Timeshares for Beginners: Everything You Need to Know
Chances are that if you’ve heard of timeshares, you have a negative view of them. You’ve heard horror stories about long sales pitches, inflexible vacation dates, and people who can’t leave their timeshare arrangements. Timeshares became popular in the 1970s due to a surplus of vacation condos that came into the market.
But in today’s world, there are various ways to own property jointly. You can go the timeshare route or look at other fractional ownership options. We’ll break down everything you need to know about timeshares and discuss some more modern options for today’s real estate investor.
What Is A Timeshare?
A timeshare is a type of ownership for a vacation property where owners share the time of property use. In most situations, you share the cost of your timeshare with other owners. In exchange, you get to spend a set amount of time at the vacation property each year.
It’s important to note that not all timeshare agreements are equal. Timeshares are also not the only way to have shared ownership over vacation properties. Read on to find out more.
How Does A Timeshare Work?
Not all timeshares are the same, so read the fine print. But generally, you enter into a timeshare agreement. Many timeshares operate as fractional ownership agreements. This means you own a portion of the property, and the more you own, the more you get to use the property. But in other cases, the timeshare agreement is a lease. So you don’t actually own the timeshare. Your lease lasts for a few years, and you use the timeshare during this time.
What Do I Really Own When Buying A Timeshare?
Every timeshare agreement functions differently. Be sure to read the fine print before you sign on. Here are some of the different ways you can own property.
Deeded timeshare
When you own a deeded timeshare, your purchase an ownership interest in the property, and people with better time slots own higher shares. In some cases, there can be as many as 52 owners for one timeshare.
Another option in the timeshare world is non-deeded timeshares. But in this type of agreement, you do not own the timeshare. You are leasing the timeshare and paying for the right to use it.
Fractional ownership interest
There is another option beyond timeshares. You can own property through fractional ownership. Timeshare and fractional ownership interest both involve owning a stake in a real estate property. The most significant difference between fractional ownership is that you own a portion of the title. So as your property appreciates in value, you see that value-add more directly. With a timeshare, you own a piece of time to use at the property.
Types Of Timeshare Usage
One of the biggest gripes about timeshares is that their usage is complicated. Here are the major types of timeshare usage.
Fixed-week timeshares
With fixed-week timeshares, you are paying to access the same week each year. Some people love the consistency that a fixed-week timeshare provides. But other people struggle to keep the same week open each year.
Floating-week timeshares
Floating-week timeshares are more flexible. You can book your time based on availability. More flexibility sounds good in theory, but it can be hard to get the best peak-of-season times. There is no guarantee when you will stay in your timeshare if you opt for a floating-week timeshare.
Point system timeshares
Point system timeshares are not tied to an individual piece of property. But rather, you get points to use in various locations at different points in the year. Just like floating-week timeshares, there is no guarantee that you will get to go on vacation using a timeshare at your preferred time.
Advantages And Disadvantages Of Timeshares
Before buying a timeshare, it’s key to weigh the pros and cons. You want to make a sound financial decision that suits your lifestyle and budget. Let’s break down the advantages and disadvantages of a timeshare.
Advantages
- Timeshares are guaranteed time slots in your preferred vacation spots. But it’s vital to choose the right agreement. Do you want to be in the same place at the same time each year? Choose a fixed-week timeshare. If you want more flexibility with your timeshare, choose a floating-week or point system timeshare.
- Timeshares offer people low-maintenance vacation investment properties. You get many of the perks of owning a vacation home with less hassle. You just pay maintenance fees, and someone else handles upkeep.
- Many timeshares offer amenities that other vacation properties don’t. Timeshares are often located in resorts, and you can find things like spacious rooms with views, swimming pools, kitchens, spas, dining, and even discounts on attractions. Many offer storage for timeshare owners for things like skis and skateboards.
- You can gift timeshare time to family and friends. Many people often use their timeshares for things like charity auctions as well.
Disadvantages
- Timeshares are often a poor investment. It’s a simple matter of supply and demand. There are a lot of people trying to sell their timeshares. So you’re bound to take a hit when you sell your timeshare.
