Jesse and Janine vacationed in Hawaii last year for the first time. And like so many others who have ventured to the Land Of Bliss, they were smitten upon arrival. Lush, tropical environment, sandy beaches, warm ocean waters, extraordinary rainforests, majestic volcanoes, out of this world snorkelling among friendly fish, deep blue sea diving, idyllic sunsets, hiking up mountain cliffs … how could anyone not fall in love?
Pssst! You Wanna Own a Piece of Paradise?
On their second day, after breakfast, J & J go for a stroll on the beach. Passing a Marriott hotel, they spot a well placed sign encouraging people to attend a seminar presentation on the topic of ‘How Anyone May Own Property In Hawaii’.
Though sceptical that they could afford to buy land in high priced Hawaii, they were intrigued. And once learning that simply for attending the 90-minute seminar they would receive three nights in an Orlando, Florida, hotel and two tickets to Disney theme parks for the rock bottom price of $99, they signed up.
So what happened next? For those of you who have subjected yourself to the agony of a timeshare presentation, this will sound familiar.
Jesse and Janine’s Unfortunate Adventure
Picture a large, well appointed conference room. Picture hordes of smiling sales people about to begin a sleek presentation. Picture about one hundred naïve, dreamy, excited vacationers eagerly waiting to learn how they may afford a part-time home in Paradise.
This is the scenario for a typical timeshare presentation. And here’s what happens at these high-pressure sales events:
- Way Too Long. Instead of the advertised 90 minutes, the seminar went on for a grueling three hours.
- Keep Coming At You. Not one, not two, not three but six salespeople will corner you, the potential buyer, relentlessly badgering you to buy.
- Buy Now. Now! After the pitch and the badgering, you will be told (not asked) to make a decision. You will be told to make, ‘the best decision of your life’, and to do it now, commit to it now, before leaving the seminar.
- Preying On Emotions. When the sales force realizes you’re not buying their pitch, they summon another weapon: guilt. Saying things like, ‘if you don’t buy, I won’t get paid and if I don’t get paid I can’t feed my family’. Or, ‘how could you accept our free gift without buying? Is that the kind of person you are?’ Nice. Real nice. Just the kind of folks everyone wants to deal with. Not.
- Investment Blather. As if using guilt as a sales tool isn’t low enough, as an alternative way to reel you in, they outright lie about the timeshare’s investment value.
- Locked-In. And for those who take the bait during the pressure packed seminar, handing over anywhere from $15,000 – $20,000 before leaving the room, don’t count on being told that you have the right to cancel, usually for up to seven days after signing the contract.
What Is A Timeshare, Anyway?
Before I tell you why timeshares are a bogus investment, I’ll do my best to be objective, and tell you a bit more about this investment nonsense, er, um, I mean, ownership opportunity.
So … what is it?
Also referred to as vacation or fractional ownership, a timeshare is a real estate program in which a residential property is divided among many owners who have purchased the right to use the property for a specific period of time, i.e., one or two weeks.
Typically, a timeshare refers to a room at a resort or vacation destination. Instead of paying full price for the room (like a hotel room), each ‘owner’ pays only a share of the property’s total cost. In return, the ‘owner’ is privileged to use the room at a pre-determined time. For example, if you buy a 1/52 share of a room, then you ‘own’ the room for one week each year.
Timeshares Come In Different Shapes and Sizes
Deed. Most timeshare purchases are ‘fee simple’ transactions that come with a title deed. This means that you’re buying a share of ownership, and may sell, rent or give away your share just like other kinds of real estate.
DeedLess. This type of ‘ownership’ structure is essentially a lease, with the owner buying usage rights for a specific number of years. At the end of the lease term, the buyer loses their right to use the property.
Vacation Club. This is slightly different than the standard timeshare set up. A vacation club is an organization that owns several timeshare properties in different locations. Buyers may choose to vacation at rooms in the different properties.
Points Program. Another variation on the standard timeshare set up. Here, you buy membership in a program that gives you a certain number of points that may be exchanged for rooms at different properties.
Cost Of A Timeshare?
Hanging on to your hat? Get this: average cost is $19,000 (USD)! On top of that, lucky buyers fork over an annual maintenance fee that usually tallies between $650-$1,000 (USD).
Given that these are average prices, cost will vary according to several factors including:
- Time of year the room will be occupied, i.e., winter holidays and spring break will cost more.
- Property condition.
- New timeshare or resale property.
- Deed or No-Deed.
- Whether the timeshare is part of a brand such as Disney.
Tell Me Again … Why Would I Want To Buy A Timeshare?
