Thursday, 02 January 2014
Full disclosure: I've always been somewhat skeptical of timeshares. I understand the appeal of having a guaranteed vacation home in an area you love and being able to swap your unit for a place halfway around the world.
But I worry that many buyers don't consider all associated costs and mistakenly think timeshares are sound financial investments that will appreciate in value. In fact, sellers rarely make a profit – some only get pennies on the dollar. Plus, the waters are filled with sharks eager to rip off people desperately trying to unload unwanted timeshares.
Before you buy a timeshare, understand how they work, challenges you may face when trying to resell and scams to avoid.
Timeshares are usually either:
- "Deeded," where you own a share of the property, usually for a particular unit for a specified time period – typically one or two weeks a year. Depending on your contract, you either own it for life, for a specified number of years, or until you sell it.
- "Right-to-use," where a developer owns the resort and each unit is divided into "intervals" – either by the week or for a certain number of points. You purchase the right to use an interval for X number of years but don't own any real property. Many allow you to use your points to stay at an affiliated resort (swapping).
The price for buying a new timeshare can vary widely, depending on the area and amenities offered. A typical oneweek share might cost $10,000 to $25,000 – or many times that for a posh unit in Aspen or Kauai.
Plus, you'll be responsible for various other expenses:
- Annual fees for maintenance, utilities and property taxes.
- Assessments for major repairs or improvements.
- Fees to swap your share for someone else's or sell it.
- Don't forget travel costs to and from the property each year.
The Federal Trade Commission (www.consumer.ftc.gov) offers many helpful tips, including:
- Compare the costs of buying and maintaining a timeshare with renting a similar property. Perhaps rent a unit first to make sure you like the complex.
- Evaluate the resort's location and quality by visiting and talking to current owners about their experience.
- Check for complaints about the seller, developer and management company with the state Attorney General's Office (www.naag.org) and the Better Business Bureau (www.bbb.org).
- Make sure all sales agent promises are contained in the contract.
- Don't act on impulse or be swayed by high-pressure sales tactics. If possible, ask a lawyer or real estate professional to review the contract before signing.
- Like new cars, new timeshares quickly depreciate, so consider buying one used.
A few cautions when selling a timeshare:
- If you're going through a reselling agency, don't pay more than a nominal upfront fee for appraisal, advertising, etc. Look for companies that take their cut after the sale.
- Before setting your price, find out what comparable properties (at similar time periods) sell for so you don't overprice.
- Watch out for scams, such as: an agency cold calls you and claims it has buyers waiting in the wings; or someone claims you're entitled to a settlement from an FTC lawsuit brought against a scammer.
- If you didn't pay cash, you'll probably have to pay off your loan before being able to sell.
- Beware of offers to accept your timeshare as a tax deduction for a fee – often thousands of dollars. The IRS only allows you to deduct "fair market value".
Jason Alderman directs Visa's financial education programs. To follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.