Many people wonder if timeshares are good investments. The short answer is that they are not investments at all; they are open-ended real-estate purchases which yield no equity. They are popular, though; in 2014 nearly one-in-twelve Americans owned a timeshare, according to Market Watch.com. The average age of owners is about 39, and Hispanic and African-Americans account for about half of the owners.
What is a Timeshare?
People pay an up-front amount for a timeshare property and then pay an annual maintenance fee. The average cost is anywhere from $14,500 to $19,000 for time in a specified unit at a vacation resort. The time is generally about a week, and usually is at the same time of year. The maintenance fee averages $600 annually.
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Pros of Timeshare Ownership
Owning a timeshare practically guarantees that people will take a vacation. Salespeople reason that the purchase price over several years will save families in hotel room rental because they are larger than a hotel room and come fully furnished. That means some vacation expenses like dining out can be saved. In addition, owners can take guests along on their vacations. Of course, many people don’t like going to the same place year after year, so the industry has developed a points system that allows many members to trade in points earned through staying at the properties to “buy” vacation stays at other company properties. Websites also exist that allow owners to trade time in their units for time in other places. Timeshares can become part of an estate and can be passed on to heirs.
The Cons of Owning a Timeshare
Sales tactics for the units are usually high pressured and leverage buyers into making spur-of-the-moment decisions. Once people buy into a property, the units are hard to unload. An entire industry has evolved to handle the sale of timeshares. The problem is that owners must pay fees to list their units, and the companies do not guarantee sales. People can donate a year of their vacation home to charity but can take no charitable donation deduction for it. The purchases are perennial. Owners can go on forever paying the annual maintenance fees, even if the properties deteriorate.
Cautions
Financial expert Dave Ramsey cautions his clients against buying into the properties. If a person does decide to go ahead, there are several things to watch for. Market Watch.com says buyers should be aware that the price is usually negotiable because there is so much competition. Purchasers should not pay full price. In addition, they should know what they are buying. Most buyers will receive a deed to the property. It can be rented out, loaned, and willed to a family member. Additionally, the fees are like property taxes; if they are not paid, the property is repossessed. Buyers need to know how to trade or exchange their vacations of they cannot use them. Prospective owners should know which unit they are buying. Some units are on the top floors of buildings that have no elevators, and luggage must be carried upstairs. In addition, some properties sell trial memberships. These can be wise purchases to let users see what this type of vacation experience is like.
So, timeshares are not investments. Are they a wise use of money? That depends upon how often they are used, and whether the owners like that type of vacation experience. Ramsey points out that someone who pays $14,500 for a property could invest the same amount for ten years at 12 percent and end up with $ 48,000. After twenty years, he would have $178,000. Still, for those who like the idea of staying at the same place every year and saving money by cooking and cleaning for themselves, buying a timeshare may be a reasonable expense.
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