1. An Introduction to Timeshare
What is a timeshare?
A timeshare is typically a vacation property in a resort with divided usage rights. Multiple parties purchase the right to use the property and each owner is allotted a specific time period (usually one week per year) for vacations.
This concept allows people to enjoy the benefits of having a second home, without the hefty price tag of sole ownership.
When did it all begin?
The timeshare industry began in the 1960s in Europe, with the first timeshare resort in the French Alps offering an innovative solution for holiday-goers. By the 1970s, the idea had crossed the Atlantic, gaining popularity in the United States. The attraction of guaranteed vacation time at desirable locations caught on quickly, leading to an explosion of timeshare developments across the globe.
Over the decades, timeshares have evolved significantly. Originally, they offered fixed weeks at a single property, but modern timeshares now provide a variety of options, including floating weeks, points-based systems, and vacation clubs. Major players like Marriott and RCI (Resort Condominiums International) have introduced exchange programs, allowing owners to swap their timeshare weeks for stays at different resorts worldwide. This evolution has made timeshares more versatile, catering to diverse vacation needs and lifestyles.
2. How Timeshare Works
What is a timeshare?
How does a timeshare work?
Each timeshare owner holds the right to use the property for a specific period each year. Ownership is usually divided into weekly increments and the basic structure includes:
- Usage time: Owners purchase a week or more of usage time at a property, which can be fixed (the same week every year) or floating (the week can vary each year based on availability).
- Maintenance fees: Owners pay annual maintenance fees that cover property upkeep, management, and repairs.
- Exchange options: Some timeshares enable you to trade your week at one location for a week at another through exchange programs, adding flexibility and variety to vacations.
The two main types of timeshare
Shared deed ownership
In shared deed ownership, each owner holds a percentage of the actual property. The property is legally divided among the owners, each having a deed for their specific weeks. The advantage of this is that it provides a sense of actual property ownership, which can be passed on to heirs. But on the flip side, shared deed ownership generally has higher upfront costs and is more complex in terms of management and resale.
Shared lease ownership
In shared lease ownership, owners purchase the right to use the property for a specific number of years (usually between 20 to 99 years), but they do not own a part of the property. Upfront costs are usually lower compared to deeded ownership and management can be simpler, but the downside is that ownership expires after the lease period, meaning it cannot be passed on to heirs.
Other branches of timeshare
- Fixed week timeshares: This type of timeshare allows the owner to use the property for the same week every year. The week is specified in the purchase agreement.
- Floating week timeshares: Owners can reserve a week within a certain season or time frame, giving more flexibility than fixed week timeshares.
- Exchange programs: Floating week timeshares can also participate in exchange programs, allowing owners to trade their flexible weeks for stays at different resorts or locations.
- Points-based timeshares: Owners purchase points that can be used to book accommodations at various timeshare properties within a network. The number of points required depends on factors like location, season, and unit size.
- Vacation clubs: Vacation clubs offer members access to a variety of vacation properties and experiences, often through a points-based system. Memberships typically provide greater flexibility and a wide range of destinations.
Major players
Marriott Vacation Club is one of the most reputable names in the timeshare industry, offering luxury properties in popular destinations across the world. They primarily offer shared deed ownership, where owners have a deeded interest in a specific property but can use points to stay at different Marriott locations.
RCI (Resort Condominiums International) is one of the largest timeshare exchange companies. It does not own properties but provides an exchange network for timeshare owners. Working with both shared deed and shared lease properties, it allows owners to trade their timeshare week for a week at another resort within RCI’s extensive network of over 4300 resorts worldwide.
3. Considerations
What is a timeshare?
Obligations for timeshare owners
Owning a timeshare vacation property comes with several obligations. First, owners must pay an initial purchase price and often an annual maintenance fee that covers property upkeep, utilities, and management. It’s worth noting that these fees can increase over time. Owners are also responsible for costs that may arise for unexpected repairs or improvements.
Additionally, timeshare owners must adhere to the resort's rules and regulations, including booking usage times in advance, following check-in/check-out procedures, and maintaining the property during their stay. If the timeshare is part of a larger exchange program, owners may need to pay membership fees and follow specific exchange policies.
