What Are Timeshares And Are They Worth It?

Many people would like to own a second home for vacations, but they can’t afford one. But what if they can afford a much smaller piece of a vacation home? The timeshare property was invented for them.

A timeshare is a vacation property with shared or fractional ownership, granting multiple owners exclusive use rights of the vacation home for a set period of time – typically on an annual basis.

How Timeshares Work

Also known as a vacation ownership, a timeshare allows you to use your vacation property – it could be in any home style but is typically a condominium or apartment – generally for one week a year. The vacation property can be the same hotel room at a single resort in the same place, or it might allow you to choose a variety of units at a family of resorts, such as a Disney resort, across several countries.

You own your piece of the timeshare, and if you want to get out of the investment you’ll have to sell your stake. To purchase, you’ll pay an upfront cost plus annual maintenance fees, but because you are sharing the expense with other investors, the cost is far less than if you were buying it yourself.

What Are The Different Types Of Timeshares?

As timeshares have evolved over the last 50 years, different timeshare models have emerged, each with their own perks, benefits and restrictions. Most models, however, fall into one of two categories: Shared deeded ownership and shared lease ownership.

Shared Deeded Ownership

A shared deeded timeshare divides property ownership between you and the other owners of the timeshare. It grants you exclusive use of a vacation property for a minimum of one week per year in either a “fixed” or “floating week” arrangement. Because you have a deed, you co-own the property forever until you decide to transfer ownership via a sale or hand it down to your heirs as inheritance.

Shared Leased Ownership Interest

In a shared lease or non-deeded timeshare you don’t have any ownership in the property. Instead, you have a right to use the vacation property via a time-limited lease. The owner grants you the privilege to use their property exclusively, for at least a week annually, for a specific period of time, which can sometimes exceed 20 years. Once the agreement ends, so does your right to use the property.

Types Of Timeshare Right-To-Use Models

In the several decades since the timeshare idea came to be, what it means and how people use it has evolved. Before we discuss that, however, a brief history is in order.

The idea of the timeshare was originated in Europe in the 1960s. The ingenious marketing idea was basically, “Why rent the hotel room when it’s cheaper to own a piece of the hotel?”

Instead of owning a vacation home, which for most people is out of reach, timeshare investors could partake in a “fractional ownership” investment, where they could own a vacation property for one week a year. They could return to the property at the same time every year for a tiny fraction of what they would pay for buying and maintaining their own vacation home.

Immediately popular, timeshares also began running into problems. Specifically, owners felt constricted by having to return to the same place at the same time every year. They wanted some flexibility.

Also, demand for travel tends to be greater in certain months of the year and less in others. More people from the United States wanted to visit the tropical island of Barbados, for example, during the harsh winter months. Far fewer wanted to go there in July.

And why the same place each time? Wouldn’t a timeshare be better if you had the choice of multiple vacation properties and resorts to visit?

To meet demand, timeshares had to evolve to satisfy a wide variety of travel needs and budgets.

Fixed-Week Timeshare

The fixed-week timeshare is the original timeshare. It guarantees you a specific week at a specific location (and sometimes even a specific unit) every year. It’s less flexible but good for people who like routine and stability. You also don’t have to plan your vacation every year or compete for the best week. On the other hand, who doesn’t want a little variety in their life?

Floating-Week Timeshare

The floating-week timeshare was a natural response to the people who didn’t like the rigidity of the original fixed-week approach. It lets you to choose your week at any point during a season or even the whole year. The floating-week plan allows you to be more flexible in scheduling your vacation time and to experience the place at different times of the year. A downside is that many resorts have a high-demand season – you can get shut out of those weeks if you don’t plan far enough ahead.

Point-System Timeshare

Flexibility and variety in timeshares really expanded with the advent of timeshare exchange companies and the point-system timeshare. In this system, timeshare owners still own a stake in a specific unit at their “home resort,” but also have the ability to travel to any resort in the club’s network.

Members are given a certain number of points as a type of currency they can redeem at any property, each with their individual rates. These rates are determined by the demand of the specific destination, resort, unit size, week(s) and number of days a vacationer wants to travel. Points are so customizable that members can use them for multiple vacations a year under a single ownership contract.

How Much A Timeshare Costs

Are timeshares worth it? It depends on the person or family and where they are in life. Many people find timeshares as a less expensive and more convenient alternative to buying a vacation home, for example. After all, buying a second home involves taking out another mortgage for potentially hundreds of thousands of dollars. With a timeshare, you’re purchasing one portion of one unit at a resort.

