At one point or another, we’ve all received invitations in the mail for “free” weekend getaways or Disney tickets in exchange for listening to a short timeshare presentation. But once you’re in the room, you quickly realize you’re trapped with an extremely talented salesperson.
You know how the pitch goes: Why pay to own a place you only go to once a year? Why not share the expense with others and agree on a time of year for each of you to use it? Before you know it, you’re thinking, Yeah! That’s exactly what I never knew I needed!
If you’ve never sat through high-pressure sales, welcome to the big leagues! They know exactly what to say to get you to buy in. Did you know the timeshare industry is a $10.5 billion dollar industry as of the end of 2019?1 There’s a lot at stake and they really want your money!
But is timeshare ownership really all it’s cracked up to be? We’ll show you everything you need to know about timeshares so you can still enjoy your hard-earned money and time off.
What Is a Timeshare?
A timeshare is a vacation property arrangement that lets you share the property cost with others in order to guarantee time at the property. But what they don’t mention are the growing maintenance fees and other incidental costs each year that can make owning one unbearable.
How Do Timeshares Work?
Once you boil this soup down to the meat and potatoes, there are really just two things to consider about timeshares: the type of contract and the type of ownership—or who owns the property and how it works for you to visit your timeshare.
Types of Timeshare Contracts
First, let’s look at who owns the timeshare property in your contract. Do you have the deed or does someone else?
Shared Deeded Contracts
Shared deeded contracts divide the ownership of the property between everyone involved in the timeshare. You know, like a deed that you share. Each “owner” is usually tied to a specific week or set of weeks they can use it. So, since there are 52 weeks in a year, the timeshare company could technically sell that one unit to 52 different owners. This type of ownership usually doesn’t expire and can be sold (good luck!), willed or given to others.
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Even though shared deeded means you get an actual deed to an actual piece of property, you can’t treat it like normal real estate. It’s like if grandma’s house was willed to her 52 grandchildren and they all have to agree before they can change out that pink tile in the bathroom!
Shared leased typically has the same arrangement as shared deeded, except the deed for the property remains with the resort where it’s located. And leased means leased, so you don’t get a deed because you’re only leasing the use of a specific property. It’s as if you were renting the same hotel room at the same resort for 20 years! The shared leased option also has a set limit of time before the lease expires—so 20 years in this example, or when the owner dies.
Shared deeded or shared leased timeshares can’t really be called real estate because you don’t really own it. You could even say it’s fake estate! But once you’re locked into a contract, how do you go about using your property?
Types of Timeshare Ownership
Timeshare ownership is another way those in the business explain how you get to use the property on your designated week or weeks.
Fixed Week Option
With a fixed week option, you’ll select a specific week of the year to vacation on the property. If your neighbors have ever announced, “We go to the lake house every year the week after Memorial Day!” they might be on a fixed-week timeshare.
Of course, if you want to try a different week of the year, you’re up a creek. Changing your allocated week could take an act of Congress (or at least a hefty upgrade fee).
Floating Week Option
The floating week option allows you to choose your week within certain limits. The offer would be something like, “You can book any week between January 2 through May 4 . . . except for the two weeks before and after Easter.”
Each reservation also has to be made during a specific window of time. You might be encouraged to call right after the new year to reserve your summer vacation week at the resort. “Remember: first come, first served!” If you miss the window and get stuck with some random week in the dead of winter, that’s just tough!
A points system is another way you can get timeshare access nowadays, also known as a “timeshare exchange program.” It basically works like this: Your timeshare is worth a certain number of points, and you can use those points (along with the occasional additional fees) to access other resorts in the same system.
You have to be careful though. A mountain cabin timeshare in Tennessee doesn’t cost the same amount of points as a Walt Disney World Resort timeshare. You’ll have to pay extra for something like that.
What’s Included in Timeshare Costs?
If this still sounds like a great deal, let’s not forget to mention the boatload of costs associated with these bad boys. First, you’ll have the upfront purchase price that averages over $22,000. If you don’t have that money saved already, you’ll probably be looking for a loan (which you shouldn’t do anyway). But banks won’t give you a loan to purchase a timeshare. That’s because if you default on their loan, they can’t go and repossess a week of vacation time!
But don’t worry. Your new friends at the timeshare company will come to the rescue with a convenient way to finance your epic purchase! Since they know you have so few options for financing, they can charge outrageous interest rates—typically 14 to 20%. And you’re kind of stuck with them because they’re the only game in town.
What tends to sneak up on you after that are the extra fees after the initial purchase. Uncontrollable maintenance fees run an average of $980 annually and go up around 4% each year.
And if that’s not enough, throw in HOA dues, exchange fees (when you don’t have enough points for that beach condo), and the “special assessments” for any repairs made to your unit. With all those extras, the total cost can drain your bank account quicker than that Nigerian prince emailing you for money!
Let’s say your initial timeshare purchase is that average price of $22,000 with the yearly maintenance fee of $980. Over the next 10 years of using your timeshare, you would be eligible to stay 70 nights (each week’s stay is seven days and six nights). Check out these numbers:
When you math it all out, you’re paying at least $454 a night to go to the same place every year for 10 years! That’s not even considering the maintenance fees going up each year and all those other unforeseen costs we mentioned earlier. And if you financed it with the timeshare company, the nightly cost could easily get up to $782 a night! Yikes! Dave Ramsey says you get nothing out of paying for a timeshare except the loss of choices and the loss of your money.
Timeshares are seriously a terrible use of your money! So, what can you do instead?
A Better Alternative: A Paid-For Vacation!
Dave says, “Timeshares are basically getting you to prepay your hotel bill for 20 years. Just put that money in an investment and it could pay your hotel bill!”
Rather than spending all of your hard-earned cash on a terrible “investment” like a timeshare, one option is to start a sinking fund for your vacation. This just means making regular deposits over time in a separate fund that then adds up to a big chunk of change you can use to go anywhere you’d like.
Or remember the numbers we ran through earlier? What if you took your initial investment of $22,000 plus the first year’s maintenance fees (totaling $22,980) and put that into a fund with 10% interest? With that simple investment, you’d create a perpetual fund making almost $2,300 in interest every year to use for vacation! And then next year, you can go back to the same place or (here’s a crazy idea) somewhere you’ve never been before.
Who wants to be tied to one place every single year? That’s boring! Or what about racing to make your reservation before all the best weekends are taken? What a hassle! Or how about trying to upgrade to another “participating resort”? Talk about expensive!
Simple is often better. Save up! Go on your vacation. Rinse and repeat!