhere from$10,000 to $50,000. That’s a lot of Benjamin’s!
The sellers often tout their benefits which include staying in a resort setting with services and amenities and are often suited to couples or those with families. Sounds great so why should you avoid them?
Timeshares are a Poor Investment
- The resale market works against you. Others can buy units for less than half of what was originally paid. This makes for a terrible investment!
- Like a car, a timeshare depreciates the second you buy it. See below.
- It’s rare that a timeshare increases in value. The reason is that included in your purchase price was the cost for sales presentations, incentives, and giveaways. They are marked up big time and unless you buy a used timeshare, you are overpaying.
- Timeshares are often sold with high-pressure sales tactics when you are on vacation. Commissions can be as high as 50% which explains the sales agent’s motives. Who wants that?
- A lot of timeshares have high annual maintenance fees. These fees can range between a few hundred dollars to a few thousand, and often renting a hotel room would have been cheaper. Not to mention keeps you more flexible!
- Timeshares are hard to rent out. When you buy a timeshare, you only have partial ownership in the property. Because you do not have full ownership you cannot do with it as you please. This means you cannot rent out the property for the times you do not have reserved. Limited ability to bring in a side income? No thanks.
Timeshares are Hard to Sell
There are often more people looking to sell their timeshares than there are looking to buy. There is a reason why units are often sold for less than half of what was originally paid for, and some sell for 20% to 30% of their original value. If you have a timeshare and you are looking to sell, look at sites like Redweek.com or SellMyTimeShareNow.com.
If You Do Buy, Buy Used
If you are still convinced to buy a timeshare, look at the same websites to see what is for sale.
Do your due diligence. Like with buying a used car, you might not know if the car was in a wreck. The property could have liens on it, and you need to determine if you are able to legally buy it. Before you buy on the secondary market, hire a company to do a title search and make sure the title for sale is clean and the seller is the actual owner. The last thing you want is to own a property with a lien on it. May as well flush your money down a disgusting drain.
Note that as a purchaser of a second-hand timeshare you are unlikely to receive all the benefits that the original owner was provided, such as exchange and reward points which are a big part of the timeshare model. More modern time share offerings give you points that you can exchange at various resorts around the world giving you some flexibility.
I have no problem with buying used timeshares but only if you know for certain you will use it. Otherwise, the money you saved will be spent on maintenance fees. Personally, I would still not buy a used timeshare for the inconvenience of having one (see below).
Timeshares are Inconvenient
Let’s say you wanted to rent a cabin. Normally you would look online and make a reservation. If you’re smart you would take advantage of websites like Booking.com and book the places that allow you to cancel with no fees up to a few days before the day you arrive. If your plans change, you then cancel your reservation and make another one for a future date.
With a timeshare, you are stuck with a set date every year. If your schedule doesn’t line up, you wasted your timeshare for that year and you are still paying the maintenance fees every month. Not to mention that you are likely to get bored of going to the same place every year. Although nowadays you can often exchange points for different locations, even so, it’s better to stay flexible and not be locked into a contract. Not to mention, if you want to change the week that you want to use your timeshare, you must “bank” the week and exchange it for another time or location. What a hassle!
Alternatives to Timeshares
There are a lot of alternatives to timeshares, whether you rent a hotel, invest in a property with others, buy a vacation home or use a short-term rental service like Airbnb. Let’s explore some of them.
Purchase a Fractional
If you want something that is like a timeshare but gives you the benefits and flexibility of real estate, look at fractional ownership. You can buy a fraction of a property and split expenses with other investors. You typically get better resale value if you want to sell it. Another benefit is that these properties are often divided between fewer owners and available for longer periods of time. Instead of a one to two-week vacation, owners may stay for a month or longer.
Buy a Vacation Home
If you have a favorite destination and have a specific property in mind, owning a vacation home can make sense. Since you would own it you have full control over the amount of time spent in the property. Other benefits include having the option of renting it out during the year when you’re not there allowing you to breakeven or even make a profit on your vacation property. You can use Airbnb or have a property management firm manage it for you. They do cost a lot more money than a timeshare but it holds its value better.
