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January 26, 2019

Why are Timeshares Bad

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The timeshare industry generates more than $10 billion in the US per year. But buying one can be a big financial mistake for you. Learn why in our guide.

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WHAT ARE TIMESHARES?

Timeshares are considered an alternative to owning vacation homes. There are two main types:

  • Deeded Timeshares: These make up 95% of the timeshares in the US. The buyer purchases a portion of the resort. They can therefore sell, rent, or will the timeshare to children.

    Timeshare owners typically buy fixed "intervals," or certain weeks of a year, when they can visit the timeshare. A Homeowners Association manages the property and charges fees each year.

  • Vacation Clubs: These are leases, licenses, or club memberships that give owners access to condos or resorts. These usually last over a 10- to 50-year period.

    Members don't actually own these properties. But they have more flexibility in choosing their vacation time, location, and amenities. It is more expensive, and reservation of the timeshare is based on a first-come, first-serve basis.

On the surface, timeshares may seem like a pretty good deal. But there are major drawbacks. Keep reading to learn more.

You Should Know:
Timeshares are NOT a sound investment. They tend to depreciate over time rather than increase in value. Also, the supply of new timeshares is typically greater than the demand and they come with significant fees.

The Trouble with Timeshares

Here are some reasons you may want to avoid buying a timeshare.

  1. High Fees: The average timeshare interval in the United States costs around $16,000. The term can range from 10 years to the time of death—some timeshares can even be passed on to children.

    To own a timeshare, you need to make a down payment AND continue to pay a mortgage over time, just like you would when you buy a house. But in this case, you own just a few weeks of the house each year.

    In addition, timeshares typically charge an annual maintenance fee to keep the property in good condition. This maintenance fee can include property taxes. It may increase each year to keep up with inflation.

    Timeshares can also charge a special assessment fee to fund renovation projects of the building. Timeshare owners can be charged unpredictably and may not have the option to refuse the charge.

  2. Aggressive Sales Tactics: Typically, timeshare companies offer potential buyers expensive gifts and free vacations. But you likely will have to spend a considerable portion of that vacation with a sales representative who will use high pressure tactics to sell you a timeshare.

    If you were invited on a supposedly free vacation and then got charged for not buying a timeshare, DO NOT sign the receipt. Doing so will disqualify you from disputing the charges.

    Plus, since timeshare companies give out expensive freebies to lure customers, they often spend a lot on sales and marketing. Therefore, they may artificially inflate timeshare prices to help pay for expenses (aka other people's freebies).

    Sales representatives also may try selling to your emotions. They will ask you to imagine staying at high-end resorts, taking your loved ones around the world. And, of course, they'll warn you not to miss out on a great deal.

    Creating a sense of urgency leaves you with little time for proper research and comparison shopping. Once they sell you a timeshare, you may never hear from or be able to reach them anymore.

    Be cautious of sign-up bonuses. You may be able to find a better deal with a little online research.

  3. Difficult to Re-Sell: Buying a timeshare is easy, especially after being wined and dined. But, selling a timeshare is extremely difficult, if not impossible.

    The industry constantly creates new timeshares. People who buy timeshares are usually getting the latest inventories. Meanwhile, a large portion of current timeshare owners are trying to unload their timeshares.

    Usually, they sell because they no longer want to pay for maintenance fees or are not getting enough benefit from their timeshares. But sellers often learn the hard way that there's much more supply than demand.

    Some people choose to buy timeshares off resale websites like Redweek or eBay, where they can purchase for 70% off or sometimes as low as $1. The reason? Timeshares depreciate even faster than a car.

  4. Limitations: When you own a vacation home, you can visit your property whenever you want. This is not the case in a timeshare because there are many restrictions to your ability to use your timeshare.

    • Fixed & Floating Time: Some timeshare contracts allow you to visit a resort at the same time each year. It could range from a week to 26 weeks.

      Floating time contracts, on the other hand, require you to make reservations based on a first-come, first-served basis. If you book only 1 to 3 months before your vacation, you may have trouble reserving your own timeshare.

    • Availability: The hospitality business is cyclical. There are times when everyone wants to visit a certain resort.

      But other times, these resorts give away heavy discounts just to keep the rooms occupied. You might not be able to reserve your own timeshare during a busy season.

    • Locked In for the Long Run: Just because you love Las Vegas now doesn't mean you will ten years later. People change over time, but timeshare restrictions don't.

      Are you ready to commit to visiting the same spot at the same time every year. Or paying extra money to trade with someone else?

    • Quality of Timeshare: Some timeshare companies will advertise extremely low maintenance fees to attract customers.

      This may suggest that they are putting off maintenance and letting the building become obsolete. What's the point of paying less in maintenance fees if your resort falls apart over time?

    • Customer Service: Timeshare staff will be extremely nice as they try to sell you a timeshare. But once you buy, you may immediately see a difference in the quality of service you receive.

