What is a timeshare?

A timeshare is a type of vacation property in which multiple people own shares. With a typical timeshare, you own a portion of the property along with other buyers, and in return, you receive a guaranteed amount of time at the property each year. In some instances, timeshares are less expansive accommodations situated within a more comprehensive resort.

How do timeshares work?

A timeshare allows you to evenly split the cost of a home with others who are also interested in owning a home. In certain contracts, each purchaser possesses a partiality of the land (termed “fractional ownership”), based on how much time they schedule to use it.  In some cases, the buyer leases the property for a set amount of time, often a minimum of several years, without having ownership of the land.

Timeshare point systems

Previously, timeshare purchasers were usually restricted to one week at a solitary property.  Many timeshares have created a point system to give buyers more options for vacation property and days.

Timeshare Ownership

It's important to know that there are two types of timeshares before you sign up for one – deeded and leased. Depending on who owns the deed, you might have some restrictions.

Deeded Timeshare

When you own a deeded timeshare, you own a part of the property indefinitely. So, even if the company goes bankrupt, you will still own your share of the resort.

You will also be able to vote on important topics, like maintenance fees. However, those who own a timeshare will be responsible for maintaining the shared space. This can include upkeep, groundskeeping, fixes, and enhancements to the property.

Deeded timeshares are transferable, so you can sell them, include them in your will, or give them away as a gift.

Leased Timeshare

A timeshare that is leased allows you to use the property for a certain amount of time, but you do not own it. The owner of the right-to-use agreement owns the property, unlike a deeded timeshare. Timeshare ownership that is leased will typically last for many years. The average lease duration is 20 to 99 years.

As a tenant, you can expect to have no input in how much annual fees are raised, the rules of the property, or the operations. The developer will have complete control over the property. However, if the developer goes bankrupt, you would be able to stay on the property.

Timeshare Contracts

There are three types of timeshare usage, and which one you choose will depend on how flexible you are in planning your vacation weeks, or if you want the ability to stay at different locations.

Fixed Week

A fixed-week timeshare will give you the ability to use the property for a specified week, every year. This type of agreement is suitable for you if you like structure in planning your annual vacations since you'll know ahead of time when the property is available.  You may have difficulties if you need to switch from a set week. So, if you need leeway in your timing, this timeshare agreement may not work for you.

Floating Week

A floating week agreement will give you the choice of which week to stay at the property during a set time, rather than a being locked into one week like with a fixed agreement. Although this is more flexible, it is also just as affordable. If you try to book a week during the busiest times of the year, another timeshare owner may book it before you. It is suggested that you plan your week in advance.  During peak periods, prices for floating week contracts will be higher than usual.

Points-Based

Timeshare companies may offer a system where you receive a certain number of points, which could be used toward vacationing at the home resort or other resorts within the brand's network. The number of points a destination is worth is based on several factors, such as the location of the property and availability. So, if you want to stay at a popular location, you should expect to use most of your points.  This type of timeshare agreement is designed for people who want to switch locations every year, rather than returning to the same place.

What Do Timeshares Cost

Timeshares are often sold to customers who are already visiting a resort, meaning that the first cost of a timeshare is time. People are often drawn in by the appealing weather and conditions, only to be met with a sales pitch and pressure to buy things they may not need. On average, someone who buys a timeshare will pay $22,000 upfront for the unit. The price of a timeshare should not be considered in isolation. There are other costs that need to be considered as well.  Timeshares are often only used for one week out of the year and come with high maintenance fees that increase every year. When you compare the cost of a timeshare to a hotel room in the same area, it's often more expensive to stay in a timeshare. 

What is a timeshare worth?

Timeshares are often compared to boats in that they rapidly lose value after purchase. In addition, timeshare ownership comes without many of the financial benefits that typically accompany real estate ownership, such as equity buildup, tax breaks, or rental income. In addition, if a buyer eventually decides to sell their timeshare, the chance of getting back the investment plus the yearly maintenance fees is very low. The number of units available is much higher than the demand, with 204,100 timeshare units on the market at 1,580 resorts in the U.S., and more being added yearly. Many people are looking to sell their timeshare due to the high annual maintenance fees.

Interest Rates Double the Price of a Timeshare

Even if you purchase a discounted developer timeshare for $25,000, you will still need to make a 10 percent down payment. Developers usually offer a credit card to pay the down payment, which is typically processed through Barclays Bank. Developers also allow buyers to pay off the entire remaining loan within 30 or 60 days without accruing any interest.

The loan for the remaining timeshare typically has an interest rate of 14 percent for buyers with credit scores above 600 and 14.7 percent for buyers with lower credit scores. The Barclay card with the higher interest rate on the down payment is sometimes 20 percent or more, depending on your credit score.

Maintenance Fees Can be Crippling Costs of Timeshare Ownership

Interest rates are expected to rise, and resort maintenance fees are also expected to increase by 3-5 percent each year. However, fees could be even higher at luxury resorts or older resorts that are undergoing major renovations.  These fees can be very expensive for the average buyer and can make it difficult for older owners who are on a fixed income.

An example of this would be if an owner of a 2-bedroom oceanfront unit at Marriott's Maui Ocean Club - Lahaina Villas had to pay maintenance fees of $2,903 for just one fixed week. (This same timeshare is currently being offered for resale on RedWeek for $34,000.)

Wyndham's Bonnet Creek Resort in Orlando near Disney World charges $2,600 in maintenance fees for a one-bedroom unit. That Lake Buena Vista timeshare is also listed for resale on RedWeek for $2,900. Bonnet Creek's resale values may be lower than the maintenance fees in a couple years.

This is yet another example of how the owners of the fee must pay to maintain their property at a major resort are drastically disproportionate to the resale value of the property. For example, at Hyatt's Pinon Pointe resort in Sedona, Arizona, owners pay $1,026 in maintenance fees for a one-bedroom unit, while the resale price on RedWeek is only $2,900.

Timeshare pros and cons

Before making a commitment to a timeshare, be sure to weigh the pros and cons to see if it is the right fit for you, your lifestyle and your budget.

Pros of Timeshares

A timeshare can offer the benefits of owning a vacation home at a much lower cost — you only pay for the time you use, as well as any related maintenance fees.  You can avoid the hassle of managing property maintenance by paying monthly dues.

If you enjoy traveling to the same location on vacation each year, a timeshare provides you with a reserved spot to stay in your desired location.  It makes planning your vacation and finding a hotel room easy every year and may even save you money compared to what you would spend on a hotel room every night.

Cons of Timeshares

The resale market is saturated. If you choose to sell your timeshare in the future, you may not be able to recoup your original investment because there is an oversupply of timeshares on the mark. It's important to be aware that there are people who may try to scam you if you're looking to get rid of your timeshare.

If you sell your timeshare at a loss, you are not able to deduct that loss as a tax write-off. This is because the IRS sees timeshares as personal assets. The only time you might be able to claim a loss for your timeshare is if you frequently rented it out during the period you were supposed to be using it. In that case, you could potentially claim the loss in a similar way to what you could if it were a rental or investment property.

Bottom line

If you’re seriously considering a timeshare, take your time and do your research. Think about how much time you want to spend at the property and if you can afford it. If the costs of a timeshare are not within your budget, it might be better to stick to one-off trips to satisfy your vacationing needs. Do your research on the timeshare company you’re thinking of working with to see if current owners are content.  If owners are not happy with the current situation, it might be best to look for another option.