Saturday, January 25, 2014

Timeshares: The good and the bad

A timeshare is fractional ownership in a vacation property. They get a bad reputation because of the high pressure, hard sell, salespeople peddling them. But are they
really that bad?

The salespeople usually dangle free opportunities from discounted tours to free dinners and vacations. The gotcha is that you have to listen to a sales presentation which is going to take saying, "No," many times before you can leave without purchasing a timeshare to claim your gift. About a dozen years ago, my mother, father, wife, and I purchased a timeshare and we very quickly learned the ins-and-outs. (Actually, it was my late father who handled the details which was then taken over by my wife.)

There are different types of timeshare deals such as a 30-year lease or permanent deeded ownership for a fixed week or floating week time period. While timeshare specifics vary, one thing is certain: if timeshares are not a good fit for your family then it will cause more problems and stress than assembling furniture from Ikea. ☺

Who Are Timeshares Good For?

Before harping on the negatives of timeshare ownership, let me point out that they make good sense for retirees and large families – or anyone else who can plan a vacation a year out. They say that planning as long as a year or as short as a week out is the optimal timeframe. I'm not sure about the latter, but long term planning is definitely the key. Another nice aspect of owning a timeshare is that you can swap it (referred to as banking which adds more fees to the cost of ownership) with other timeshare owners to stay most anywhere in the world. By banking our timeshare, my family and I have reserved units in Carlsbad, Spain, Puerto Vallarta, and Kenya.

A timeshare is a yearly use-it-or-lose-it proposition. If you need a gentle push to plan a vacation, then a timeshare can give you that motivation. Once you've purchased a timeshare, you'll have to pay annual fees for taxes and maintenance much like owning a home with an HOA. Once these fees are paid, your vacation stay is virtually paid for. (Sometimes there's a trivial tax at check-in. Last time my wife and I used a timeshare, we paid about $20 in taxes for the entire week). Of course, you still have to pay for your transportation to and from the timeshare location.

Timeshare Costs

Our timeshare is a two-week, every year, two-bedroom unit in Hawaii that can sleep at least six people. It's ideal for a large family. The downside is that our two weeks costs just over $2,000/year in fees. So, after purchasing the timeshare we're still paying about $1,000/week. Unfortunately, we haven't used our timeshare more years than we have, leading to our strong desire to sell it. About five years ago I visited a timeshare resale office. The broker looked up our timeshare and after factoring in the 50% sales commission [sic], I learned that we'd pocket less than 10% of our original purchase price. Granted, it was during the recession caused by the sub-prime mortgage meltdown, but a 90% loss for real property is a bad deal no matter how you look at it, and it's not much better today.

Not an Investment

Timeshares should never be bought as an investment, but rather as something to improve your quality of life. True investments are easy to spot: They're anything you can purchase today and sell tomorrow for the same price, less any small commissions and fees. Well known good investments are things like houses and stocks. They're speculative, but you can sell it the next day for about the same price. USPS Forever Stamps are a great investment – almost pure arbitrage. Today, a first class stamp costs 46¢, tomorrow (Jan. 26, 2014) the price will be 49¢. You could easily buy Forever stamps, today, and sell them at a profit, next week.

Before buying a timeshare, look at your vacation habits and find out what you can resell it for on the open market. There's no rush to buy one today – even if you have a caring sales person like ours – because you're going to have to live with it for a long time.

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