Does timeshare constitute an investment?

I came across a very interesting article while doing my research on timeshares sometime ago, and I thought I’ll share it with you. The article is called- Time and Time Again: Buying and Selling Timeshares and Vacation Plans. This article is published on the Better Business Bureau website: http://www.bbb.org/us/article/4786, in cooperation with the Federal Trade Commission. This is an old article, but not much seems to have changed in the timeshare industry since. The second paragraph talks about “You should know that the value of these options (timeshares & vacation ownerships) is in their use as vacation destinations, not as investments.

As a real estate investor myself, I do not consider timeshares as an investment, and here are some of the reasons why:

• No increase in value overtime – Timeshares depreciate, just like any other real estate property (with the exception of land), but unlike real estate, they do not increase in value over time. Even if the property value itself increases, you don’t get a benefit- your resort developers will. And you can never really get the price you paid for it, when you sell it.
  
• Tax Benefit- When you own real estate, for example an investment home and rent it out, you are able to deduct certain expenses related to home improvement, repairs, etc. in your income taxes. Very few deductions are available for a timeshare, and are subject to different conditions, based on whether it is for personal use or business use. Also, deduction of property tax is usually determined based on who is billed for it, and other conditions. In short, you spend all this money, few tax deductions, and there is no equity building.

So, the idea of timeshares really is usage, and not investment. It is supposed to save you time and money in terms of giving you a luxury ‘home away from home’, where you don’t have to spend on maintenance or worry about furnishing it when you want to use it. But, you do pay a pretty big fee for this purpose, right? And you give a down payment to buy it!!

I consider a timeshare to be a contractual agreement and obligation where you agree to commit your money, time, and energy. The only ones making a profit on timeshares are the developers and resellers. Hey, my 2 cents- if you are in love with a destination and want to visit every year, think about buying a second home or an investment property there, and rent it out for the rest of the year!

What are the different kinds of timeshares?

Before getting into buying or selling timeshares, its very important to understand what you're getting into. Just to give you an overview, they can be divided into the following main types based on ownership and usage rights:

Deeded Property: This is when you own the deed to the timeshare. This ownership ends when you decide to sell,lease, or donate the property.

Fixed time: You pick the one week in the year to use the property, and use the property for the same week each year. If you miss it, you lose it.

Floating Time: Unlike fixed time, you get usage rights for a specific period of time- say, one week in a year, but it does not have to be the same time of the year. Offers a bit more flexibility, but advance booking is needed, and availability of unit sizes may vary, especially in peak seasons.

Points: Various vacation clubs offer such properties With the points timeshare option, you pay for, and accumulate credits or points for use during anytime of the year. As in the case of floating timeshares, advance booking is needed to book the unit in the vacation destination of your choice. You use up points as you reserve nights at the unit.

Multiple Locations: Different resort or hotel chains, offer such deals. You buy the timeshare with the resort, but you can use it in different locations. So you can buy a membership with a resort, and based on your agreement, can use their property in Hawaii or Florida or Europe.

Mix & Match: Resorts and vacation clubs could offer a mix & match of the above categories- for example a fixed & floating dats etc. Look at this example of a Hyatt property. http://www.hyattaspen.com/p-own-grand-hyatt-aspen-302.html. Also look at how much they charge you!

I'm sure you can further divide & subdivide categories of timeshares, and get "own" anything from an apartment to a boat. But you really need to do lots of research and homework before you get into buying one.

What are the benefits of owning a timeshare (see benefits & Pains of owning a timeshare in further posts) vs. renting a condo, or a vacation rental? or even a hotel room? Most people who buy timeshares are the ones who travel to a destination, say Hawaii, fall in love with the place, and decide they want to visit the place every year. By the way they also fall in love with the resort property they are staying in, and want to stay there every year. Well- good for them, but heres a newsflash- there are cheaper options! You can go to Hawaii each year, and stay in the same place, and pay lesser than you would if you own a timeshare there.

