Many people turn to timeshares as a way to enjoy annual vacations. But is investing in a timeshare a financially sound decision? That depends on whom you ask.
Getting the facts about how timeshares work and learning a few tricks can help anyone make an educated decision about them. In a timeshare, individuals purchase a property to use for vacations. Typically, they’ll use this property and the surrounding amenities once per year, and often must travel to the same location time and again.
Timeshares have long held appeal because they are marketed toward people who may not be able to buy a vacation home, but still want to vacation each year.
There are some advantages to timeshares. They provide a guaranteed vacation destination each year in a familiar place. This is great for people who value familiarity. Timeshares also make it possible to afford a vacation at an expensive resort. Sometimes a person can trade times or locations with other timeshare owners, enabling more versatility and new destination experiences. For those who have to skip a year, it may be possible to sublet the timeshare or let family and friends use it, if the agreement allows.
Timeshares have some notable drawbacks as well. Cost-efficiency is one notable shortcoming. The American Resort Development Association, a trade group for timeshare companies, suggests that the average cost of a timeshare is around $20,000, with an annual maintenance fee of $660. Those fees are paid even if the resort isn’t used that year. Chances are a person can get a comparable vacation elsewhere for a lower cost, especially with the abundance of vacation property rentals available from traditional hotels, as well as sites such as AirBnB.
A timeshare is not like a traditional real estate investment. According to Investopedia, it is an illiquid asset that is likely to lose value over time. Those who decide to sell their timeshares often find they must do so at a deep discount. Furthermore, those who sell a timeshare at a loss may find the Internal Revenue Service doesn’t let them claim a capital loss, which is often the case with other investments and property.
To make timeshares work better financially, individuals can opt to buy used, which is often at a fraction of the cost offered by resort developers for new units. Also, realize that a timeshare is a lifestyle purchase, not exactly a real estate investment. They are not a way to turn a profit. Try to purchase in desirable locations as well. Doing so increases the likelihood of resale in the future.