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Timeshares: What Are They, How Do They Work And Are They Worth It?

6-Minute Read
Published on April 10, 2020
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If you’ve ever visited a popular vacation destination and were offered a free meal or even a free vacation in return for watching a presentation on an “exciting opportunity,” you’re probably at least somewhat familiar with the world of timeshares.

Timeshares can be a surprisingly divisive topic, but for the right type of vacationer, purchasing one could be worth it. It just depends on your expectations.

What Is A Timeshare?

A timeshare is a vacation property that you divide up with others throughout the year. You’ll get to use the property for a certain amount of time – often, 1 week each year.

The idea behind the timeshare is that instead of buying a vacation property to own by yourself, which is financially out of reach for many people, you share ownership with a group of people who all take turns using the property.

To get people to buy into timeshares, salespeople invite potential buyers to presentations where they use high-pressure sales tactics to try to get you to sign a contract. You can often find these people at popular resorts or hotels, pitching to vacationers who are relaxed and more amenable to their tactics.

How Do Timeshares Work?

Traditionally, the way a timeshare works is people would buy into a property, securing themselves a specific week at vacation property. Each year, the timeshare owner can stay at the property during their specific week.

However, there are other options for buying into timeshares that provide a little more flexibility, such as a floating week that gives you the ability to pick which week you want each year, or a points system that allows you the option to travel to different destinations within your timeshare network.

If you’re thinking about purchasing a timeshare, you’ll want to consider which of these arrangements you prefer, as well as what type of ownership you’ll have.

Types Of Timeshare Ownership

When you enter into a timeshare agreement, it’s important to know who holds the deed: you or someone else. There two main types of timeshare ownership: deeded and leased.

Deeded Timeshare

With deeded timeshare ownership, you legally own a portion of the timeshare property. With your deed comes the right to rent out or sell the property if you so choose.

In resorts where all the timeshares are deeded, the timeshare owners collectively own the resort and are responsible for the maintenance and upkeep of the shared property. Typically, a homeowners association will manage the resort on behalf of the owners.

Leased Timeshare

A leased timeshare property, also called a right-to-use timeshare, is owned by a developer, from whom you purchase the right to use a unit within the resort during your designated time. These types of agreements are typically long-term in nature but are limited to a set number of years, with contracts often extending several decades.

Types Of Timeshare Contracts

There are three main types of timeshare use. Which one is best for you depends on how much flexibility you require and whether you’d like the option to visit a different locale from time to time.

Fixed Week

When you own a fixed-week timeshare, you’ll visit the location during the same designated week every year.

These types of timeshares are good for those who like the predictability of knowing exactly when their vacation property is going to be available for them to use. It makes yearly vacations easier to plan, because you know well ahead of time when you’ll be going. However, if you need some flexibility in your schedule or would like to switch up your vacation dates from year to year, this may not be the best option for you.

Floating Week

A floating-week timeshare allows you to choose the week you want within a designated season. The season your floating week is in will depend on your contract and, usually, how much money you paid, as high-demand seasons generally come at a higher price.

However, you don’t have complete freedom; you’ll still have to reserve your slot ahead of time, and if you wait too long, the week you wanted may be taken by another timeshare owner.

If you require more flexibility for scheduling vacations, a floating-week timeshare would likely be a better choice than the fixed-week option.

Points System

Some timeshare companies offer a points-based system where purchasers receive a certain number of points that they can use to vacation at any property within the company’s network of resorts. The amount of points a destination is worth largely depends on its popularity, so if you want to stay in a high-demand area, you’ll use more points than you would at a less-popular spot.

This system is meant to make the concept of timeshares more attractive to travelers who want to visit a different destination each year, rather than visiting the same property year after year. While these types of contracts can seem like the best of both worlds, make sure to do the math and see if the initial price of buying into this type of program ends up being worth it in the long run.

Timeshare Rentals Vs. Timeshares For Sale

Timeshare owners can rent out their units to other travelers. If you’re considering purchasing a timeshare in a particular location, you might first rent one of the units in that resort to get an idea of what the destination is like and if you’d enjoy owning your unit there.

If you’re a timeshare owner looking to rent out your unit to others, you should first make sure you’re allowed to do so.

Redweek.com, a platform for timeshare owners to list their rental units, recommends contacting your resort and asking about any restrictions or fees that come with renting out your unit. You should also find out what the process is for transferring use to your renter for the week, to ensure that they’ll be able to check in without any issues. The resort may also be able to give you an idea of how much you should charge.

How Much Does A Timeshare Cost?

The upfront cost of a timeshare can vary a lot depending on where you buy; the more sought-after a location is, the more expensive it will be to purchase a timeshare there.

Upfront, timeshares can cost around $20,000. And that’s not the only cost you’ll incur. You’ll also pay a yearly maintenance fee, in addition to other costs related to the purchase and upkeep of your property.

According to the American Resort Development Association, the average timeshare maintenance fee is $1,000. Fees typically increase each year. Additionally, you may occasionally have to pay a special assessment fee that covers expenses that your normal maintenance fee can’t cover, such as an unexpected repair.

It’s usually possible to finance your timeshare purchase, but rates on these types of loans can be relatively high, and you should factor the amount of interest you’ll pay into the lifetime costs of purchasing the timeshare.

However, you can find timeshares on the secondary market that are being sold by current timeshare owners for significantly less than what you would pay if you were buying directly from the developer. This is usually a much more affordable way to purchase a timeshare.

Don’t forget to factor in trip costs, too. While your lodging is already paid for, you’ll still have to pay for travel to and from your destination, as well as food and activities you purchase during your trip.

Are Timeshares Worth It?

To determine whether a timeshare is financially worth it, add all the aforementioned costs together and divide that by the number of years you plan on using your timeshare for. That’s your yearly cost for your hypothetical timeshare vacation. Compare that to how much you currently spend on your yearly vacation, if you take one.

Say you purchase a $20,000 timeshare with $1,000 yearly maintenance fees. You plan on vacationing at your timeshare every year for the next 25 years. That’s $1,800 per yearly vacation, just for your lodging.

Is it worth it? Only you can decide that. Many timeshare buyers are sold on the idea that it isn’t just a vacation destination, it’s an investment. But timeshares typically don’t hold onto their value, and thus aren’t a good investment tool.

If you’ve determined that a timeshare makes sense for you and understand that it’s a vacation plan, not an investment, then purchasing one could be a good idea. But be sure to do thorough research before making any decisions, and consider alternatives, such as a vacation rental or even purchasing a second home.

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