Almost anyone who isn’t a timeshare salesperson will tell you that a timeshare is usually a terrible idea. That includes thousands of people who are trying to give their timeshares away to escape the ever-escalating fees. But why is a timeshare bad?
To answer that question we have to take a closer look at timeshares and how they work.
The Basics of Timeshares
When you buy a timeshare, you are buying the right to access a certain property, or set of properties, for a specified amount of time every year. For instance, you might purchase the right to spend a week in a villa in Aspen one week every year.
You are only purchasing the right to use that property for one week, so you will be sharing the property with other timeshare owners who will vacation there for the remaining 51 weeks of the year.
The Different Types of Timeshares
Broadly speaking, the types of timeshares depend on whether you own a piece of the underlying property or not:
- In a deeded timeshare, you are buying a part of the property, a small percentage directly correlated to the amount of time you are allowed to spend there every year.
- In a non-deeded timeshare, the arrangement is similar to just leasing or renting the property. While you have the right to use the property for a specific amount of time, you cannot claim ownership rights. Non-deeded timeshares are known as “right-to-use” or “point-based.”
While the type of timeshare in question matters, it is also important to consider the costs.
How Much Does a Timeshare Cost?
There are two components to the cost of a timeshare: the one-time purchase price and the ongoing fees.
The average cost of a timeshare is $24,140. Several factors determine this cost:
- The size of the unit you are purchasing the right to use.
- The location.
- The time during which you are allowed to use the unit, i.e. are you willing to pay more for the right to use the unit during peak season?
- The amenities and facilities provided to the unit.
- The type of timeshare you are signing up for.
- The strength of the brand selling you the timeshare, i.e. a timeshare from a well-respected brand will cost more than a timeshare from a less reputable company.
There are several ongoing fees. The first is the annual maintenance fee, which usually costs around $1,000. The maintenance fee covers any expected repairs and upkeep. You might also have to pay a special assessment fee occasionally, which covers unexpected fees such as the cost of repairing a roof that just caved in.
There may also be financing costs, especially if the timeshare company is the one loaning you the money. Timeshare companies are notorious for gouging their customers with astronomical interest rates, which are usually higher than those of a mortgage or even a personal loan.
You might also have to pay taxes to the local government.
Is a Timeshare All Bad?
There are some potential advantages to owning a timeshare, but you’ll need to weigh them against the disadvantages.
Your Vacations Go on Autopilot
Vacations can take plenty of planning: You have to figure out where to go when to book, and how long to stay. For many, this can be a hassle.
If you’re the kind of person who dreads juggling all the minutiae that go into planning a vacation, or if you just love consistency and enjoy vacationing in the same spot at the same time every year, then maybe a timeshare could be a good choice for you.
With some timeshare companies, you will have the option to swap your vacation home for another one at a different location, allowing you to enjoy a different place and explore a different culture.
You Never Have to Worry About Maintenance
Even though you must pay annual maintenance fees, you will never have to worry about performing the maintenance yourself. With a timeshare, you will have a company dedicated to keeping your temporary vacation home in tip-top shape.
If you own a vacation home, you have to shoulder all the maintenance responsibilities yourself, which is a hassle and can also take up your vacation time.
It Might Be a Good Alternative for Those Unable to Afford a Vacation Home
While the average cost of a timeshare is around $24,140, you can usually get it for much cheaper at the second-hand market (more about this later). The average cost of a vacation home is around $429,000.
Even at their most expensive, timeshares are still far more affordable than owning a vacation home outright.
The Second-hand Timeshare Market Can Be Cheap
Many people want to get rid of timeshares. Their vacation preferences change, the annual payments become a burden, or they can’t get the weeks they want. Many of these sellers want out to such a degree that they are willing to suffer a heavy loss.
This means that if you choose to buy a timeshare from the second-hand market, you can usually find something for 0%-10% of the original price.
While buying from the second-hand market means that you can get a timeshare for cheap, you will still have to pay the annual maintenance fees, the special assessments, and the taxes that come with owning a timeshare.
And it is worth leaving you with a word of caution here. If you choose to go the second-hand market route, just make sure that the seller is up-to-date with all of their fees and that they aren’t late with any of their payments. Otherwise, you’ll get saddled with these late fees as the new owner of the timeshare.
The resort may also need to approve the transfer of the timeshare.
Timeshare Units Are Spacious
Seeing as timeshares were a way for condo developers to profit from their excess units, it should come as no surprise that buying a timeshare gives you access to a unit that is way more spacious than a hotel room.
You will have access to a unit with more square footage than an average hotel room. Your timeshare unit will also have all the amenities you would normally find at a vacation house, including a kitchen, a washing room, and bedrooms and living rooms that are separate from one another.
This is not to mention the other amenities that you can access outside of the temporary vacation home. Some classic examples include a swimming pool, a gym, a hot tub, and beach access.
The Drawbacks of Buying a Timeshare
Although there are a few pros to highlight, there are also plenty of cons that come with owning a timeshare. And for many timeshare owners who were pressured into a purchase by a pushy salesman, it is easy to develop buyer’s remorse.
