Owning your very own slice of paradise sounds like a luxurious and easy way to jetset at a moment’s notice while having a secure investment, but is owning a timeshare really a good investment of your hard-earned money?
While there are definitely benefits of owning a timeshare, it is hard to call a timeshare a traditional investment of your money. Unlike other rental properties, stocks, bonds, and IRAs, timeshares do not provide you with the same sort of promise of a financial return. However, in return for your financial investment, the only thing that you really get in return is that you have access to a vacation home that you can use for an agreed upon period of time.
It is hard to say whether or not the value of your timeshare in terms of its use will equal the value of your hard-earned money that you put into it, and it’s even harder to say whether or not your hard-earned money will increase as a result of your purchase of a timeshare. These uncertainties complicate the matter further.
Let’s discuss whether or not buying a timeshare is a good investment for you so that you can decide for yourself if you want to buy a timeshare.
So What is a Timeshare Really?
We have already established that timeshares do not offer the same amount of financial return as rental properties, but you might be wondering why that is. On its face, a timeshare sounds like a similar concept where multiple people have access to use the property and no one uses it as a primary residence.
However, a timeshare is not actually a cut and dry property purchase. It is what is known as a vacation ownership option, where you are entitled to use the property for a set amount of time each year. You can have some ownership of a timeshare, but even still it will likely be a small percentage of ownership of the whole property.
There are two ways that you can buy a timeshare and one of those options does not include owning any of the actual property itself. The two ways to buy a timeshare are called a timeshare vacation interval purchase and a deeded timeshare. Consider these options as a lease option and a small fraction of an ownership option.
When purchasing a timeshare vacation interval, your act of “buying a timeshare” is actually purchasing a right to use that property while the property itself is owned by someone else. This option is the most popular timeshare sales option and does not allow you to rent, sell, or renovate like a traditional property ownership sale would involve because you do not have any ownership of the property.
The deeded timeshare purchase option does allow you to own the property itself, but not individually. Your actual ownership of the property will depend on how much time you purchase at the timeshare. For a one-week option, you will own just 1/52nd of the timeshare property itself. This option means that you are on the deed with many other owners and is considered an unpopular option these days. It is highly unlikely that you will be offered a deeded timeshare opportunity in 2022.
Now that you know about the specifics of timeshares, let’s go over why you might and might not want to purchase a timeshare in 2022.
Why You Might Want to Purchase a Timeshare
A timeshare is more affordable than a vacation home.
If what you are wanting out of a timeshare is a consistent, private place to come to year after year then a timeshare may be an easier option for you than a vacation home. You’re imagining a future that involves yearly family reunions in the same location each year where you can watch your grandchildren grow up and explore, but the setting remains the same. Timeshares can provide this home away from home option for a lower price and without the upkeep or oversight work that a vacation home would require. When investing instead in a vacation home, you will assume the risk that renting out that vacation home entails. This could include property damage, oversight of rentals, property management, and additional costs.
The average cost of a timeshare per week of access in 2019 was $22, 942 according to the American Resort Development Association. As well, ARDA listed the average maintenance fee for timeshares in 2019 as ranging from $640/year to $1,290/year on average depending on the size of the timeshare. In comparison to a 20% down payment on a nice vacation home, this is a much more affordable alternative to suit your goals.
You can share timeshares with your loved ones.
A great advantage of having a timeshare is that you can use your timeshare as an amazing gift or get together opportunity for family and friends. By having access to this property, you are able to offer it to those that you love in order for them to enjoy the beautiful vacation spot that you do as well. Many timeshare owners use a stay at their timeshare as graduation presents, wedding presents, or even an offering at a charity auction for their favorite cause.
It is possible to rent out your agreed upon time in the timeshare.
Depending on your contract, you may have the option to skip a year of visiting your timeshare and instead rent it out to a third party so that you do not lose out on a year of your timeshare lease or ownership. This option in a timeshare can allow you to be flexible with your vacation schedule, rather than having to return to the same vacation location each year. Be careful though that you ensure that this option is in fact available to you through your prospective timeshare contract. If it is not, you could end up in some serious trouble with the property owners.
Maintenance is not your responsibility!
