It happened just last week to Finance Opinion Analyst, Marco. He was enjoying a family vacation in Miami, Florida, when approached by a salesman asking if he wanted a free vacation. Jumping at the chance (who wouldn’t?!) Marco agreed to join a quick resort pitch in exchange for a 3-day trip extension in the sunshine state. But, it didn’t take long for Marco to begin wondering if he made a mistake.
What was promised to be a “brief* presentation began to inch toward a full half day of Marco’s trip, sucking up valuable time with his family. After a few hours went by, he gave up on the free vacation offered and headed back to meet his family at the beach, regretfully wondering if he should’ve stuck it out.
He came back from Miami as-scheduled, and presented the question to the team: Is a weeklong, prepaid trip worth your money, or are timeshares a scam?
Like any financial move, the answer really depends on you, your lifestyle, and your personal financial goals. In this post, The Finance Opinion Team (with a bit of help from Marco!) outline what a timeshare is, and when it does (and doesn’t) make sense, so you can determine if purchasing a share is the right move for you.
What is a Timeshare?
First and foremost, it’s worth highlighting that a timeshare is not an investment. That’s because timeshares can actually lose value in the secondary market, and don’t generate any income for shareholders.
Instead, a timeshare is essentially a prepaid ownership of an annual vacation (typically a weeklong) and includes a lifetime commitment to paying for annual trips to the same resort or family of resorts.
To secure a timeshare, owners either prepay or finance an upfront timeshare fee, plus annual maintenance fees. Timeshare owners also have the opportunity to upgrade their shares (ie: to a suite or additional vacation amenities).
How a Timeshare Works:
Timeshares are available in two types of contracts, which outline who the owner of the property is, and how ownership works when you visit your timeshare.
- Shared Deeded Contract: A shared deeded contract divides vacation property ownership between you and all the other people who own the timeshare throughout the year. Every person is typically designated a specific week when they can use their timeshare.
Through a shared deeded contract, owners have the right to transfer ownership by selling or gifting the share to someone else.
- Non-Deeded or Right-to-use Contract: A shared leased or right-to-use contract divides the use of a vacation property between you and all the other people who pay for the timeshare throughout the year. This type of contract gives timeshare holders the right to use the timeshare for a set amount of years, but, unlike a shared deeded contract, it does not let timeshare holders sell or rent the timeshare.
When a Timeshare Can be a Smart Financial Move…
In short, timeshares are really only worth buying if you’re going to use it consistently.
Once you get past the point of considering a timeshare an investment (because, as mentioned earlier, it’s not), a timeshare can be worth the cash. If you travel frequently and thoroughly enjoy the destination that you’ll be owning a timeshare in, a prepaid trip at a locked in rate can be a smart move.
Along with the benefit of priority booking for timeshare holders, if you’re able to budget for the maintenance fees (about $1,000 per year), a weeklong trip averages out to about $142/night, which can be a much better deal when comparing to hotel and resort fees for weeklong stays.
… and When to Spend Your Money Elsewhere
If a big financial goal of yours is to invest and diversify your portfolio, you may want to skip the presentation and consider alternatives to a timeshare. Timeshares have high purchase prices, annual maintenance fees, and significant depreciation on the resale market, so don’t bring any value to your financial portfolio.
If going on an annual trip isn’t of the utmost importance to you, strategies like putting your cash in stocks, real estate, or other investments will be better aligned to helping you reach your financial goals.
The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.
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