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What is a timeshare?

couple at a timeshare
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The thought of owning a vacation home you can relax at every year can be enticing, but there are a host of considerations that come with buying and maintaining a property. One alternative is a timeshare, which offers the perks of a vacation home, but also comes with some tradeoffs. Here’s what to know if you’re considering buying into a timeshare.

What is a timeshare?

A timeshare is a type of vacation property with a shared ownership model. With a typical timeshare, you share the cost of the property with other buyers, and in return, you receive a guaranteed amount of time at the property each year. In many cases, timeshares are smaller units within a larger resort property.

How does a timeshare work?

A timeshare allows you to split the costs of owning a vacation property with others based on the timeshare agreement. In some agreements, each buyer owns a fraction of the property (known as “fractional ownership”) depending on how much time they plan to use it. In others, each buyer simply leases the property for a period of time — usually for at least several years — without actually owning it.

In the past, timeshare buyers were typically locked into one week at a single property. In recent years, many timeshares have implemented a point system that provides more flexibility regarding the type of vacation property and the buyer’s choice of vacation days.

What are the different kinds of timeshares? 

Timeshare options generally fall into two broad categories:

  • Deeded – A deeded timeshare is one in which you purchase ownership interest in the property. Each owner is granted a percentage of the property itself, usually based on the time they intend to use it.
  • Non-deeded – A non-deeded timeshare, also known as a “right to use” timeshare, is one in which you purchase a lease or license to use the property for a set number of years, but do not actually gain ownership interest in the property.

A non-deeded timeshare can cost less than a comparable deeded timeshare, but non-deeded timeshares often have more stringent limitations on the transfer of property than deeded timeshares do, which can make resale more difficult.

There are also various options covering timeshare use periods: 

  • Fixed week – Gives you access to a specific timeshare property the same week each year
  • Floating – Gives you flexibility to use a timeshare property at any time according to availability
  • Fractional – Gives you access to a timeshare property for a longer amount of time, such as four weeks or three months, each year
  • Points – Gives you the ability to buy a certain number of points to use in different timeshare locations and at different times of year

How much does a timeshare cost?

The average cost of a timeshare is $22,942 per interval, according to 2019 data from the American Resort Development Association (ARDA). Annual maintenance runs $1,000, on average, but can vary based on the size of the timeshare, ARDA reports.

If you decide to move forward with a timeshare purchase, using savings to pay for it might be better than financing it. That’s because most banks won’t lend money for a timeshare because the properties tend to lose value, and while timeshare property developers might offer financing, it’s usually at a much higher interest rate compared to a bank, and for a short term.

You could also get financing by way of a short-term personal loan, but that can have a high interest rate, too.

Timeshare vs. vacation home 

If you’re looking for a regular vacation spot, then timeshares and vacation homes can both be good options. The right choice depends on your finances and your overall needs and preferences.

With a timeshare, your recurring costs and time investment can be considerably lower. The annual maintenance fees might be lower than maintaining a vacation home over decades, for instance, and you won’t have to concern yourself with renting the timeshare while you’re not using it.

However, you’ll have less flexibility on how you use the timeshare, even if you buy points, and you likely won’t be able to make any improvements or add personal touches as you would with a vacation home.

On the flip side, with a vacation home, you’ll have more control over all aspects of the property, but you’ll likely pay more for it. There’s a silver lining to the increased costs, though: If you need to sell your vacation home to eliminate a financial obligation, it could be easier to offload than trying to get out of a timeshare agreement.

Is a timeshare right for me?

A timeshare can offer the perks of owning a vacation home at a fraction of the cost — you only pay for the time you use, as well as any associated maintenance fees.

These characteristics can make a timeshare a good option if you like to vacation in the same place each year and have the means to finance the purchase upfront. If you don’t have the cash on hand, you can try to get financing through the timeshare developer or take out a personal loan, but both can come with a relatively high interest rate.

There are other downsides to timeshares, as well. The resale market is crowded, so if you decide to sell, you could incur a loss since supply is plentiful. Plus, the resale market is filled with scammers looking to take advantage of those who want to get out of their timeshare.

In addition, if you’re able to sell your timeshare, but at a loss, you’re generally unable to claim that loss as a tax deduction as you would with some other kinds of investments. That’s because the IRS considers timeshares personal assets. The exception might be if you frequently rented out your timeshare during the period you were entitled to use it. In that case, you might be able to claim the loss, similar to what you could be eligible for if it were a rental or investment property.

Bottom line 

If you’re seriously considering a timeshare, take your time. Consider how often you want to spend time at the property and if you can afford to do so. If the costs of a timeshare are too high for your budget, it might be better to stick to one-off trips to satisfy your vacationing needs.

Also, do research on the timeshare company you’re considering working with to find out if current owners are happy. If owners are complaining about excessive fees, for example, you might want to consider another property or company.

If you’ve decided to proceed with buying into a timeshare, take a look at your finances to determine how you’ll make the purchase happen. Savings might be your best option, but you have financing choices, too.

Lastly, once you’ve found a timeshare unit you like, be sure to have it inspected before making a deposit or moving forward.

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Written by
Sarah Sharkey
Contributing Writer
Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a range of subjects, including banking, savings tips, homebuying, homeownership and personal finance.
Edited by
Mortgage editor