12 Easy Steps...
...For Understanding A Timeshare Vacation Property
|Understanding fractional ownership.
Owning a timeshare property is much like owning a townhome or condo,
except that your ownership is limited to a specific time period
during the year. A timeshare has a deed and a property description just
like any other real estate. It is recorded in the county courthouse just
like other real estate, and it requires property tax, insurance, a title,
title insurance, and a formal closing like other property. The one difference
is that the property description will have a time element included. That is
key since if you don't like the time slot, you essentially have to sell your
unit and buy a new one to get a different time slot. Two more rules that
apply to real estate may be important here. First, understand that nothing
that the salesperson tells you is binding since in real estate, the
only thing that matters is what is in writing. Second, since these purchases
are legally recorded, they are very difficult to un-do.
|Red, blue, and white weeks.
The key difference between a condo and a timeshare is the time factor in
ownership. A unit owner typically gets one week per year. That week
nearly always starts at noon on Sunday, and ends at noon on Saturday, but
this varies at different resorts. Some resorts offer points that can be
used at different times of the year. This is more flexible, but the best
weeks often require more points than you are allocated in a given year,
so you get to visit less often. The very best and highest demand weeks are
called Red weeks. The middle demand weeks are called Blue weeks, and the low
demand off-season weeks are called White weeks. The Red and Blue weeks
will typically cost more than White weeks, however, most White weeks are
truly times that you would typically not want to visit the resort. Think
of Minnesota when it is minus 20 degrees, or Bombay during the rainy season.
While you should pick the time that works the best for you, keep
in mind that anything less than a Red week will hurt resale value and be
hard to trade.
|Do not get sold down the river.
Never allow yourself to be sold a timeshare. Don't get involved in the
high pressure sales events. It is not worth the TV set or other gift
that is offered. Timeshare sales commissions are so high that it is
worth whatever mind games and illegal tricks that they can think of to
get you to sign on the bottom line. If they tell you that this is a
unique property, read that as the market is almost flooded. If they say
it is a limited time offer, know that they have more units on the drawing
board ready to go when yours is sold.
The best way to buy a timeshare is to be an informed buyer. You are the one
who needs to research resorts and find out who has units for sale. The
Internet makes this work relatively easy. The secret of the industry is that
many timeshares end up being abandoned and foreclosed. You can buy these
repossessed units for next to nothing. For example, a $20,000 timeshare
can be picked up for 10% of that on the resale market. I have seen
deals at older resorts where they will give you the unit and several
years of waived management fees just to get you locked in to pay future
management fees. Never, ever pay full price.
|A timeshare is not an investment.
The sales staff will tell you that a timeshare is an investment that you can
sell for a profit or include in your will. That is true, you
can sell or pass on a timeshare. You will likely never sell it for more
than 25% of what you pay. So, expect to lose 75% of your value within
5 seconds of signing on the dotted line.
The definition of an investment is a capital tool or item that you buy with
the intention of using it to manufacture goods or services at a profit.
A timeshare does not fit that definition. A timeshare is actually an
expense item. In fact, since you don't have to have one, it falls in the
luxury expense category. There is nothing wrong with that if you can afford
it, and you have no delusions of making money on the deal.
The key problem with a timeshare is that it eats money. Typical time
share fees are $500 to $750 per unit per week per year. You pay this
management fee on top of any ownership fees. That $500 to $750 doesn't
sound like much when you are thinking of spending $20,000 to $35,000
on a unit, but it gets old after a few years, especially if you
don't use your unit every year. In fact, it becomes such a problem
for some people that they simply walk away and take the credit report hit.
The yearly fee prevents most charities from accepting timeshare donations
since they don't want to get stuck with the fee, either.
|Selling a timeshare.
Selling a timeshare is very difficult. This goes double for someone who
bought a timeshare without understanding how they work. The truth is that
a timeshare drops in value by 75% or more the moment you buy it. Most
people find it impossible to sell a timeshare. The resort sales staff
don't want to compete with individual sellers, so they often make it
impossible to advertise on-property where new victims might see the signs.
Also, some scam artists prey on this problem by offering to sell your unit
as long as you give them an up-front fee. In reality, this fee only pays to
place your ad in their timeshare book. You will never sell your unit
this way, and simply end up losing the fee on top of your other losses.
There are a few ways to sell your timeshare. You may be able to list it on
E-bay or in your local newspaper. It may sell if you have a price that is
under $2500 or it is a high-demand unit for some reason. You might also be
able to bribe your sales agent into selling your unit if the place still has
new sales going on. They don't normally resell units, but if you offer a huge
commission, they may sneak it into the mix for you.
|Trading your timeshare.
The timeshare people always tell you that you can trade your timeshare
for properties all over the world. For example, you can trade your Branson
unit for something in Paris, the Riviera, or Waikiki Beach. In reality,
people with the good units like this don't trade very often. Second, it
is difficult to get someone to trade down. Why should someone who owns at
Pebble Beach come to Branson? Hopefully not for the golf. Third, the
trading organizations all require a membership fee and a fee for each
trade that they arrange. By the time you pay the fees for a trade, you
are probably just as well off staying in a nice hotel at the destination
and keep your week in reserve.
|Letting others use your timeshare.
If you don't use your timeshare in a given year, you have the option
of letting someone else use the unit. You can simply give them the
usage, or rent out the unit. If you do this, make sure to let the
management company know so they don't question the strangers that show
up, and to allow these guests to use the facilities. The issue here is
that if your guests do not behave, or cause damage, you are on the hook
to pay. Make sure that you only give your keys to someone that you trust
in your house.
|Damage and upkeep risks.
All properties deteriorate over time and need updates. In some cases,
mother nature speeds up this process with hurricanes and ice storms.
The bottom line here is that if the reserve fund for the resort cannot
pay for something, they are free to pass the costs onto the members in
the form of a special assessment. For example, many timeshare owners
received bills for $500 to $2500 to fix hurricane damage on top of their
normal annual fees. Other items that result in these
kinds of fees are beach erosion, dock damages, and wooden decks.
|Benefits of ownership.
There are benefits of timeshare ownership. The first is that it is like
a short-term condo where you don't have to worry about cleaning or upkeep,
so you can focus all your time on vacation. A second feature is that
you know in advance exactly what you are getting. This might be nice if
you know that you want to spend one week every year playing golf or
visiting Disney. In fact, the fixed time each year ensures that you will
take a one week timeout. Since I am not a beach person, I used it to
get caught up on reading and veg out. But be careful
buying a timeshare around some event. Events can move in time from year
to year, but your timeshare does not adjust in most cases.
You need to be concerned about the future. Is this resort right for you and
your family as they grow and become older? Will the resort deteriorate over
time? Will the shine wear off? How good is the upkeep? What will the area
be like in 25 years. Will it thrive or decline? What will the property be
like in 25 years? Do you want to pay those fees for 25 years?
|The bottom line on timeshares.
The bottom line is that timeshares are expensive to buy and expensive
to maintain. It is easy to get in over your head, and they hard to get
out of. Do look before you leap. Don't sign on the dotted line just
to get out of a high-pressure sales pitch. Finally, look 20 years down
the road to get an idea about what the place will be like in the future.