- Timeshares can feel limiting. Every type of timeshare agreement can feel restricting to an owner. People often feel like they can’t use the timeshares they want. For example, if you sign on for a floating week timeshare, you may not get to use it during peak times when the area is truly ideal. Even fixed-week arrangements have their drawbacks. Life happens, and you may not be available on the same week each year.
- Your ongoing expenses will go up. Maintenance fees often increase over time while your timeshare’s value decreases.
- Timeshares are often headaches for your heirs after you die. Leaving assets to your heirs is a great way to build a legacy, but usually timeshares just cost your loved ones money after you die.
- Timeshares are difficult to sell. Many scammers target people who are trying to get out of timeshares. Read more about how to get out of a timeshare below.
How Much Does A Timeshare Cost?
The short answer is– it depends. There are a lot of factors that go into a timeshare. Some people pay more to have better access to their timeshare. Location will also affect the price considerably. But here are some stats based on the American Resort Development Association.
Average Costs
The average cost of a weekly timeshare interval is $24,140.
Maintenance Fees
The average cost of maintenance fees is around $1,000 annually.
Maintenance fees cover expenses and upkeep for the property, and they often increase over time. You must pay maintenance fees for your timeshare even if you don’t use your interval.
You can rent out your timeshare from time to time to cover escalating maintenance fees (if policy allows), but you may still need to pay additional cleaning or booking fees in this situation.
Getting Out Of A Timeshare Contract
It is tough to get out of a timeshare. Timeshares are unique real estate arrangements. You need an experienced and trusted professional who knows how to get out of a timeshare contract.
How do you sell a timeshare?
You can sell your timeshare. The process is complex, and you select a real estate agent specializing in selling timeshares. You need to use someone that can get to know the terms of your contract and get you a fair price for your timeshare.
Many scams exist for people desperate to escape their timeshare, so don’t let a scammer prey on your vulnerability. Check with the Better Business Bureau and the American Resort Development Association for reviews on your timeshare Realtor. You should never feel pressured to buy something or join a club while trying to get out of a timeshare contract.
You can also consider hiring a timeshare exit company. Exit companies are different from timeshare real estate agents. These are companies that look for legal ways for you to exit your timeshare contract.
Can you give a timeshare back to the resort?
Many timeshare companies want you to contact them when trying to get rid of your timeshare. They will try to talk you into keeping your timeshare but stand your ground. Here are some of the offers you may encounter if you go this route:
- Offer different options that may cost less, like moving to a tier with lower points.
- Promote a timeshare exchange program
- Transferring your ownership to a friend or family member (they will have to pay fees)
- Selling the timeshare with their help
- Return your ownership and get rid of your fees
If you bought a timeshare from a reputable company, they would want to maintain that reputation. So stand firm, and try to make the best possible deal for your situation.
Timeshare Vs. Vacation Home
If you want to own a piece of your favorite vacation spot, you have some options. Timeshares and vacation homes offer people different opportunities to invest in their favorite destinations. But they are different, so let’s break them down, so you know what’s best for you.
Timeshares can be a more affordable choice. Your annual costs will be smaller, and you will put little to no time into your vacation property. You also won’t have to make sure your vacation home is rented out weekly. You’re only responsible for your time slot with a timeshare.
People struggle with how inflexible and complicated timeshares are to use. You also will never feel like your timeshare is truly yours because you share it with many people and may float around properties.
A vacation home is an excellent alternative to a timeshare. You will have more say over the property: how it looks, when you can use it, and when you rent it out. Vacation homes are much easier to sell, and you are more likely to make money on this sale.
The Benefits Of Fractional Ownership Over Timeshares
Many people think that owning their own vacation property is unattainable. But the truth is there are a variety of ways to buy an investment property. You can own a portion of a vacation property. Let’s break down the benefits of fractional ownership.
Actual ownership in the property
With timeshares, you are buying time. But with fractional ownership, you are part of the title and mortgage of the vacation home. You actually own the property, which means you are building your wealth through equity and eventually the home sale.
You will also feel like the owner of the property. With fewer owners, you will take a more active interest in your vacation property. There can be over 50 owners for one timeshare property!
Lower entry price
You don’t have to be scared off by high sticker prices for vacation homes. You know that you will divide the number by your group of buyers. So you instantly can qualify for larger loans, and you get access to more choices in houses.