Join a Vacation Club
A vacation club is a pay as you go model where a group of people sharing the right to access a group of vacation properties, which could be hotels or vacation homes. Vacation clubs fall into two categories: major hotel/resort chains and condo/resort chains.
- Major Hotel/Resort Chains: Many of the biggest hotels and resort chains operate vacation clubs, including Disney, Westin, Marriott, Hyatt, Hilton, and others. With these chains, your vacation choice is usually limited to those that belong to that company.
- Condo/Resort Chains: There are other vacation clubs that operate their own networks of owned or affiliated vacation facilities not affiliated with any hotel chain. They can be located anywhere from major resort areas or cruise options. Companies include World Vacations Club, Royal Aloha, Shell Vacations, to name a few.
Important to note, a vacation club doesn’t offer ownership, but rather access to their services (though with the poor resale value of timeshares, the benefit of ownership is debatable). Be warned a lot of timeshares call themselves “vacation clubs” due to their bad reputation. Here are some benefits of vacation clubs:
- Strong variety and diversity of destinations and residence types (resort and stand-alone)
- Availability is far more flexible than timeshares (not locked into specific week or weeks)
- Access to high end, private residences
- Customized concierge service offerings
- With vacation clubs, you pay for the annual membership up front. Note: Depending on the vacation club, they can be more expensive than timeshares.
- You get a network of perks and discounts
I should note, however, vacation clubs can sometimes suffer from the same high sales tactics as timeshares and you should do a cost/benefit analysis to see if it is worth it for you.
Rent Someone Else’s Timeshare
Renting a timeshare gives you all the benefits of owning a timeshare, like being close to amenities and the condominium setup which is ideal for families, without having to deal with the downsides. Use a service like Redweek.com, which is one of the largest sites to rent timeshares, or SellMyTimeShareNow.com and TimeSharesbyOwner.com.
With short-term rental services like Airbnb on the market which offer similar experiences to timeshares, it is hard to vouch for them. Short-term rental services offer flexibility and unique experiences that timeshares are lacking which appeal to me as a Millennial. Who wants commitment? Gives me shivers just thinking about it.
Signing with Airbnb up is easy and you can select your budget and location. The site is user review driven, so read all of them and pick a property that has a good reputation with a lot of positive reviews. Note: as a user, you are also rated so be on your best behavior when renting an Airbnb and read what is and what isn’t included as each property is different. I personally love Airbnb’s and use them over 50% of the time I travel.
Look for Travel Deals
This is my personal favorite way to travel. Websites and apps like Skyscanner, Kiwi.com, Hopper, Thrifty Travel and Scott’s Cheap Flights are great ways to look out for cheap flights which can save you enough money that it offsets your hotel or Airbnb costs. Note that Thrifty Traveler and Scott’s Cheap Flights are email subscription services that notify you when there’s a serious deal worth booking. They both have their standard free subscription in addition to a paid premium service that customizes the deals specifically for your location.
If you live in Canada, I love using YDeals.com. They have deals for 24 different cities across Canada. Signing up is free through their email alerts. For more information on how to save money when traveling, see my article, 25 Recommended Ways to Travel on a Budget.
This is not to say all timeshares are bad especially if you buy one second hand and are less expensive than whole or fractional ownership. But with the maintenance fees, limited flexibility, and the options out there on the market including Airbnb and renting a timeshare, consider if owning a timeshare is something you want to do.
Legal Disclaimer: The views expressed by Mr. Dumont on Money Sensei are solely his and not intended as investment advice nor a guarantee of any financial return. Mr. Dumont is not an investment or tax professional, so the information contained on the blog is not a substitute for professional advice. The contents of this blog are accurate to the best of his knowledge at the time of posting, but rules and laws are ever-changing. Please do your research to confirm that you have the current information.