Legal obligations include understanding and complying with the terms of the contract, which can vary by jurisdiction. Owners may also be required to pay property taxes. Lastly, selling or transferring a timeshare can involve additional fees and legal processes, which owners must manage.
Pros and cons of owning a timeshare
Pros
- Cost Savings: Over time, owning a timeshare can be more economical compared to booking a hotel room for a yearly vacation.
- Guaranteed Vacation Time: Timeshare ownership guarantees you a vacation spot during the same time each year.
- Resort Amenities: Timeshares often come with access to resort amenities like pools, spas, and recreational activities.
- Quality Accommodation: Timeshares usually offer more spacious and comfortable accommodations compared to standard hotel rooms.
- Home-Like Feel: Many timeshares include kitchens and living areas, providing a home-like feel during vacations.
- Exchange Opportunities: Programs like RCI or Interval International allow you to exchange your timeshare for stays in different locations worldwide.
- Potential for Rental Income: When you’re not using it, you might be able to rent out your timeshare to others.
- Fixed Costs: Your accommodation costs are fixed, which can make budgeting for vacations easier.
- Owner Perks: Timeshare owners often receive additional perks, such as discounts on activities, dining, and other services.
- Long-Term Investment in Vacations: Owning a timeshare can motivate you to take regular vacations, ensuring you make time for relaxation and family.
Cons
- High Initial Purchase Cost: The upfront cost of purchasing a timeshare can be substantial.
- Maintenance Fees: Annual maintenance fees can be high and often increase over time.
- Limited Flexibility: You may be locked into the same vacation time and place each year, which can be restrictive.
- Difficulty in Selling: Reselling a timeshare can be very challenging, with limited buyers and potentially significant losses.
- Additional Travel Costs: If your timeshare is far from home, travel expenses can add up.
- Depreciation: Unlike real estate, timeshares typically depreciate in value over time.
- Exchange Fees: Participating in exchange programs often comes with additional fees.
- Usage Restrictions: Some timeshares have restrictions on usage, such as blackout dates or mandatory usage within certain time frames.
- Potential for Mismanagement: If the management company runs into financial trouble or mismanages the property, it can affect the quality and value of your timeshare.
- Obligation to Pay Even if Not Used: You are obligated to pay maintenance fees and other costs even if you don’t use the timeshare in a given year.
Costs associated with timeshares
When considering whether a timeshare is right for you, it’s important to understand all of the costs involved.
Initial purchase price
The upfront cost of buying a timeshare can range from $10,000 to $50,000 or more, depending on the location, size, and amenities of the property.
Maintenance fees
Maintenance fees typically range from $500 to $1,500 per year, covering property upkeep, utilities, and management. These fees can increase over time.
Travel costs
Travel expenses to and from your timeshare location can add up, especially if the property is far from home or in a different country.
Additional hidden costs
Extra costs may include those for major repairs or improvements, exchange program fees, and property taxes. These hidden costs can significantly impact the overall expense of owning a timeshare.
4. Timeshare vs. Fractional Ownership
What is a timeshare?
Is timeshare a good investment?
Unlike traditional real estate, timeshares typically depreciate over time. The initial purchase price is often much higher than the resale value, and the resale market is usually limited.
While there's potential to generate rental income, this is dependent on your provider allowing rentals and can be hindered by high competition and seasonal demand. Overall, the financial returns on a timeshare are generally less favorable compared to other real estate investments, making it a less attractive option for those seeking long-term value appreciation.
Should you buy a timeshare or a vacation home?
Deciding between a timeshare and a vacation home depends on lots of factors including cost, convenience, long-term financial implications, usage flexibility, and lifestyle considerations.
A timeshare is generally less expensive upfront compared to a vacation home, as you're only purchasing a share of the property for a specific period each year. This can be convenient for those who want a vacation property without the full responsibility of maintenance and management. However, timeshares come with annual fees and potential special assessments that can add up over time.
In contrast, buying a vacation home involves a significant initial investment, along with ongoing costs for maintenance, insurance, and property taxes. While more costly, a vacation home can appreciate in value, potentially providing a return on investment. Owners also have the option to rent out the property when not in use, generating additional income.