While the maintenance fees of a timeshare may sound like a hassle, they are typically much less than you would pay for a vacation home. You may have heard of the 1-4% rule of adding home maintenance to your house purchasing budget. This rule helps you to estimate your annual cost of home maintenance depending on your home’s value per year. For a $300,000 vacation condo purchase, you should expect to pay $3,000 to $12,000 per year on home maintenance costs. Now, when comparing this to the figures we mentioned above from ARDA, these average maintenance costs for your timeshare don’t sound very high with averages between $640/year to $1,290/year to cover the property.
Now that we’ve covered the benefits of owning a timeshare, let’s discuss why it may not make a great financial investment option despite being the pros we have listed.
Why You Might Not Want to Purchase a Timeshare
There are more affordable ways to ensure that you are traveling yearly.
While your vacations may not be filled with the luxury backdrop of a beautiful and consistent place each year, most week-long vacation rentals are below the price of the cost of buying a timeshare. Even though you may be thinking that a timeshare is a great money saver, it is most likely cheaper to just rent a villa or a hotel room in your chosen destination for the week, rather than invest such a large chunk of change into a long-term lease that requires that you return year after year. Other options for private locations for vacation rentals include offerings from companies such as Airbnb, Vrbo, and other property sharing rental apps.
You can even choose to rent out timeshares from other people when traveling, which is something that is done frequently as people believe that they will travel yearly to the location that they have purchased a timeshare in, but often do not go.
If you want to make a true investment into a vacation property, a vacation home is the way to go.
Truth be told, timeshare value does not appreciate. The timeshare market is oversaturated with people who are trying to get rid of their timeshare in order to make other investments that will provide them with a return. When you are selling your timeshare, you are selling it as a secondary timeshare to other people. This will mean that you will be pushed to sell your timeshare at a significantly reduced rate in order to compete with people who are desperately trying to get out of their leases. So, not only will you be unlikely to be able to make a return off of the money that you have sunk into your timeshare, you will possibly also run into issues when trying to get it off your hands as well.
Even with the higher buy-in cost of a vacation home, you have the benefit of the added security of profit from your investment in property. Even if the market takes a turn, with a vacation home you still have the equity that you have built up in it and the profits that you have likely incurred from renting out that vacation home for the other 51 weeks of the year that you did not visit it. Out of the two vacation property options, a vacation home that you own as a rental property is a much more lucrative investment.
Timeshares can cause vacation guilt.
Timeshares are not as flexible as hotel or villa rentals. Your timeshare may be located in sunny California, where you love to visit, but your annual vacation location may not always be able to be in California. Instead, you might have to take a trip to Hawaii for a family member’s destination wedding. You may be invited on an Alaskan cruise with your friends. The pressure to say ‘no’ to these opportunities because you have already made predetermined yearly plans to visit your timeshare can cause undue headaches and guilt. Rather than investing in a timeshare, you can still enjoy your yearly California trips with added flexibility by choosing to stay at a resort, hotel, or Airbnb of your choice without missing out on other travel opportunities.
Timeshare loans are high interest and low reward.
When you are looking into buying a timeshare, you will have two options: paying with cash or taking out a loan. If you have the cash to purchase a timeshare, you will avoid these costly high interest loans, but if you don’t you will have to interact with them. You may be wondering to yourself, well why are they high-interest if these loans aren’t for very much money? Are banks really that worried about losing out on $22,000 on average?
The answer is overwhelmingly yes. Banks know how volatile timeshares are as an investment and mortgage companies know how timeshares bleed out value. Many lenders choose not to fund loans for timeshare purchases and so these rates are often created specially by the mortgage lenders who do offer this option. As with anything that is scarce, lenders who offer timeshare loans will hike up the interest rates to pull more profit off of scarcity.
So, Is A Timeshare a Good Investment?
We have given you a lot to consider about timeshares, including what the benefits are and what the potential risks are. Whether or not a timeshare is a good investment comes down to what you want to get out of your hard-earned money.
It is clear from a financial perspective that a timeshare is not a good investment in the sense that it will not provide you with a justifiable financial return on the money that you have invested into the property. However, if you feel that a timeshare will make a good investment in your quality of life, then you may decide that a timeshare is the right option for you.
You may still be interested in a long-term vacation option, but we encourage you to look at your finances and consider other alternatives to timeshare. You just may be able to find the best of both worlds without losing out on a potential financial return.
Checkout Wideselection of: Orlando Timeshare Deals!