Dear Rick:
My husband and I just came back from a two-week trip to Mexico. We loved the resort we stayed at and plan to come back again. While we were there, we found out at the resort that it is mostly timeshares, and we sat down with a representative of the company who made a pretty good pitch to us that a timeshare would be a very good investment for us. The salesperson was pretty high-pressured and encouraged us to sign up for the timeshare. We know enough not to rush into anything, and as a result we didn’t sign. However, we are interested. My question for you is what do you think of timeshares, and do you think it would be a good investment for us? You should know we’re both retired, and we do plan to travel more.

Thank you.
Ellen

Dear Ellen:
On the whole, I am not a big fan of timeshares, and I would not classify them as an investment. When I think of an investment, I think of something that is either going to appreciate in value when it’s sold or it is somehow going to generate income on an on-going basis. As far as I’m concerned, timeshares don’t meet these criteria. After all, when you historically look at timeshares that have sold on the secondary market, you generally see that they sell for less than half of what people originally paid for the timeshare. In addition, renting out your timeshare for your allocated period is also not easy to do and will very rarely cover your cost to own the timeshare. After all, typically with a timeshare, you are paying a substantial amount of money up front, plus an annual maintenance fee to cover basic expenses. In addition to those items, you could incur costs to cover capital improvement expenses on the timeshare. When you factor those costs in, you typically are not going to be able to sell your yearly allotted time to cover those expenses. Another factor you have to take into consideration is that typically when you look at selling your timeshare for the allocated period, you generally have to go through one of the resale companies where commissions are substantial. In fact, it’s not unusual to pay 30 percent or more in commissions.

If I was thinking about buying a timeshare as opposed to buying directly from the developer of the property, I would probably work to purchase something on the secondary market. In many situations you can buy a timeshare at a substantial discount over what the developer is selling for. There are a number of websites you can use to purchase time shares on the secondary market.

Whether you purchase a brand new timeshare from a developer, or one on the secondary market, it is important to recognize that not all timeshares are the same and that it is important to understand your rights and responsibilities. For example, some timeshares are part of a larger organization and allow you to select timeshares from a variety of properties around the world. In other timeshares, you are limited to that same property. In addition, it’s important to understand how the maintenance fees work. Unfortunately, many of the high-pressured salespeople (common in the timeshare industry), forget to tell you about the annual maintenance fees and that they have a tendency to increase year by year. Remember, you are liable for your annual maintenance fee whether you use the property or not.

I have known many people who have owned timeshares, and one thing I have never seen is anyone who made money by selling their timeshare. Therefore, if you are thinking about buying a timeshare, don’t look at it as an investment where you will make money, because you won’t. You need to look at it as an investment in your future vacations. Even then, I would tell you to proceed with caution, because I believe of all the new avenues to rent properties today, in the long run you’ll do better by looking for a property year by year as opposed to being bound to just one time share.

Today is our country’s birthday, and I want to wish everyone a very Happy 4th of July!!! We live in the greatest country in the history of the world because of people like you–after all, the greatness of our country is in its people–Happy Independence Day!!!

Good luck!

Rick is a fee-only financial advisor.  If you would like Rick to respond to your questions, please email him at Rick@bloomassetmanagement.com.
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