And while timeshares require some annual fees for maintenance, that requires nothing more of you than writing a check. Someone else does the actual work. With a vacation house, all of that work falls on you.

And finally, especially when you join a timeshare club that has hundreds of properties all over the world, your vacations have much more variety than visiting your vacation house again.

But what are the economics of buying a timeshare? We’ll break it down and discuss the workings of the initial purchase price, annual maintenance fees, upgrades and upkeep.

*Assumes financing $24,140 at 14% interest with an annual payment of $1,000 for 10 years.

Upfront Costs

According to the American Resort Development Association (ARDA), when you purchase a timeshare company, the average price of a weekly timeshare interval is $24,140. Expect to pay about $800 in additional closing costs at that price.

Financing a timeshare investment can be tricky. Developers can often have aggressive sales techniques that press for in-house financing, but this can come with a very high interest rate. For example, the average timeshare loan comes with an interest rate of 14% over 10 years, which in our example above adds more than $4,300 to your upfront costs. Depending on your credit score, you can potentially get a far lower rate on a personal loan.

Buying A New Timeshare Versus A Resale Timeshare

Because timeshares rarely appreciate in value, you could spend far less for a resale purchase (those on the secondary timeshare market) than one that you buy new directly. Timeshare resales often sell for only 50% of the original purchase price, though you could save as much as 70% of the original purchase cost.

Recurring Costs

Much like second home buyers have to calculate for the costs and troubles of vacation home maintenance, likewise timeshare owners must expect to pay for annual expenses ranging from property taxes and HOA fees to maintenance and special assessments for things like natural disasters.

According to ARDA, and taking into account for variance among properties, the average timeshare maintenance fees across the board are $1,000 per year.

Total Cost Over 10 Years

Given our example above, we see that a person could invest nearly $40,000 to have 10 one-week vacations in either the same place or 10 different places. That’s $4,000 a week or almost $600 a night, which is probably not unreasonable and could even be a good deal depending on the resort and if your week is in the high season. And since you own the timeshare, you can sell it and recoup your equity, though as pointed out it might be worth less than 50% of what you paid for it.

Pros And Cons Of Timeshares

For many people, owning a timeshare has a lot of upside, especially for those who wish to avoid the second mortgage and constant maintenance headaches of a vacation home. But what is the downside of a timeshare? We’ve seen the pros and cons of the different kinds of timeshare agreements. Now, let’s look at the most and least positive aspects of timeshare ownership in general.

Timeshare Pros

The benefits of owning a timeshare include:

• Predictable quality: Knowing exactly what to expect helps you avoid scams and dishonest vacation brokers. 
• Upscale amenities: Timeshares typically offer spacious accommodations and resort-like amenities – things you would have to pay for normally.
• Familiarity with the location: Families can return to a familiar destination each year, which can be beneficial if you really enjoy the perks of that particular area.
• Cuts down on planning: You can build your annual schedule knowing your week at the timeshare is set.
• Points could be bankable: Some timeshares allow you to take advantage of points that you can use at other properties in the resort chain. You may be able to tap into a vast network of locations and also save up points and use them later in case you want to skip a year.

Timeshare Cons

There are downsides to owning a timeshare, which include the following:

• High upfront costs: You can't avoid the high upfront costs of purchasing a timeshare, so it's important to consider whether you can afford the initial costs (not to mention the ongoing costs). Financing plans from timeshare developers typically have high interest rates.
• Fees: You'll also have to pay annual dues and maintenance fees, which you will pay on an ongoing basis as long as you own the timeshare.
• Inflexibility: You can't just pick up and visit whenever you want. Timeshares operate under strict schedules. You may not be able to ever change the week you go on vacation unless your timeshare operates under a floating schedule. This inflexibility with booking and cancellations can make it difficult when the unexpected happens, like if a family member gets sick, a child's sports schedule changes, etc.
• Tough to get out of: You can't just call up the manager of your resort and say you want to cancel a timeshare. In fact, you'll have to call a lawyer and work with a timeshare exit company to get out of a timeshare. It's also not easy to resell on the timeshare resale market because you’re competing with others who may be trying to get rid of their timeshares, too.
• Will likely lose money: Timeshares go down in value because it's an illiquid asset. You don't actually own anything, unlike if you were to buy a vacation home, where you do own the asset and it will likely appreciate in value.