When it comes to usage flexibility, vacation homes offer more freedom as owners can visit anytime and for any duration. Timeshares have fixed or floating weeks, which might not always align with your preferred travel schedule.
Lifestyle considerations are crucial. A timeshare might suit those who prefer a predictable vacation routine and enjoy amenities provided by resorts. A vacation home, however, offers a personalized retreat which can be more appealing for those wanting a home-away-from-home experience.
Timeshare vs. fractional ownership (co-ownership)
When considering vacation property options, it's helpful to understand the differences between timeshares and fractional ownership (or co-ownership as it’s also called today.)
Where a timeshare is a property with divided ownership, that allows multiple people to share the cost and usage - typically for one week per year, fractional ownership, on the other hand, involves owning a share of a property with fewer co-owners, often 4 to 12, granting longer and more flexible usage periods.
Cost comparison shows timeshares are generally more affordable upfront but come with ongoing fees. Whereas fractional ownership costs more initially due to the larger share of ownership, but the costs are often offset by better maintenance and property management services.
In terms of usage and flexibility, timeshares provide fixed or floating weeks, which can be restrictive. Fractional ownership offers more flexibility, often allowing several weeks or months of use, providing a greater return on your investment.
Resale and rental potential are also higher with fractional ownership, as it is often perceived as more valuable and desirable. Timeshares typically depreciate and can be challenging to resell.
From an investment perspective, fractional ownership is generally considered a better option. It offers a potential return on investment and a more luxurious, flexible vacation experience compared to timeshares, which are better suited for those seeking a predictable and routine vacation schedule.
Other alternatives to timeshares
Besides timeshares, there are several other ways to afford a vacation property - potentially with less commitment or downsides. One popular option is vacation rental properties through platforms like VRBO and Airbnb. These services offer a variety of homes, condos, and unique stays worldwide, making it easy to access flexible, short-term rentals tailored to your travel needs.
Hotel loyalty programs are another alternative. By accumulating points through frequent stays, you can earn free nights and other perks, making luxury accommodation more affordable. Brands like Marriott Bonvoy and Hilton Honors offer extensive networks of properties globally, providing a wide range of vacation options.
Travel clubs and memberships, such as Inspirato, provide access to high-end vacation homes and hotels without ownership. Members pay an annual fee for exclusive deals, personalized service, and unique experiences, combining convenience with luxury.
Private residence clubs offer partial ownership in a high-end property, similar to fractional ownership but often with even more amenities and services. These clubs provide a luxury home experience with less financial commitment and responsibility compared to owning a vacation home outright.
Lastly, destination clubs offer access to a portfolio of luxury properties around the world. Members pay an initiation fee and annual dues, gaining the flexibility to choose from various locations and accommodations. This option is ideal for those who desire variety and high-end experiences without the hassle of property maintenance.
5. Buying, Renting Out & Selling a Timeshare
What is a timeshare?
Tips for buying a timeshare
Before diving into a timeshare, it’s vital to carry out thorough research and due diligence. Here are our 4 top tips to help you make a more informed decision and secure a timeshare that fits your lifestyle and budget.
- Begin by investigating the reputation of the timeshare company and the property itself. Read reviews from current owners and visit the property in person if possible to ensure it meets your expectations.
- Before purchasing, ask important questions such as: What are the annual maintenance fees? Are there any special assessments? What are the policies for exchanging weeks or points? Understanding these details can help you avoid unexpected costs and disappointments.
- Carefully review the contract and terms. Make sure you understand all aspects, including the duration of your ownership, the specific weeks or points you'll receive, and the process for booking your stay. Pay attention to any clauses about resale, cancellation, and inheritance. It's often beneficial to have a legal expert review the contract to ensure there are no hidden pitfalls.
- Negotiating the best deal is another essential step. Timeshare prices are often negotiable, so don't hesitate to ask for discounts, additional perks, or better terms. Consider buying from the resale market, where prices can be significantly lower than buying directly from the developer.
Can you rent out your timeshare?
The answer to this question depends on your particular timeshare company, as some companies have restrictions or specific procedures for renting out your timeshare property.
Here are the key points to consider if this is something you’re weighing up:
- Ensure that you comply with the terms of your timeshare agreement and also local laws.