  5. Complicated Contract Terms:

    Timeshare contracts terms are "terribly complex," according to real estate expert John Adams. He also added that to buy a timeshare, you

    "absolutely need an attorney, and even then, you may not even fully understand what your obligations are."

    Since there could be dozens of owners in a timeshare, who gets a say in how the properties are managed? Will the property allow pets or smoking or subleasing?

    Imagine how difficult it is to get your voice heard when all other owners are trying to voice their opinions too.

  6. Higher Resort Costs: Ongoing maintenance fees are already a huge drain on the wallet. To make matters worse, timeshare resorts can charge guests a premium for services, restaurants, and amenities.

    Timeshare resorts do not have to be as competitive because they know that timeshare owners are stuck with them. Some guests spend more at the timeshare resort just because it is inconvenient to go elsewhere. Therefore, timeshare resorts have more leverage to demand higher prices.

    Consider booking a hotel directly online. It may be cheaper than owning a timeshare in the same location. In other words, having a timeshare doesn't guarantee you'll pay the lowest price.

TRUE COST OF A TIMESHARE

Most people underestimate how much their timeshares are really costing them. Here are a few costs that you need to know:

  • Down payments that can range from $5,000 to $350,000, unless you buy a heavily discounted timeshare from resale.

  • Mortgage payments that include interest and financing fees.

  • Closing costs such as broker fees and finance charges.

  • Annual maintenance fees often costing around $600 - $800, plus property taxes.

  • Special assessment fees that may be entirely unpredictable in terms of amount and frequency.

And there are other costs to consider, too:

  • Travel:Airfare, transportation, dining, and entertainment. While your accommodation may be taken care of by the timeshare, everything else isn't.

    No one goes on a vacation just to stay in a hotel, so expect to be spending more money elsewhere. Also, keep in mind that timeshare resorts can charge more for amenities and services.

  • Extra Vacations: Like a gym membership, timeshares only work if you actually use it. If your timeshare encourages you take vacations you wouldn't have otherwise, it's not necessarily helping you save money.

  • Opportunity Costs: Instead of buying a timeshare, you could buy a vacation house and rent it out for the majority of the year.

    This would actually count as an investment because a real vacation home can bring in extra income. By buying a timeshare, you lose the opportunity to enjoy the benefits of owning real estate.

(BETTER) ALTERNATIVES TO TIMESHARES

There are other ways to get a great deal on travel accommodations, like:

  • Vacation Homes: They aren't just for the rich. Many owners rent out their vacation homes throughout the year when they are not visiting.

    In other words, vacation homes can be an investment that brings you rental income even when you don't use it. Platforms like Airbnb have made it easier for people to make money by turning their properties into vacation rentals.

  • Credit Card Rewards: These rewards are available for major hotels chains like Marriott, Hyatt, and Hilton. Instead of committing to visiting the same place each year, take advantage of these credit cards to get free nights at different locations.

    If you travel frequently and tend to stay at hotels from the same chain, here's an article on how to get free stays.

IF YOU ARE ALREADY STUCK IN A TIMESHARE

According to a RedWeek research, 85% of buyers regret their purchase. But only 15% of all buyers are able to get a "rescission" (cancellation).

Here are some more stats to consider:

  • 85% of buyers regret their purchase for money, fear, confusion, intimidation, distrust.

  • 41% of buyers never thought they would regret it, but ended up doing so.

  • 30% felt neutral before buying, but came to regret their decision.

  • 95% of all buyers go back to their resort and sales team for more information, usually within one to three days after purchase.

(Source: RedWeek)

Having buyer's remorse about your timeshare? We cover your options below.

Points-Based Timeshare Exchanges: If you aren't ready to part with your timeshare, you can consider exchanging it for someone else's. Your timeshare developer may have a network for exchanges or connections with another exchange company.

Websites like RCI allow timeshare owners to post and exchange timeshares with one another. However, the website charges $99 in membership and a $230 transaction fee per exchange.

You will deposit your timeshare and check out another with the amount of "points" your timeshare offers. Points are determined based on the length of stay, size of the unit, location, and time of the year.

You Should Know
Timeshare exchanges can be quite expensive. A single transaction can cost you as much as a decent hotel room, and it's no guarantee you'll get the timeshare you want.

Getting Out of Your Timeshare: If you are determined to become part of the 15% who successfully get out of their timeshare, here are some steps you can try.

  1. Use your right of rescission: Each state has a different requirement for the number of days you can cancel your timeshare. Usually it's 5-7 days, but some states only allow a 3-day rescission period.

    Do not sign a contract from a state other than the one where your timeshare is located. Some salespeople draft purchase agreements in states that have shorter rescission periods.

  2. Call your resort: Some resorts will have their own exit or buyback programs, such as Wyndham's Ovation Program.

    Your resort company may make it very difficult for you to sell or cancel your timeshare. They may even use this opportunity to sell you an upgrade. Stay persistent and don't give in.