Okay, really, I have no idea. It makes no financial sense to me why anyone would purchase a timeshare. All I can fathom is that the idea of ‘ownership’ taps into some primal need to plant a stake, to claim ownership of territory.
My lack of understanding aside, here’s what some claim are advantages of buying a timeshare:
- The perfect plan for those with a Certain, Guaranteed, Unchanging vacation pattern, who want to prepay for their vacation, i.e., same location, same dates, same price, same room year after year.
- Access to condo room for those without resources to buy a condo outright.
- Not responsible for repairs, upkeep, or security, as would be the case if you purchased full ownership of a condo.
- Opportunity to sublet the room during your reserved vacation time thereby earning money.
- Option to buy a spacious 2 or 3 bedroom timeshare. The benefit here would be for a large family that would otherwise pay for more than one hotel room when vacationing.
- Option to trade reserved dates and location with other timeshare owners.
Now Tell Me Why Timeshare Ownership Is Just Plain Silly, And Sometimes Harmful
Out of all of the so-called advantages, the only one that I don’t take issue with is the first. I mean, if you prize certainty of vacation location and dates above all else, including whether you’re overpaying for your vacation, then a timeshare is for you.
As for the other ‘advantages’, they’re a truckload of hooey. Here’s why:
- NOT AN INVESTMENT. Forgive me, I put that subheading in CAPS. And yes, I’m raising my voice here because it’s really important you know that a timeshare is not an investment. It just isn’t.
- Immediate Loss Of Value. Unlike buying residential real estate, most timeshares lose value, sometimes nearly all resale value, as soon as the purchase is consummated.
- Minimal to Non-Existent Resale Value. Because there is a huge supply of timeshares, supply that far exceeds demand, it can be difficult to even give them away, never mind recoup anywhere close to your ‘principle payment’.
- No Tax Benefit. Selling your timeshare at a loss does not allow you to claim a Capital Loss for tax purposes, as you would do with Real Investments.
- Costs. True, you are not responsible for upkeep but you do pay an annual fee and this annual fee commonly increases every year. As well, you are held responsible for closing costs, broker commissions, and special assessment fees. And here’s a fun fact: if you don’t pay maintenance fees or special assessment fees, the Developer has the right to foreclose on your timeshare.
- More Costs. If you take a loan to finance the purchase, you’re paying interest on top of the principal. Horrible, horrible idea to finance a timeshare, and increase the amount of money you’re tossing into a dark hole.
- Locked-In. Some timeshare contracts lock you in for life! How insane is that?! Others lock you in for several years. This means you are responsible for all fees for the duration of the contract, whether or not you make use of the timeshare property.
- Uncertain Availability. The supposed advantage of vacationing at the same place, same time may be hard to come by. It is not unheard of for a timeshare company to misrepresent the ease of scheduling your vacation time. Also, most vacationers want to reserve ‘their room’ for the same time period. Of course, this isn’t possible.
If You’re Still Gung Ho About Timeshares …
Fortunate for J&J, ignoring excessive pressure to stay for the entire spiel, they walked out of the presentation without handing over a dime. Others remained and a percentage of those remaining likely bought themselves a piece of … um, something?
Despite my obvious concerns about timeshares, don’t take my word for it. If interested in a timeshare, then by all means do your research and determine whether it is best for you. To help you along, keep the following in mind:
- A timeshare is more like a lifestyle purchase. It is not an investment (right, I’ve mentioned this a gazillion times now).
- Crunch the numbers and be sure to include depreciation (as soon as you get the keys, resale value drops anywhere from 50% to 100%), travel costs, maintenance fees, and the value to you of prepaying for future vacations.
- Ask whether you want to visit the same vacation destination year in, year out. Or if you prefer to mix up your vacation destinations and activities.
- If salespeople are less than forthright with you, or if they do not offer a grace period allowing you to change your mind and cancel the purchase, then its best to walk away.
- Do not pay any funds toward purchase without first inspecting the vacation property. I mean, would you buy any other real estate sight unseen?
- If you need to borrow funds to make the purchase, then a timeshare is absolutely not suitable for you. And its telling that many banks will not lend money for a timeshare purchase. Not surprisingly, a developer will not hesitate to finance the purchase cost at a high rate of interest.
Fairy Tale Ending
You’ll be pleased to know that Jesse and Janine resumed their vacation immediately after leaving the timeshare presentation and had an excellent time. So much so that they expect to return one day, maybe visit one of the other Hawaiian islands, and stay at a different hotel, and not give another thought to wasting their valuable time with any more timeshare shtick.