A timeshare is an arrangement with several joint owners have the right to use a specific property as their vacation home under a contracted agreement. It is an opportunity to own a fractional amount of real estate that can become useful for holidays or family vacations.
Most timeshare fractions are either for 1/52 of the property or 1/26 of it. That means you would get to use it for 1-2 weeks each year depending on the share you purchase. Some companies that own multiple properties allow you to purchase a share of the organization instead, allowing you to book a room where there is availability using a system that is similar to a hotel reservation system.
A timeshare can be advantageous if you are looking for a place to vacation regularly. They can also be a drain on your finances if you do not make this investment wisely. That’s why evaluating all of the pros and cons first can help you to determine if this option is the best way to enjoy the occasional holiday.
List of the Pros of a Timeshare
1. There are multiple types of timeshares to consider.
The most common type of timeshare is called a “fixed week” option. That means you will own the rights to a specific unit during the same week each year for the length of the contract. This option gives you predictability for your traveling plans, but it also comes at the cost of flexibility and variability. You’ll be headed to the same place each year. These are the other three types to consider.
• Floating timeshares make it possible to reserve time outside of a fixed week.
• Right-to-use timeshares will lease the property for a specific amount of time each year while the developer maintains the overall ownership of the real estate.
• Points Club systems allow you to stay at various locations based on how much they invest in the system and use rooms.
2. Timeshares require you to only pay for what you use.
If you were to purchase a vacation home on your own, then you would be responsible for the upkeep and maintenance of the property (along with the taxes) even though it would sit vacant for most of the year. By investing in a timeshare, you can obtain the use of an expensive property at a price that is more fordable for your budget. Then you don’t have to worry about maintaining it throughout the year.
3. It provides you with a guaranteed vacation destination.
Some families prefer to have predictability when it comes to their vacation plans each year. A time shareable give them exactly what they need. This structure is beneficial for families with pets or large families where it may be challenging to find accommodations otherwise. A hotel will usually not grant a family of 6 (two adults and 4 children) a standard room, which means they must upgrade to a suite or pay for two rooms to stay together. Buying a timeshare can eliminate this hassle with a guaranteed result and a predictable cost.
4. There is flexibility with the schedule on most properties.
It is very possible to trade sites and times with other timeshare owners if you want to take a vacation at a different location. Some companies provide options around the world that make it easier to find a place to stay when traveling to a foreign country. You would give up your fractional share at one property to take over another somewhere else. Then you could keep trading to ensure that you have a place to stay without seeing a spike in your accommodation costs.
5. Some timeshares allow you to rent out your fractional share.
If you are thinking about a timeshare, then review the contract carefully to see if you have the option to block out any time commitments you have that you cannot use. Some will give you the ability to rent or lease your property during the assigned time you have to prevent a financial loss from the situation. Some contracts will not permit this action, while others may charge a significant fee to locate someone who can take over the space during your absence.
6. You can let people use your timeshare for free.
Some people enjoy letting others use their timeshare in for free for variety of reasons. You could make the time that you have available through a charity auction as a way to raise money for a good cause. It is possible to let family or friends use the space if they want to take a vacation as well. There are some risks involved with this advantage, so use it wisely to avoid a charge against whatever security deposit you may need to pay.
List of the Cons of a Timeshare
1. There are annual fees that you must consider with this ownership opportunity.
Although you don’t need to worry about maintenance costs with your property as a timeshare owner, you do need to worry about the annual fees that you pay. Some contracts do not allow any control over the yearly increases that would become your responsibility. Expect to pay at least $660 per year for the timeshare that you want, whether you end up using it or not. There is also the potential for being held liable for special assessments.
2. A timeshare qualifies as a foreclosure.
If you are unable to pay the annual maintenance fees for your timeshare, then the developer of the project can foreclose upon the property. Nolo notes that one of the consequences of this disadvantage is that it can affect your ability to obtain future credit. When you experience a foreclosure with your timeshare, it functions as one would on your primary residence if you stopped paying your mortgage. There may be difficulties in obtaining a credit card, funding a car loan, and you may even face a deficiency judgment that goes on your total record.
3. It can be challenging to sell a timeshare when you’re finished with it.
Timeshares are hard to sell in the first place. That’s why you will receive a significant sales pitch if you show any interest in one. If you purchased one and then decided that it wasn’t right for you, selling it on the secondary market may require you to take a significant loss. If you’re interested in this option, you might find it easier and cheaper to purchase something used already.
4. Timeshare reselling schemes can take your cash too.
If you decide that you want to purchase a timeshare, then it is wise to use a reputable broker if you want something on the secondary market. The Better Business Bureau issues a perennial warning about the various reselling schemes that exist for this industry right now. It is possible for scammers to defraud victims out of several thousand dollars using phantom contracts or selling the same contract to multiple parties. That is why it be may be wiser, although more expensive, to work with the property representatives directly.
5. You cannot claim a capital loss if you sell your timeshare at a discount.
In the United States, the Internal Revenue Service does not allow you to claim a capital loss like you can with other investments or real property if you sell a timeshare at a discount. You are going to end up eating the loss while still being responsible for the full amount of income you earned during that tax year. Although most owners are grateful to be out of their contract, the financial implications of this decision can haunt your finances for several years afterward if this was a significant initial purchase.
6. Buying an international timeshare comes with its own unique set of challenges.
Because the timeshare requires you to purchase a fractional part of a property deed, there are international complications to consider if you want to purchase a contract outside of your home country.
Mexico is one such example. Foreigners cannot hold the direct title to a property is it 30 miles of the coast or 60 miles of an international border. That means you are limited to a right to use timeshare which may not be your first choice. You may also discover that international consumer protection laws are sometimes not as enforceable as they are in your home country.
7. You cannot think of a timeshare as a financial investment.
This disadvantage is what trips up most people. When you are purchasing a timeshare, it is not a financial investment because of the way it is structured. You are getting a piece of a property, but it doesn’t come with the investment qualities that you would have with a traditional transaction. It is a lifestyle purchase only. If you consider the cost of depreciation, your travel expenses, and the uncertainty of use, the idea of prepaying your vacation every year is something that does not always work out in your favor.
8. Timeshares depreciate very quickly.
The value of a timeshare depreciates extremely fast. That is why traditional lenders almost never provide financing for this option. You can make the purchase through a developer, but it will come at an interest rate that is much higher than what you would pay for a traditional mortgage. If you find yourself in foreclosure, this disadvantage means the outstanding balance of the loan and unpaid maintenance fees are usually higher than the value involved. That makes it possible for lenders in some states to go after your other assets to settle the debt.
The pros and cons of timeshares are essential to evaluate if your vacation patterns typically take you to a similar location each year. If you like to have a mix of activities and destinations, then this option is not right for you. Should you need to borrow money to purchase one, then you have no business thinking about this decision in the first place.
Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.