by Jeff Day
Who wouldn't like a vacation home? Whether you enjoy skiing, walking along the shore, or simply feeling a mountain breeze, you can't deny that the idea of getting away when and where you want gets better the more you think about it.
But with the median price of a vacation home hovering around $170,000 during 2009, owning a getaway property is probably well out of your reach. So maybe, just maybe, when the mail or a phone call brings you an offer to buy into a timeshare vacation home, you should consider it.
How Do Timeshares Work?
When you buy into a timeshare, you either purchase the right to stay in a furnished condominium, house or other vacation property such as a houseboat for a certain amount of time every year, or you contract for the right to rent a property every year for a certain amount of time. The average price for either type of timeshare contract during 2008, according to the industry trade group American Resort Development Association, was slightly above $20,000.
Timeshares range in size from a studio apartment to a large condo or a full house, and unlike a hotel, you can have friends or family stay with you at your timeshare for no extra cost. Most timeshares are built around resort areas, where swimming, hiking, golf, tennis or winter sports are readily accessible. The trappings such as furniture and kitchen fixtures range from simple and relatively inexpensive to luxurious and more expensive than you can imagine.
A purchase agreement for a timeshare is called a deeded timeshare ownership and generally gets you a week in the same vacation property at the same time every year. Like your house, a timeshare property held by deeded ownership is considered real estate, and you can sell your contract for the residence or leave it to your heirs.
A rental, or right to use, timeshare contract has a limited term — typically between 10 and 50 years — and is itself considered personal property. You can sell a timeshare rental contract, or leave it to your heirs, although there may be some restrictions. And, of course, once the term of the agreement is up, the owner of the contract no longer has access to the rental unit.
Another difference between purchase and rental timeshare contracts is that with a right to use agreement, you may not get the same unit for the same dates each year. Further, some rental contracts allow you to buy points you can apply toward renting any vacation property the company issuing the contract operates. The number of points a stay costs depends on the location, size and luxury of a condo, house or other residence.
Everyone from the Federal Trade Commission to ARDA says it's important to understand that a timeshare is not an investment. You are buying vacation time, not a vacation home. The value of your timeshare is more likely to go down than up over time. On average, a "used" timeshare sells for about one-third of what it cost new. This means that a contract bought for $20,000 initially sells person to person on the open market for around $6,600. The $13,400 difference isn't lost, especially if the original buyer kept his or her timeshare for several years. The apparently missing money is the cost the person paid for taking vacations at the timeshare property.
The upside, of course is this: You can save a bundle by picking up a used timeshare. You could even spend considerably less than one-third of the initial price when the housing market is down. Search the Web for "timeshare for sale by owner" or search for timeshare users groups to find brokers to find good deals.
Consider the Contract
If you decide to buy into a timeshare, remember the three prime rules of real estate: Compare, compare and compare. More than 1,600 companies operate timeshare properties in the United States. On average, the companies offer contracts on 110 residences, but the quality of, and terms on, timeshares vary widely within and across companies. To find a property that meets your financial and vacation needs, look at several and compare the following:
- Quality of the management company. Check with local Realtors, the Better Business Bureau, and state and local consumer protection agencies for possible complaints. Make sure the company is a member of ARDA if it operates a resort.
- Price. Have the property appraised by a timeshare appraisal service and compare the appraised value of the property with what you're being asked to pay, as well as the prices of similar properties in the area.
- Taxes. If you buy a deeded timeshare, you have to pay part of the property taxes. Find out what your share is and how stable taxes have been over the past few years. Talk with a tax professional to see whether you can deduct the taxes you pay on your timeshare.
- Fees. Whether your timeshare is deeded or right-to-use, you have to pay an annual fee to cover things like maintenance, furnishings and insurance. According to ARDA, the average timeshare fee was around $650 in 2008. About 10 percent of resorts had fees lower than $400, and some 36 percent had fees higher than $700. Be aware that fees can go up yearly; from 2007 to 2008, the average increase was slightly more than 12 percent.
When you're dealing with timeshare salespeople, don't let yourself get pressured into buying, and never buy on your first visit. Ask to take any contract home so you can read it over in detail and show it to a lawyer. If you do sign a contract, you need to be aware of three important facts. First, make sure the contract allows you a cooling-off period during which you can cancel the deal if you change your mind. Second, if the timeshare is under construction, make sure you can pay the money into an escrow account rather than directly to the operator. Last, if you buy overseas, you are not protected by American real estate and consumer protection laws.
Converting Your Timeshare to Cash
When you decide it's time to sell your timeshare:
- Beware of high-pressure brokers. Don't agree to anything until you've checked out the reseller with the same types of people you used to evaluate your original purchase.
- Do not pay any fees in advance, even if you are told they are refundable.
- Deal only with licensed brokers. Check their credentials. Find out what they charge as commission and if there are any other fees.
- Have the property assessed by a timeshare appraisal service to make sure you are asking the correct price.
Jeff Day owns two apartments and is considered by some to be the greatest landlord in the history of the world.
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