7 reasons that timeshares are a terrible investment

7 reasons that timeshares are a terrible investment
Let me begin by saying that timeshares are technically not even investments because investments appreciate in value and/ or generate income. A timeshare is unlikely to do either. If you don’t believe me, consider how many used timeshares are on the market and how much money timeshare companies spend on marketing and just how aggressive the salespeople are. The very nature of the sales process should be a hint about the dark reality of timeshares.
It is interesting to note that almost every major hotel chain is involved in the timeshare industry. The Big Three timeshare companies are Wyndham, Hilton Grand Vacations, and Marriott Vacations Worldwide. Wyndham is the largest corporation involved in timeshares with half a million owners across 100 resorts in North America.
Timeshares are based on the concept of fractional ownership in a property. They generally operate under two schemes:
1) Deeded where you purchase an ownership interest in the property.
2) Non-Deeded whereby you lease the right to use the property for a specific amount of time each year for a preset number of years.
You also can purchase for a fixed week each year, or you can purchase a floating week which can be used during a predetermined period of time.
Here are my top seven reasons that timeshares are an awful investment:
High Upfront Cost: Timeshares typically require a significant amount of upfront purchase price. Worse, if you decide to finance your timeshare purchase through the timeshare company, you will face a steep interest rate.
Ongoing Costs: As if the high upfront cost was not bad enough, you are expected to contribute on an ongoing basis. Timeshare owners are responsible for annual maintenance fees, property taxes, and other expenses that add up fast and may be unpredictable. The qualities of timeshare companies and properties varies widely. Despite contributing what you may deem a significant amount in ongoing costs, maintenance and upkeep may not meet your expectations. One-time assessments can be levied for things like a new roof or a new sewage line.
Limited Appreciation: Traditional real estate tends to enjoy price appreciation but this is not the case with timeshares. In fact, it’s the contrary because many timeshares lose value over time. You will most likely not be able to sell your timeshare for the price you purchased it at.
Lack of Flexibility: You are essentially locked into a specific location, time period, and type of accommodation which will be increasingly problematic as your preferences and life changes over time.
Difficulty Reselling: Selling a timeshare is challenging to put it mildly. The resale market is oversaturated with other people trying to unload their timeshares. If you do somehow get lucky to be able to sell your timeshare, it will be at a price less than your initial investment.
Complex exchange programs: While some timeshare companies do offer exchange programs that allow you to swap your timeshare for a different location or time of the year, these programs are purposely complex and you may not find the results satisfactory. Everyone wants to travel to the same places in the same weeks you do. For example, Hawaii in the summer will be in demand but no one will want to go to Phoenix or Las Vegas in July and August.
Alternatives: You may just want to consider renting a vacation property on Airbnb or VRBO as they are more flexile and cost effective than a timeshare.
Conclusion: Timeshares are rarely a sound financial investment due to their high upfront costs, significant ongoing costs, limited flexibility, and lack of appreciation. You are almost always better off just staying at a hotel or Airbnb. Be extremely careful before entering into a contract for a timeshare and consider your alternatives extensively. If you feel absolutely compelled to purchase a timeshare, make sure it is a used one, not a new one. Just google “timeshare resale.”
Works Cited:
https://www.investopedia.com/articles/pf/08/timeshare.asp
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