Well, if money is not a consideration, there are even beter options, like owning a condo, vacation home, etc. and you could even qualify for tax benefits! For more information on how to find best deals, travel vacation deals, or specific questions, feel free to email me at travelbugmundo@gmail.com

Timeshare shopping?

Being a real estate investor, and an avid traveller myself, I am perpetually looking for vacation deals- deals for flights, hotels, car rentals, etc. And yes, I had considered owning a timeshare once upon a time. I did a lot of research to understand this unique market, and found it very interesting, how its changed over the years. This concept started in Europe in the 1960s, and came to the US around the late 1960s. This inspired me to write this blog to explain what timeshares are and whether or not it makes sense to buy them.

If you are reading this blog, then you have probably heard about one; and may be even planning to invest in one or looking at selling yours. Well, if you haven't heard of timeshares before, here is a short story. You are on a vacation and arrive in Cancun, Mexico with your spouse/ partner/ family. You are approched by a well-dressed gentleman, who introduces himself as an employee of a resort XYZ, greets you, welcomes you to his country, asks where you're from & how
your flight was, etc.- thats a nice gesture, right?

Well, then he asks you where's you're staying, and if you need a ride to your hotel. Well, since most of us have got up at wee hours of the morning of travel, travelled a few hours by air, a ride to the hotel in a private van is would be nice, as compared to sitting in a local airport shuttle that takes 2 hours to reach you hotel.

By this time you probably have an idea of whats to come, but well, "lets see", you say. On the way to the airport, this nice gentleman offers a "free" breakfast next morning at his resort (and ofcourse there will be a private van to pick you up for breakfast), and "free" tickets to see Chichen Itza (a tourist spot near Cancun). "After breakfast", he says, "you only need to spend a few minutes looking at our property, and then you are on your way to Chichen Itza". Hmmm.. you think... not bad... you can save some money on food & tickets. "Sure" you say.

Next day, as promised you are picked up, arrive at the resort for breakfast, have a brief "chat" about the property, and then head to the property tour. Now, you definitely know whats coming, and you're just waiting for this to get over, and drive off to Chichen Itza, but wait.. this is not over. For the next 3 hours, you tour the property, watch videos, sit in a room full of "shark" salesman and their "super-shark" managers who are desperate to sell you timeshare or 'ownership' in their resort for a 'minimal' fee and great benefits- "its the best investment you can ever make" or "why rent when you can own for cheaper"- they say. By the end of it all, you pobably want to cry out loud or jump off the Chichen Itza tower.

True story, and victims were my my spouse & me. This is a typical scenario how people are wooed into "owning" a property, lease, condominium, apartment etc. either standalone or as a part of resort or club membership. for a limited number of days in a year for a certain membership fee. I am not stating that all timeshare owners have been through this experience; I'm just saying this is a typical scenario. These types of arrangements usually exist at tourist hotspots, like Las Vegas, Florida, Hawaii, Mexico, Carribean, etc.

From a sellers point of view, this arrangement works well, since they get paid membership fees for something that you may or may not use. Its like a gym membership fee, the gym makes money from you whether or not you are interested in toning your muscles. And the catch is even if you are an 'owner' of the property, you may not get what you are looking for at a time you want to go visit. For example, if you want to travel to Alaska in ther summer, or Florida in the winter, you might have to book way in advance to ensure availability, which you may or may not get.

If you are part of a club membership which has a bunch of different properties, you can choose from different hotels, but again if you don't book way in advance, or if you're travelling at the peak season, you might have to settle for something more expensive or further away from the main town. Nothing comes free!

Does this mean it does not make sense to own a timeshares? Well, I think it does not, but there are some arguments that support such an investment. I do not agree with all of them, but I just wanted to put it out there.

Stay tuned in for later posts describing types of timeshares, differences between ownership & other forms of vacation rentals, benefits & pains of owning one, how it may not be the best use of money if you are a bargain hunter like I am.