Vacation Smart! 7 Reasons to Stay Away from Timeshares.
06/05/2023
By: Fidelity Bank
7 Reasons Why Timeshares Are a Bad Investment
Before you make a commitment to buy anything, consider these seven reasons why it might be a bad deal.
You Might Be Talked Into Something You Can’t Afford Salespeople will make owning a timeshare sound like a can’t-miss opportunity. Don’t get caught up in the hype. Timeshare agents will generally show you their best – and highest priced – offer first and then lean in hard for the sale. They’ll likely tell you how much money you can save over a lifetime with a timeshare. Of course, they don’t factor in financing charges or other fees when making this pitch. And they’re hoping you don’t realize that you can often find affordable resort vacation packages on travel sites without the commitment a timeshare requires.
Before you sign anything, do your own research. Don’t automatically believe the timeshare agent. They just want to make a sale.
Timeshare Financing Has High Interest Rates Timeshares can be expensive, and most people end up financing at least a portion of the purchase. Unfortunately, you can’t finance a timeshare with a traditional mortgage because you’re not buying an actual piece of property. Mortgage lenders generally require property as collateral.
So, what are your options? You can finance through the timeshare company, get a personal loan, use your credit card, or money from a home equity loan. If you go with the timeshare company, expect the interest rate to be between 15% and 20%, significantly higher than a traditional home loan.
With interest rates that steep, it will be hard to make any money on a timeshare investment. You also won’t benefit from the typical real estate or tax deductions that come with a more traditional home purchase.
Rising Maintenance Fees Can Get Costly Purchasing the timeshare isn’t your only expense. You’ll need to pay annual maintenance costs, which cover the operating costs of the property. Depending on the size and location of the timeshare property, these annual dues can be substantial, sometimes in the thousands of dollars. What’s worse, the fees aren’t fixed and generally increase a few percent every year. As fees rise, some owners may not be able to pay them, which can lead to a decline in the vacation property’s quality.
Consider this: If you put the money you’d spend on timeshare maintenance fees in a savings account, you could have a nice little vacation fund.
The Value of the Timeshare Won’t Increase Unlike most real estate, timeshares are a depreciating asset, which means they don’t increase in value. It doesn’t make financial sense to put money into something that will be worth less in the future.
If you decide to sell your timeshare, you’ll be competing with folks who are practically giving their timeshares away. There are literally millions of timeshares available on the secondary market, according to the Association of Vacation Owners, an independent advocacy group for timeshare owners.
You Don’t Own Any Property As mentioned above, when you buy a timeshare, you don’t own any actual property. What you’re buying is a timeshare interval option, often called “vacation ownership,” which is the right to use a property or a group of properties. The downside is that you don’t have the same rights as when you have the title to a piece of real estate. You can’t modify the property and, in some cases, can’t rent or resell it.
And if you decide to stay home or vacation somewhere else, you’ll still be obligated to pay for your timeshare – even if you’re not using it.
Timeshares Are Hard to Rent Part of the timeshare sales pitch is the promise that you can rent out your timeshare for a big profit. Unfortunately, just the opposite is true. There are thousands of timeshare rental listings, often priced lower than a cheap hotel. If you manage to rent your timeshare, you’ll likely get just a fraction of the money you thought you’d be able to charge.
Not all timeshare agreements allow you to rent the timeshare and some may have restrictions, which make renting difficult. You’ll end up doing a lot of work for little money.
It’s Difficult to Get Rid of a Timeshare If you decide you want out of your timeshare, you’ll find it’s not so easy. Buying a timeshare is a long-term commitment, one that can last decades, and you can’t just walk away or stop paying your annual dues. In some cases, you can give your timeshare back to the resort, but the process can be time-consuming and difficult. It’s not something you should count on.
If you do manage to sell your timeshare, the price might be shockingly low, and you could end up losing thousands of dollars from what you originally paid.
Alternatives to Timeshares
If you want to vacation in a luxury resort, a timeshare isn’t your only option. Check out services like Expedia, Priceline, Airbnb, and Vrbo, and you’ll find lots of extended-stay properties. You can get many of the same benefits of a timeshare without the long-term financial commitment and hassle.
If you have questions or want help managing your money or savings options, let us help.