So, before you find yourself regretting the decision, here are some of the biggest drawbacks that come with signing a purchase agreement:
Why Is a Timeshare Bad? You Might Not Get What You Thought You Were Paying For
Timeshare salespeople will show you their best and most luxurious units, painting a rosy picture of what your vacation might look like.
But, once you’ve signed on the dotted line, timeshare companies no longer feel compelled to wow you. Instead, as long as they are meeting the bare minimum required of them by their contracts, they will not exert any more effort or waste any more money to try and elevate your experience.
The unit you end up spending your vacations in may be very different than the one the timeshare salesman showed you. For instance, the units shown in the sales presentation will likely be better furnished and have better views.
Some timeshare owners struggle to use their timeshares. For example, if you share a unit with several other individuals, and you all want to book a vacation during the high season, you might not be able to make a reservation. And in the event that you somehow manage to make a reservation, you will most likely get a unit that is of lesser quality than what you had originally signed up for.
To top it all off, trading your timeshare with other owners is much easier said than done. For one thing, your timeshare will probably not be worth as much as you’d like once you take it to the market. And if you were to use an exchange program to help you with trading your timeshare, there would be a fee.
Why Is a Timeshare Bad? The Annual Fees Can Become Unaffordable
As a timeshare owner, you need to pay annual maintenance fees that average around $1,000 a year. These fees tend to increase over time, outpacing national inflation. Between 2018 and 2020, the annual maintenance fees went up by 8.1% on average.
Special assessment fees may be imposed at unpredictable intervals, and they can be substantial.
There are other fees the timeshare company can throw your way. For example, there is a publication fee that you have to pay every time you want to see other properties offered by the timeshare company.
You have to pay all these fees regardless of whether you are using your timeshare or not. So, if you break your leg and can’t enjoy the ski slopes, you still have to pay your dues to the timeshare company.
Why Is a Timeshare Bad? Timeshare Interest Rates Can Make The Whole Thing Even Less Affordable
Timeshare resorts often pressure buyers to use in-house financing, and interest rates can be steep.
You can’t finance a timeshare through a mortgage loan because you aren’t exactly buying a piece of real estate, even if you are buying a deeded timeshare. After all, mortgage lenders can’t take your timeshare as collateral.
So, aside from borrowing from the timeshare company and suffering their astronomical interest rates, you can either use a personal loan, a home equity loan, or other forms of financing that may not be appealing to you.
Why Is a Timeshare Bad? Timeshares Are Hard to Get Rid Of
You’d imagine it might be nice to offload your timeshare any time you choose. This isn’t feasible. In fact, getting rid of a timeshare is so notoriously difficult that several owners just give theirs away for free, hoping to get rid of those pesky annual fees.
Most timeshare contracts include “perpetuity clauses”, which essentially say that the timeshare is yours for life.
📚 Learn more: If you’re contemplating exiting a timeshare, this post featuring the best timeshare exit companies could provide some valuable guidance.
When purchasing a timeshare, you need to think of it as a lifetime commitment. Walking away and refusing to pay your annual dues can trash your credit and even get you sued. It’s often very difficult to return your timeshare to the issuing company.
Can you rent out your timeshare if you’re not using it?
That is usually not feasible. Many companies will not allow it. If they do, you will have to pay different types of fees, such as cleaning fees for your guest and repair fees if your guest breaks anything. Some companies will take a commission just to let you rent your timeshare.
As for selling your timeshare, that is also difficult and will likely lose you a lot of money. The market is flooded with timeshare contracts and owners who want to get out of them. This excess supply means that your timeshares are rarely worth what you pay for them, and they depreciate the minute the ink dries on your contract. This applies even to deeded timeshares.
Why Is a Timeshare Bad? Timeshare Lose Value Over Time
Regardless of the type of timeshare contract you sign, you will lose money the instant you sign your contract.
For instance, let’s say that your timeshare uses a point system where you can use a certain number of points every year. These points will likely lose their value over time due to point inflation. So the vacation these points can get you today will be way better than the vacation they can get you 5 years from now.
And, when you factor in the difficulties of renting a timeshare as well as its reduced value due to the existence of secondary markets, you realize that a timeshare is an illiquid liability that drains your financials if you’re not careful.
Is a Timeshare an Investment?
The short answer is no.
An investment either appreciates in value or provides a consistent cash flow over time. Timeshares do neither of these things. Moreover, timeshares are illiquid (hard to get rid of) making them a less-than-ideal spot to park your money.
And regardless of what a timeshare salesman tells you, a timeshare doesn’t represent a solid financial asset. If they were, these same salesmen wouldn’t need to woo you with free vacations and tickets to shows just to get you into a 90-minute sales presentation. When was the last time a mutual fund company bought you tickets to a show just so that you could listen to them as they tried to convince you to buy their shares?
Putting It All Together…
If you’re considering buying a timeshare as an investment, then you would do much better to look elsewhere. Timeshares are hard to sell, they depreciate quickly, and they will drain your finances year after year.
Even as a vacationing option, timeshares are questionable. After all, while they secure a place to enjoy your summers, they constrain you and limit your options. In short, they come with certain opportunity costs.
Unless you are certain that you will want to vacation in the same spot at the same time for years to come, timeshares might not be the way to go.