By M. Beddingfield
A timeshare is essentially the purchase of a period of time for a vacation. Yes, owners receive a legal deed to property, but don’t actually own a particular room or suite. You own the right to use the property for a certain time period. The period of time varies widely as does the place and lodging. These have grown to include resorts, condos, houses, castles, RVs, yachts, and even trains. Almost all units sold are resort or vacation properties.
When you purchase one of these properties, you share the purchase with many other people. The developer takes the resort property and divides it into time allotments, usually a week. Let’s say there are 300 rooms in a luxury resort. Each of those 300 rooms is multiplied by 52 weeks. 52 x 300 is 15,600. The developer charges $10,000 for each week. 15,600 x 10,000 is 156,000,000.
We can easily see where the developer makes his money, but what is the cost to the owner? We’ve established that you don’t really own anything – but time; beyond the purchase price, that time will continue to cost money as long as you own the property.
One of the main money traps in ownership is maintenance fees. During the first few years of ownership, maintenance fees may be fairly low, lulling the unsuspecting owner into a false sense of contentment with their purchase. Then unexpected rate hikes are implemented. The average cost of maintenance fees in the US are $800 per year.
Going back to the example with the developer let’s multiply 15,600 units of time by $800. That’s $12,480,000. Do you think the maintenance fees for a 300 room resort are actually $12,480,000 for one year?
One of the so called virtues of timeshare ownership is the opportunity to exchange your time period for another time period and another place. To do this, purchase of membership in an exchange company is required. This membership must be maintained whether you use your exchange or not. Then, when you decide to actually use the membership, you are charged an exchange fee for each use.
If you’re not satisfied with your resort accommodations, the room is too small or too far away from the pool, you can upgrade through the purchase of points. Again, you join the program by purchasing a membership, although in many cases, points are assigned with the initial purchase. Different points have different values. If your points are run by a program operator, it’s highly possible that the value of your points will decrease and you will be forced to purchase more points to obtain the accommodations that you want.
Let’s add up the cost of timeshare so far.
- Initial purchase price: $10,000
- Yearly maintenance fee: $800
- Exchange club membership: $100
- Cost of exchange: $100
- Points Program membership: $100
- Additional points: $50
- Total first year costs: $11,150
- Total yearly costs: $1,150
This is assuming that you paid cash for the initial investment. If you financed the timeshare, your fees are substantially higher. Your yearly costs are well over $1000. These costs, especially the maintenance fees, will continue as long as you own your unit.
There are two things that you should factor into the ownership equation. One of which is the cost of travel to reach your destination. Often people become enamored with a certain vacation spot such as the Florida beaches or the Colorado mountains. They usually don’t live close to either, but think they would like to return year after year. So they purchase a a unit at a resort with that intent and forget about the additional costs of traveling to that far away spot.
Another cost that is almost never considered is the amount of investment income you could have if your money wasn’t tied up in the purchase. Take the initial investment price of $10,000 and pretend you had put it in a mutual fund yielding 8% interest. 8% x 10,000 = $800. Keep in mind that a good yielding mutual fund can yield much higher. When you invest in a timeshare, that money is spent. You won’t make a profit off the resale of the investment, nor will you recoup the amount spent. You must consider all ramifications of the use of your money. Therefore, if you spend $10,000 on buying one of these properties, you will lose the opportunity to invest it and make money.
Now let’s do the equation again, adding in the additional yearly costs.
- Initial purchase price: $10,000
- Yearly maintenance fee: $800
- Exchange club membership: $100
- Cost of exchange: $100
- Points Program membership: $100
- Additional points: $50
- Travel Expenses: $500
- Potential investment Interest: $800
- Total first year costs: $12,450
- Total yearly costs: $2,450
There are other costs to consider as well, such as taxes and surcharges. One thing is certain; an owner will continue to pay for the use of their unit, year after year. Owning this type of property is like being married; it’s a lifelong commitment. If you don’t like owning a timeshare, divorce is difficult and costly. Resale value is low and simple ways to get rid of it are almost impossible to find. If you are considering buying one of these properties, think twice. No, think more than twice. Just don’t do it.