03 Mar What are the Risks of Purchasing a Timeshare
What are the challenges in getting rid of a Timeshare
Investing in a timeshare is a substantial commitment that can last for many years, making it challenging to relinquish. Some individuals find it so difficult to exit their timeshare agreements that they resort to giving them away for free. Unlike walking away from a mortgage by ceasing monthly payments, one cannot simply abandon a timeshare by refusing to pay annual fees.
While some developers offer the option to return a timeshare to the resort through programs such as the Coalition for Responsible Exit, this process is often complex and time-consuming. Time-share owners have experienced mixed results when attempting to return their properties to these developers.
1. Being Persuaded Into an Unaffordable Purchase
Similar to visiting a car dealership, timeshare sales representatives will present their most costly offer upfront and then exert pressure for a sale. Before making a decision, it is advisable to request and review the fine print, comparing it to your typical annual vacation expenses rather than relying on the salesperson’s claims about vacation costs. Sales agents often provide figures to demonstrate how much you can save on vacations over a lifetime by buying a timeshare, assuming you do not finance the purchase, and that you would pay full price for similar accommodations every year if you do not own a timeshare. However, many individuals do finance their timeshare purchases, and there are opportunities in the market to pay less than full price for resort vacations. To make an informed decision, you can quickly compare vacation package prices on popular travel booking websites to see the costs without purchasing a timeshare.
2. High Costs Associated with Timeshare Financing
Traditional mortgages cannot be used to finance timeshares because they do not involve purchasing ownership of real estate, which serves as collateral for mortgage lenders in case of default. When financing a timeshare, options may include financing through the timeshare company, obtaining a personal loan with no restrictions on its use, using a credit card, or utilizing funds from a home equity loan. Moreover, unlike mortgage financing for a home, owning a timeshare typically does not qualify for real estate or investment tax deductions.
3. A Timeshare’s Value Will Not Increase
Timeshares do not hold their value and are unlikely to appreciate over time. If you try to sell your timeshare in the secondary market, you will be faced with tough competition from other owners who are practically giving away their shares. The Association of Vacation Owners, an independent group supporting timeshare owners, reports that there are millions of timeshares available for sale in the secondary market. Thinking of renting out your timeshare instead? Don’t count on making a profit. With thousands of other listings available, it’s challenging to find renters, especially if you need to rent out your week at short notice. Timeshare Users Group notes that many listings are priced lower than the cheapest hotel rooms. While it may be possible to rent out your timeshare to cover some expenses if your contract allows it, it can be a time-consuming effort.
4. Timeshare Points May Decrease in Value Over Time
Although not all timeshares operate on a points-based system, it’s becoming increasingly popular. However, this system has a significant drawback. “Points offer flexibility but are prone to inflation,” says Schreier. “What costs 100 points today may require 150 points next year.” Moreover, the ease of purchasing timeshares at a lower price in the secondary market can devalue the points.
Another concern is that the points needed for booking during your preferred dates could change annually. Developers may adjust the point requirements to shift demand from peak vacation periods to less popular times, ultimately affecting the value of your timeshare points.
5. Historically, Timeshare Fees can Rise Dramatically
As time goes on, the costs associated with timeshare ownership may become increasingly burdensome. An analysis of the historical fees for timeshares can provide insights into potential future increases. For example, in 2010, the annual dues for vacation points in Disney Vacation Club (DVC) properties ranged from $4 to $7. Fast forward to 2020, and the same resorts now have annual dues ranging from $7 to $10, as reported by DVC News founder, Tim Krasniewski.
Similar to owning a condominium, timeshare ownership may entail paying a special assessment if the property requires significant upgrades or repairs that surpass the reserve funds allocated from the owners’ annual dues. With escalating assessments, owners may find themselves financially strained, resulting in a decline in the overall quality of the resort.
