Have you wondered what a timeshare is, and if it could be a good investment? Are timeshares worth it?
Picture this. You're on vacation in Hawaii, and a pretty lady offers you free pina coladas in exchange for a brief presentation on a timeshare. You think to yourself, “Why not? Free drinks! I'm not gonna buy anything.”
Two hours and four pina coladas later, you find yourself with a pen in your hand, about to sign on the dotted line for a timeshare. It seems like a great deal! It's exciting! You love Hawaii, you love pretty timeshare lady and — wait, this pineapple juice is freshly squeezed right..?
Okay, you get the picture. So, is it actually a great deal? Are timeshares worth it?
And here's why…
A timeshare is not an investment!
Contrary to popular belief, a timeshare is not a financial investment. Buying a timeshare is like buying a new car. The second it's purchased from a resort developer, it decreases in value by 50 – 90%.
In 2019 the average price of a timeshare was $22,942, so that means from the moment you sign, you've basically just thrown away thousands and thousands of dollars.
So why do so many people buy timeshares? Before we get ahead of ourselves, let's look at what a timeshare is.
What is a timeshare?
There are many different types of timeshares, but in general, they are a type of vacation ownership in which you own a piece of a unit within a resort. The timeshare is usually divided into 52 pieces because there are 52 weeks in a year and most timeshares are for 1-week each year.
Timeshares can make you feel like you’ve purchased a vacation home, but, in reality, they’re nothing more than an extremely overpriced piece of paper.
What does a timeshare cost?
Head over to eBay and search for a timeshare. You might be surprised by what you see: timeshares on sale for just $1. This happens because many timeshare owners get tired of never-ending fees and just want out. You see, timeshare owners must pay around $1,000 per year in maintenance fees. Some owners pay $2,000 or more!
Even worse, the maintenance fees aren't fixed. They could go up a few percentage points every year!
Many timeshare owners find it much cheaper to book a room in a hotel than to continue paying their obnoxious yearly maintenance fee. They want their timeshares to disappear.
Unfortunately, they soon learn that there is barely a market for their timeshare, and getting rid of it can be nearly impossible. Eventually, they resign themselves to giving it up for just $1. Ouch.
Can you get out of a timeshare?
Some resorts allow timeshare owners to give the timeshare back to them, but others do not. This is actually a recent development.
In the past, almost all timeshare resorts refused to accept the timeshare back. Why would they? They get to sit back and collect that sweet, recurring (and appreciating!) maintenance fee money each year. Eventually, though, timeshare developers learned that they could sell you a $9,000 timeshare, charge you to take it back, and then sell it on again to someone else for $9,000. Capitalism at its finest folks!
If you own a timeshare and your resort refuses to take it back and you cannot sell it, you may want to look into one of the many timeshare exit companies. (Yes, a veritable cottage industry has sprung up for people trapped in these things!) Timeshare exit companies usually work with lawyers to help cancel your contract with the resort. Sometimes their techniques are a little shady, so you must be careful.
In 2020, Diamond Resorts sued and shut down two timeshare exit companies that were found guilty of fraudulent schemes. Timeshare exit firms will charge you huge fees upfront and then never actually get you out of your timeshare. It seems the whole timeshare industry is fraught with deception.
So why do so many people buy timeshares?
With so many snakes in the grass, why would anyone in their right mind wade into buying a timeshare? Well, for the most part, people are pressured into it.
High-pressure sales tactics are ripe in the timeshare industry. Lies are rampant, and it's not uncommon for a salesperson to totally hoodwink the customer.
Furthermore, when you're on vacation, you're usually in a fantastic mood! You don't want the holiday to end! Salespeople know you're in this susceptible state of mind and take advantage of the special setting to spring their “too good to be true” sales pitch on you (complete with free giveaway gifts).
In addition, if you can't afford the timeshare, they may even offer you a loan! (Stop right there! Don't ever finance your timeshare!) You will pay sky-high interest rates that will be way more painful than your pina colada hangover.
Are timeshares worth it…ever?
Perhaps. Sometimes purchasing a timeshare through a resale can make financial sense.
A timeshare resale is when the owner sells it, so it can often be extremely cheap. You’ll be on the hook for the yearly maintenance fees, but that’s not a big deal if you use the timeshare every year.
Most timeshares are more spacious than hotel rooms and come with a kitchen so that it can feel a little homier. Some people like this enough to buy it.
In conclusion, never buy a timeshare from a resort developer directly. If you're still interested in purchasing one, make sure to buy via resale.
If you already own one, be careful when you're trying to sell it. Don't be fooled into thinking it's worth more than you paid, as this is rarely the case. Look at what others are pricing your timeshare for on eBay, and you'll get a good idea of its worth.
If you have money to spend, don't waste it on a timeshare. Instead, use it for a real investment. Could you buy a vacation property and rent it out to help pay the mortgage? Or perhaps you invest in a turnkey property? However you invest your hard-earned money, make sure it's working hard for you.