If you find yourself vacationing in the same area year after year, then purchasing a timeshare may have come across your radar. Timeshare properties allow you to partially own what some might consider to be a second home in one of your favorite foreign or domestic locales. Because you share the ownership of a timeshare with other people, the costs associated with ownership are considerably less than, say, a vacation home. Still, buying a timeshare still represents a major financial commitment, so it’s a good idea to consult a financial advisor before you take the plunge.
What Is a Timeshare?
A timeshare is a formal, legal agreement in which several different individuals share ownership of a property. As you might expect, these are traditionally found in popular vacation spots.
Many timeshares take the form of condominiums within a resort, but you’ll find timeshare homes as well. Most timeshare owners will hold a one- or two-week period each year at the property. Shares can be sold and purchased by the owner at any time with the help of a timeshare broker.
There are three main types of timeshares, including:
- Floating: This option allows you to schedule your timeshare during a predetermined period. That means you can alter your vacation weeks annually. You will, however, need to schedule around other owners’ vacation times, especially during in-season or peak times. Also, rather than buy a specific unit at a resort, you’ll instead purchase a type of unit, like a one- or three-bedroom.
- Right-to-use: With this timeshare, you lease a room for a set amount of time each year, for a set amount of years. With this option, you do not own the property. Instead, you lease it.
- Fixed Week: As the name suggests, this type of timeshare gives the owner a set vacation week or weeks each year. Again, this contract will last for a certain number of years. This option is best for those who prefer predictability, although owners can swap weeks with each other if they want.
Timeshares are further split into two overarching versions: shared deeded timeshares and shared leased timeshares. With the former, timeshare owners actually own a percentage of the property, along with the other owners. With the latter, you are leasing the right to use the timeshare for a specified period of time each year, for a certain number of years.
Pros of Buying a Timeshare
If you habitually vacation in the same location; stay for a week or longer; or have considered buying a vacation home but can’t afford the upkeep, then a timeshare might be a good choice for you. Not only do they guarantee availability to travel to your favorite destination every year, but they may offer perks such as storage or the use of facilities on-site.
In addition to this, the cost effectiveness of a timeshare often allows you to avoid expensive maintenance costs. For those who opt for a vacation home, costs like lawn and pool upkeep, garbage pickup, security and more can really add up. And these don’t even take into account homeowner’s insurance and property taxes.
Timeshares also spare you from the stress of planning your yearly vacation. This might include booking hotels to researching the beaches and attractions near your destination. With a timeshare, you know exactly what to expect from your vacation.
Another plus of owning a timeshare? You don’t have to use all the time that your timeshare allots. Rather, you may be able to gift a week here or there to friends and family, or even rent it out. But keep in mind that if you rent out your timeshare, so can the other owners. Extended periods of renting might affect the condition of your property, though, which could weaken its value over time.
Cons of Timeshares
A common issue with timeshares is that they typically don’t have good resale value, making them difficult to sell. In fact, many are sold at a deep discount due to oversupply in the market. Unfortunately, if you take a loss, the IRS does not allow you to claim a capital loss as you would with other investments.
There are other issues to take into account if you’re looking to buy a timeshare in another country. After all, there are countless desirable vacation destinations outside the United States. But keep in mind that there are many rules governing the process of buying a timeshare internationally. Furthermore, when buying a timeshare outside of the U.S., you will not be protected by American laws.
While a timeshare might seem appealing, many financial professionals advise against buying them. This is because there’s a large number of them on the market, which means that resale will be inherently difficult. In many cases, getting rid of a timeshare involves a loss for the seller. You also won’t be able to claim any losses as capital losses, per the IRS.
Beyond this, unlike other real estate properties, timeshares usually don’t appreciate in value. As you might expect, a depreciating asset isn’t usually considered to be a wise investment.
You should only consider buying a timeshare if you’re basing it solely on the potential cost of future vacations. In other words, don’t go into it with the (likely false) hope that you’ll resell it in a few years for a profit.
Tips for Investing
- Purchasing a timeshare is a major investment, so it might be worth running it by a financial advisor before you make the commitment. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Want to get into other types of investing? Opening a brokerage account is a good place to start. If you’re unsure of which company to work with, check out our list of the top online brokerage accounts.
Photo credit: ©iStock.com/kupicoo, ©iStock.com/Ridofranz, ©iStock.com/Jirapong Manustrong