- If your timeshare company allows rentals, create a clear rental contract outlining the rental period, payment terms, responsibilities, and any house rules. It’s wise to consult a legal professional to draft or review the contract to avoid potential disputes.
- Once confirmed, set a competitive price by researching similar rentals in the area.
- Choose a suitable rental platform for listing your timeshare. Websites such as Airbnb, VRBO and RedWeek are user-friendly and provide extensive reach to potential renters, as well as support throughout the booking process. Additionally, some timeshare companies have internal exchange or rental programs that can simplify the process.
- The main advantage of renting out your timeshare is the potential to cover maintenance fees or earn extra income. However, there are drawbacks, such as the time and effort required to manage listings and bookings. Additionally, there’s a risk of property damage or disputes with renters.
How to get out of a timeshare
Exiting a timeshare can be challenging, but there are several strategies to consider that could help you get out responsibly and with minimal financial impact.
Reselling the timeshare
One option is to resell your timeshare. List it on platforms like RedWeek, Timeshare Users Group, or ebay, but be prepared to sell at a lower price than your initial purchase, as the resale market is often saturated.
Timeshare exit companies
Professional timeshare exit companies can help facilitate the process. These companies negotiate with the timeshare developer to release you from your contract, but be sure to research thoroughly and choose reputable firms to avoid scams and high fees.
Legal options
Many jurisdictions offer a "cooling-off period" shortly after purchase, during which you can cancel the contract without penalty. If you're within this window, contact the timeshare company immediately to initiate the cancellation.
Donating the timeshare
If selling isn't an option, you might donate your timeshare to a charity. Some organizations accept timeshares, but they often have strict criteria. Ensure the charity is legitimate and confirm they will take over all future responsibilities.
Transferring ownership
Transferring ownership to a friend or family member is another way out. This can be a straightforward process if both parties agree and the timeshare company allows it. Make sure all paperwork is completed correctly to avoid future liabilities.
Paying off a timeshare
If you're struggling with timeshare payments, paying off the balance can sometimes facilitate an exit. Once the timeshare is paid off, you have more flexibility to negotiate a release from your obligations or transfer the ownership.
Timeshare scams and how to avoid them
There are plenty of reputable timeshare companies, but unfortunately timeshare scams are known to exist. Here are some common types of scams, red flags to watch out for, and tips for protecting yourself:
- Resale scams: Scammers pose as resale agents, promising to sell your timeshare quickly and for a good price. They often require an upfront fee but then disappear without delivering results.
- Upfront fee scams: Scammers request an advance payment for services such as listing your timeshare or providing a guaranteed buyer. Once the fee is paid, they vanish or provide no real service.
Red flags to watch out for
- High-pressure tactics: Be wary of salespeople who pressure you to make quick decisions or sign contracts immediately.
- Unsolicited offers: Be suspicious of unsolicited emails, phone calls, or letters offering to sell your timeshare.
- Promises that seem too good to be true: If an offer sounds too good to be true, it probably is. Scammers often use enticing promises to lure victims.
- Lack of written contract: Never proceed without a detailed, written contract outlining all terms and conditions.
Tips for protecting yourself
- Research thoroughly: Investigate any company or individual offering to sell or manage your timeshare. Look for reviews, check their Better Business Bureau rating, and verify their legitimacy.
- Avoid upfront fees: Reputable companies typically don’t require substantial upfront fees. If asked for one, proceed with caution and ensure it's refundable.
- Get everything in writing: Ensure all agreements are documented in a contract. Read the fine print and understand all terms before signing.
- Consult a professional: Seek advice from a real estate attorney or a trusted advisor before making decisions related to your timeshare.
What is a timeshare?
Further reading about timeshare
Explore other timeshare-related articles at Kocomo:
What is a Timeshare and How is Co-Ownership Different?
What is the Best Way to Buy a Vacation Home?
How Co-Ownership Providers Help Owners Sell Their Shares
A smarter way to vacation!
If a timeshare isn’t for you, co-ownership offers a fresh and modern alternative. With flexible options and shared costs, it’s a great way to own a luxury vacation home in an affordable and hassle-free way.
Learn more about co-ownership and discover world-class fractional ownership Listings at Kocomo.