A timeshare is a popular way to guarantee a place to stay if you love to vacation in the same spot year after year. According to the American Resort Development Association (ARDA), there are almost 10 million households that own timeshares.
Some see it as an investment, though many others see it as a poor use of money. If you’re thinking about buying a timeshare, make sure you know the risks and benefits.
What is a timeshare and how does it work?
A timeshare is a shared vacation home where multiple buyers pay for the ability to stay at a property or a series of properties over a period of years. These buyers are guaranteed their own time at the property, usually a week or two per year.
There are two types of timeshares: deeded and non-deeded:
- A deeded timeshare is where you purchase a portion of ownership on a property and you’re granted a percentage of the property, usually in the form of when you plan to use the property. Legally, this type of property can be passed down or inherited.
- A non-deeded timeshare is like leasing a property. You’re guaranteed to use the property for a set amount of time (like a few years), but you don’t have ownership rights to it. Sometimes they’re referred to as “right to use” or point-based timeshares. You can use your points at different timeshares across properties and companies, as long as they’re within the agreement you signed and match up with the time you want to use them.
Points-based timeshares have become more popular over time, allowing customers greater choice over where they stay and for how long but without other legal benefits of ownership.
Is a timeshare a good investment?
“Good” is a relative term, but even many experts say timeshares shouldn’t be considered one.
“The sales staff may tell you that a timeshare is a solid financial asset, but the value of a timeshare is in its use as a vacation destination, not as an investment,” according to the Federal Trade Commission (FTC).
While timeshares give you a place to go and stay regularly, you can’t make money off of a timeshare, so the return on investment doesn’t come in a dollar amount. It comes in the form of a guaranteed vacation spot. This might be a good investment for you and your money, but it’s not an investment in the traditional sense, where you can earn a financial return.
If you’re looking for a true return on investment, you might want to put your money elsewhere, like the stock market or real estate investing. While all investments carry risk, these offer a financial return on investment, compared to timeshares.
Pros and cons of timeshares
Before you jump to buy a timeshare, make sure you know the risks and rewards of getting one.
- A guaranteed vacation at the same time every year. One big hassle families all around the world face is picking a vacation spot everyone will love. If there’s one place you love to visit a lot, like Myrtle Beach or Disney World, having a timeshare means you always have a place to stay when you visit. And you get to go annually (sometimes more, sometimes less), relieving some of the planning stress associated with putting together a vacation plan.
- It’s yours, but without the maintenance. At your home (whether a vacation home you purchased or a rental home), you’re on the hook for upkeep and maintenance. With timeshares, you pay annual dues that cover the cost of maintenance, repairs or property improvements.
- You buy timeshares secondhand for a discount. Some timeshares are sold at a discount on a secondhand market. Not everyone enjoys their timeshare purchase, so they list them for sale. This means you can get a deal while also getting into a timeshare that’s otherwise costly.
- You pay for the time you use. If you bought a vacation home, you’re paying for the property even when you’re not using it. With a timeshare, you’re only paying for when you use the property. The maintenance and upkeep costs are baked into the fees already.
- You can rent it out if you aren’t using it. There are companies that match timeshare owners on a marketplace to those who want to visit a place but don’t want to jump into buying a timeshare just yet. Most timeshare companies offer a rental program, so you don’t necessarily have to use a third-party option to list or find a space.
- It can get costly. ARDA says that the average price of a timeshare is $22,942. That’s your cost whether you stay there or not. If you aren’t renting out your timeshare, you could lose that money regardless of whether you use the space. And that’s not including annual maintenance costs or fees, which can run around $1,000.
- It’s yours, but not fully. If you have a deeded timeshare, you technically own the property and can pass down your timeshare to immediate family members. But selling it is its own hassle, and sometimes more trouble than it’s worth. If you do sell it, it’s usually at a loss and you’re unlikely to ever get what you paid for it.
- You could fall for a scam. Timeshare scams are real. If you’re not familiar with a company, you might believe they’re offering you a deal on a timeshare that could save you money. In reality, they make you believe that if you don’t pay money right away, you could lose out on a deal. If you’re talking to timeshare companies, make sure you do your homework and work with a reputable company, so you don’t fall for a scam.
- You may be locked into the same vacation spot. Securing a locked-in vacation spot can cut both ways. That is, with certain timeshares you may be forced into going to the same place year after year, while your preferences can change over time.
If you’re thinking about getting a timeshare, make sure you know the risks involved first. Good investments don’t necessarily mean the same thing to all people, so try to figure out what a good return on investment is for you. Remember that timeshare ownerships aren’t the same as traditional homeownership. You could lose more than you expected if you don’t know what you’re getting into first. (Here’s a look at the best and worst places for first-time homebuyers in 2022.)
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.