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Time shares rise in price, prestige, but
unwary buyers can get their clocks cleaned

Financing a timeshare The time share industry seems to be coming of age.

Operators have moved to shed their shady past. Big-time hotel companies have partnered with small-time rivals to stamp well-known brand names on developments around the world. Vacationers, meanwhile, have found they can pick from more offerings than ever before.

All of this is great news for the companies that sell ownership or usage rights by the week at various resorts. But asking prices have swelled along with demand, and interest rates for time share loans tend to be up in the credit-card range -- in the teens. That makes it all the more important for consumers to carefully consider how they're going to pay for that April week in Aruba before they buy.

"You're not talking about a home mortgage amount, typically," says Scott Berman, a director in the hospitality and leisure consulting group at PricewaterhouseCoopers. "But we're getting into some fairly higher-priced timeshares that are much more than $20,000.

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"When you see Ritz-Carlton, Four Seasons and Hyatt get into this, those are some high-end resorts."

Anyone who has landed on the right mailing list or endured an arm-twisting session with a time share salesman has an idea of the basics of timesharing. But buyers new to the experience may not understand exactly how this segment of the vacation real estate market works.

How timeshares work
Timeshares offer people the right to spend a week or two at a popular vacation destination while avoiding overbooked hotels and other worries. Shoppers can find them all over the place -- from Grand Bahamas Island to Aspen, Colo. -- and all over the price map, depending on what time of year they want to visit and how much room they'll need once they get there.

"You pay based on the type of accommodation, whether it's a studio, one-bedroom, two-bedroom or three-bedroom, and you pay based on the season that you want to purchase," says Don Harrill. As chief executive of Hilton Hotels Corp.'s Orlando, Fla.-based time share unit, Hilton Grand Vacations Co., he oversees several resorts around the state and in Las Vegas.

"Having said that, you can actually enter the program at an interval weekly price of as low as approximately $8,500 or go as high as $25,000 to $27,000, depending on the size of the unit and the high season," he says.

  • A total of 2 million households own a time share in the U.S. -- up 300,000 in the past year.
  • U.S. time share sales were $3 billion in 1998. Sales have enjoyed an average annual increase of 15 percent since 1994.
  • The average one-week time share in the U.S. costs $10,500. The most common type of ownership (about 68 percent) is fee simple.
  • The typical U.S. time share buyer is wealthier and better educated than average: The median income is $77,000 and 64 percent have at least a bachelor's degree.
  • The states with the most time share properties, in order, are Florida (25 percent of the market, 284 resorts), California, South Carolina, North Carolina, Colorado and Hawaii.

Source: American Resort Development Association

People who look into purchasing timeshares will typically be offered financing through a company subsidiary or a third-party lender sometime during the sales process. Experienced home buyers will spot some familiar terms and conditions in the documents they review. But time share loans also differ in many ways from traditional mortgages, and the end product looks somewhat more like a home equity loan.

Expect to put 10 percent down
For example, time share buyers generally have to come up with a percentage of the purchase price upfront and be capable of making fixed monthly loan payments, just as they would with a conventional, 30-year fixed mortgage.

About four-fifths of resort developers require a minimum 10 percent down, according to a 1997 survey performed by the American Resort Development Association, a Washington, D.C.-based time share trade group. More than three-quarters of them also said 80 percent to 100 percent of their outstanding loans were made on a fixed-rate basis.

Like home mortgages, time share loans also generally feature tax-deductible interest. Restrictions apply the same way they do with mortgages, however, so a borrower can't deduct against more than say, one primary residence and one timeshare. The rules get even trickier if you rent out your time share for part or all of your allotted time.

Ownership types differ
Still, a time share buyer doesn't always get the unit's deed the way home buyers get title to a property. In an increasing number of  transactions, people obtain what is essentially a long-term lease rather than a deeded ownership right.

"Many people purchase with a 25- or 40-year lease," says Ellen Barr of the National Association of time share Owners, an Orlando, Fla.-based nonprofit organization founded two years ago to assist owners.

"We're working with a group in New Hampshire and many people are at 18 to 20 years who had purchased 25-year leases," she adds. "They don't have much time left ... and they're going to have nothing. I would look very carefully at the deed and how long your ownership is for."

Want to learn more?

Here are some places to find out more about owning time share property:

People should also realize their time share likely won't appreciate in value the way first homes often do. Vacationers want the latest, greatest things and developers are only too happy to supply them, meaning many locations have a stream of new construction competing with condominiums that might have been built 10 years ago.

A depreciating asset
Some of that property depreciation comes right after a buyer seals the purchase as well. That's because developers tend to jack up the asking price of each unit to compensate for all the free golf vacations and other marketing enticements they offer buyers to lure them into sales presentations.

"What they have to look out for, if dealing with a developer in a new product, is price," says Tom Lugen, a broker with in Daytona Beach, Fla. His firm has listings from owners looking to resell their weeks to vacation shoppers.

"We can't give them two free Disney tickets," he says. "We cannot give them a two-day, three-night stay and we cannot induce them to our brokerage by giving them $50 gift certificates to a local restaurant."

Buyers may also be in for a shock when it comes to the financing fine print. time share loans generally have much higher interest rates than conventional mortgages, as well as shorter terms. The ARDA study showed a little more than half of the respondents charged interest at 13.1 percent to 15 percent, for example, and most did so over the course of 4.1 years to 8 years rather than 15 years or more. Almost one in 10 developers offered financing at rates greater than 17 percent. The loans carry a higher interest rate because the delinquency rate is higher, plus the property securing the loan is an asset that depreciates in value over time.

Still, Harrill says time share loans tend not to have prepayment penalties. That means people can refinance their balances into already existing home equity lines of credit or other types of secured loans to lower their rates and payments.

The bottom line, experts say, is that timesharing can prove to be an affordable way to enjoy vacation the way it was meant to be. As long as people don't overextend themselves and can really afford to own a piece of paradise for years, there shouldn't be a problem.

"Hilton has been involved since 1992 in the industry and time share at the moment is, I believe, the fastest-growing hospitality product there is," Harrill says. "The customer acceptance and the sales volumes in this industry are phenomenal right now."

-- Posted: May 28, 1999
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PLUS: How to finance a vacation home
AND: Plastic's still the currency to carry on foreign trips
ALSO: Learn all about the euro

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