April 3, 2008

Buying a timeshare is not a good idea

I'm sure the title of this one seems like common knowledge to some of us, but for others they might not realize exactly why. Timeshares are partial ownership of a vacation property. Timeshares are usually resort condo or hotel style vacation properties. They have a reputation as being sold with high pressure sales tactics. Typically the companies selling the timeshares will offer couples a free vacation to the destination if you promise to attend a 'short' sales presentation. Then when they get you in the door of the sales presentation they switch into high pressure mode, fill your head full of fuzzy financial claims, half truths or outright lies and they won't take no for an answer.

Here is an article from the Las Vegas Review Journal about timeshares titled: Shared Frustration. They cover the topic pretty well there, but I wanted to discuss a couple things in more detail and go over an example.

Appreciation - Timeshares do NOT appreciate, they will instead depreciate. When they sell a timeshare they will claim that it will appreciate in the future. Its real estate right so shouldn't it appreciate? No. First of all you are buying usually 1/50th of a share of the property and the purchase price is grossly inflated above the real value of the property. Second the fees, hassle and negative reputation for timeshares make them a poor resale item. The fact that timeshares depreciate is easily shown by comparing what they cost new versus what they sell for used. The LV Review article cites a couple timeshare buyers paying $16,500 and $27,000 for 1 bed and 2 bed units respectively for timeshares in Las Vegas. The real estate page on eBay has timeshare listings and numerous sites such as Redweek.com and BuyMyTimesharenow have listings for used timeshares. The unit that sold for $16,500 new can be bought used for $1,800 or $2,500. eBay has even cheaper deals on various timeshares selling for next to nothing to just a few hundred dollars.

Fees - Timeshares come with hefty annual fees. Typically these fees seem to range in the neighborhood of $350-700 a year. If you want to trade your timeshare with other locations then joining an organization such as RCI to do so will cost $99 a year in membership fees.

Say you were to buy one of the 1 bedroom timeshares for $16,500 and then pay the annual fees of approx. $450. If you were to finance that $16,500 at 7% over 30 years then your loan payments would be about $1300 a year. That's a total cost of $1750 a year for 1 week accommodations or $250 a night over 7 nights. You can get a pretty nice hotel room in Vegas for $1750 a week.

Even if you got a timeshare used for free with relatively cheap fees its still not really worth it. Even the cheapest fees are still $350 a year and that's enough to pay for a reasonable 2-3 star hotel for a week in Vegas.

One of the really poor things about timeshares is that they are banking on the fact that people won't use them every year. But you're still paying those fees every year. Think about it, how likely are you to go on vacation for a full week every single year? Some folks this might be a safe bet but a lot of other people its not. Plus what happens if you have a major change in your life such as divorce or change in career that cuts down vacation time? Another consideration is that timeshares are generally in a fixed location. So if you don't want to go to that same spot every year then you're going to have to try and trade your week in your location for someone Else's week in another location. Threes a good chance you won't be able to find the time and location that you want in a trade.

No matter how I look at it, buying a timeshare is not a good idea.

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