How To Get Out Of A Timeshare

People’s lives change, but sometimes a timeshare can seem like forever. If your timeshare is no longer working for you and your family, there are ways to get out of it. Unfortunately, the best you can hope for is to not lose any more money than you’ve already put in.

If you just purchased a timeshare and have second thoughts, you can use rescission laws to your advantage, which means you have time to get out of the timeshare. In most states you have the right to cancel your timeshare contract up to 3 days after signing (the Federal Trade Commission’s minimum requirement).

If you’re rescission rights have expired, you can try calling the timeshare developer to explain that you’d like to get out of your timeshare and ask about the process of doing so. Timeshare contracts notoriously make this difficult to do. Please know that you may have to pay the resort to get out of the timeshare.

Unfortunately, there are timeshare scams and frauds that make it very difficult for you to recover any money. There are timeshare exit companies and attorneys who specialize in helping fraud victims, but they can be expensive as well.

Finally, you can transfer the timeshare to a family member or resell the timeshare on the secondary market. This means contacting an agent or timeshare exit company that has experience selling timeshares – and paying them a commission. 

Alternatives To Timeshares

What is a timeshare alternative? Let's go over a few opportunities you may want to consider.

Rent A Timeshare

Why own if you can rent? There are thousands of units for rent at excellent timeshare resorts at any given time. Particularly if you are vacationing in a low-demand season, you can get a competitive rate and enjoy the resort with no entanglements.

Rent From A Home-Sharing Site

Home-sharing operations like Airbnb or Vrbo make it super easy to shop online for a vacation spot. Especially if you’re looking for a freestanding home or a place that can sleep a dozen people or more under one roof, this is a great option.

Rent A Hotel

Remember hotels? You just pay them money and they provide you with a pleasant hotel room right where you want to be, no further contact required. And if you have a credit card that earns hotel points, you can get a discount on your vacation.

Enjoy A Bed And Breakfast

This is a great way to get to know a place because the proprietor can provide great information – best restaurants, interesting sights, etc. Some people enjoy the homey feel of a B&B and the social aspect of morning breakfast with other travelers.

Rent A Cabin

While many people dream of owning their “little cabin by the lake,” they are wary of the expense and time commitment it requires. So, rent a cabin from someone else first. Maybe you’ll like it so much you’ll want to own one yourself someday.

Timeshare FAQs

Are timeshares worth it?

A timeshare can provide you a relatively easy, repeatable one-week vacation every year at a resort with all the amenities. If you don’t mind the lack of flexibility in choosing your dates or paying annual fees up to $1,000 or more, then it might be for you. But many people sour on their timeshare investment after a number of years and find it can be difficult to sell or walk away from the contract.

Why would a person buy a timeshare?

Provided they have a clear understanding of their rights and limitations under a timeshare contract, people buy a timeshare because it provides an affordable one-week vacation per year at a nice resort or group of resorts.

Can I make money from a timeshare?

Not unless you’ve thought of something nobody else has. At best, buying a timeshare is like buying a lifetime of affordable vacations at a nice resort that you don’t really have to plan for. Since you only have one week a year that you could possibly rent to someone else, it is really nothing like owning and renting a vacation rental property. Your investment earns zero equity because you don’t own the actual property. You can sell your timeshare, but it is worth far less than what you paid the moment the ink is dry on your contract.

How do I finance a timeshare?

Timeshare developers have well-developed strategies for getting you to invest, and part of that is easy financing where all you have to do is sign. But these contracts are usually at high interest, currently averaging about 14% over 10 years. If you have good credit you can do far better on a personal loan. You can also borrow against the equity you have in your house with a home equity loan.

What happens when a timeshare is foreclosed on me?

The resort developer can take you to court if you stop making payments on your mortgage or other fees. Not only can you lose your timeshare, but you may have to pay the difference between what you owe and what it’s worth at auction. And this will all negatively affect your credit score.

The Bottom Line: Timeshares Can Be An Expensive Home Away From Home

The people who seem to thrive as timeshare owners are those who like the convenience of going to a nice resort every year without having to plan or have much choice in their dates. It’s easier than owning a vacation home or even planning a different trip every year. However, timeshares are known for being tricky or even scam investments. Once you’ve signed a contract it can be hard to get out or sell, and you will never make money on your investment.

Is that vacation home idea looking better? Get started by connecting with a Partner Agent from Rocket Homes^SM today.