  3. Cancel your timeshare through contract or state law: If you go this route, make sure you do it in writing and keep a complete record.

    Send the documents by certified mail, so you can document when the seller received your request. Keep copies of your letter and enclosures.

    You Should KnowWhile you may get a refund, be prepared for your timeshare to be worth significantly less. This is especially true if it was purchased more than five years ago or is in a less popular location.

  4. Sell your timeshare independently: Your resort may not tell you what competitive timeshares are selling for. But you can use eBay to research competitive properties.

    However, unless you are extremely confident in the value of your timeshare, this may not be a good option. You are competing against all of the other timeshare owners who are also in your shoes.

  5. Hire a professional: Some companies exist just to help timeshare owners get rid of their nightmares. These professionals understand that timeshare companies sometimes use unethical practices, both during the sales presentation and the buying process.

    Therefore, they can use your documentation as proof and leverage to negotiate the rescission. Even for experts, however, negotiating a rescission can take from 6 months to 2 years.

    Some companies offer 100% money back guarantees if they cannot manage to get you out of your timeshare. Their services typically cost between $1,800 and $3,400, depending on how many timeshares you own, but a one-time fee may be more tolerable than the cost of your timeshare.

    How Do I Find a Reputable Company to Sell My Timeshare?
    Start by following these steps.

    • Research the company online for their credibility and complaints.

    • Verify its identity with the state Attorney General and local consumer protection agencies.

    • Make sure all information and/or agreement is in writing.

    • Deal with only licensed real estate by looking up their license number. They are required to disclose this on their marketing materials.

    • Ask about the company's advertising strategy, frequency of communication, fees, and how long it would take.

    • Get everything in writing.

    Most importantly, do not pay any company a commission or service fee before they sell your timeshare.

Other Creative Ways to Get Out of Your Timeshare

  • Rent: Rent your timeshare to recoup some of your maintenance fees. You may even be able to generate a profit. You can advertise on Craigslist, VRBO, VacationRentals.com, HomeAway, and FlipKey.

  • Donate: Donate your timeshare to a charitable organization. You will be responsible for the expenses associated with this process. But you can eventually write off the donation on your tax forms and no longer have to pay maintenance fees.

  • Give It Away: Give it to a developer or company that specializes in timeshare exits. You won't be able to get back the money you paid. But you will get rid of all the bills waiting for you in the future.

IF YOU STILL WANT TO BUY A TIMESHARE

Timeshares are the wrong investment for most people. But what if you feel you've found a deal too good to pass up?

If you remain determined to buy a timeshare despite knowing the risks, this section is for you. Just remember: this is an important decision, especially if it involves a life-long contract that could affect your children

Timeshare Purchase Checklist

  • Never pay full price. Check Redweek or Timeshare Users Group instead.

  • Don't buy on the spot or under pressure from the salesperson. Buying a timeshare off a resale website would prevent you from ending up in this situation.

  • Calculate all of your fees and compare it to alternatives such as buying a vacation home that generates rental income, staying at a hotel with credit card rewards, or renting an Airbnb.

  • Talk to local real estate agents and brokers for alternative vacation homes that could generate rental income, creative financing, and their experience of timeshare owners from your particular property.

  • Do due diligence on the developer with the state Attorney General and local consumer protection officials. Try to buy from reputable chains like Marriott, Hilton, or Hyatt.

  • Ask the resort for both past and current maintenance budgets. Also investigate policies on management, repairs and maintenance, and services promised by the management.

  • Review the entire contract with a real estate or legal professional.

  • Get the name and contact information of a representative who can answer your questions before, during, and after the sales presentation. You'll want someone who will remain responsive even after your purchase.

  • Ask the representative questions to vet how honest they are about their product, such as how long the rescission period is.

  • Hire an escrow agent for buying an undeveloped property, and get a seller commitment on a:

    • Non-disturbance clause, which lets you use your interval even if the developer or management defaults or becomes bankrupt.
    • Non-performance clause, which helps you keep your rights even if your contract is bought by someone else.

Avoid buying timeshares in other countries. You will not be protected by US laws.

If you don't plan to buy a timeshare and just want the free vacation, make sure you are extremely disciplined. You'll be spending one or two days that include high-pressure presentations from skilled sales professionals.

Be prepared for the "worst case scenario." You may find management treats you differently when they discover you don't plan to buy a timeshare.

Bottom Line

Timeshares may seem like an appealing alternative to a vacation home. But they have major drawbacks. In fact, you can likely find better deals by booking rooms directly with hotels or researching short-term rental sites like Airbnb.

And remember, timeshares are NOT a good investment opportunity because they depreciate faster than cars. If you are stuck in a timeshare, you can try and get out of the deal. But it will take some work—and probably come at a cost.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. This site may be compensated through the Advertiser's affiliate programs.

Editorial Note: This content is not provided by American Express. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through the Advertiser's affiliate programs.

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