Tuesday, November 7, 2017

Vacation Timeshare Risks and Benefits

There are over 9.2 million timeshare owners in the United States, and many of them are retirees.  Timeshares can be an affordable way to own a portion of a vacation home and many people love the time they spend in them.  They make it possible for owners to budget and pay for their annual vacation over time.  Millions of people look forward to spending a week or more each year in a luxurious condo in a beautiful resort.  Many timeshares give owners the ability to trade their week in one resort for a week in a different one, which means owners can travel to a wide variety of vacation destinations over the years.  Some of them even give owners the option to trade their week for a trip on a cruise ship.

Timeshare Costs

Prices range from about $10,000 to $40,000 and give the owner the right to stay in a resort for one week a year, for as long as you own the timeshare.  Used timeshares can sell for significantly less.  While some owners purchase the timeshares for cash, others make monthly payments for a set number of years, until the purchase price has been paid off.

In addition to the purchase price, the annual maintenance fee averages from about $500 to $1000 a year and owners must also share in paying the annual property taxes.  Owners should expect both of these expenses to rise with inflation.  The maintenance fee may go up faster than the inflation rate, because the property will age and need more attention.  There may also be special assessments whenever a major upgrade needs to be made.  Some timeshares bill the owners for the utilities for one week of usage a year.  For those owners who want to trade their week at one resort for a week at a different one, there may be an additional fee to make the trade.

If you own your timeshare for many years, you may come to see that purchase price as a real bargain.  The longer you own it, the less you will have spent per year on your vacations.  However, if you decide you do not want it after a few years, it can be nearly impossible to recoup your costs.

Risks of Owning a Timeshare

While timeshares may be a great deal of fun and used by your entire family, there are risks to this type of property ownership.   While buying a timeshare may seem like a great idea during the prime years of your career, it can become a burden if you lose your job, suffer a financial setback, or become too ill to use it any longer, which is a common problem for older owners.

Common Problems with Timeshares

Although most owners are very happy with their decision to own a timeshare, there are potential problems you need to consider before you make the purchase.

1.  If you are making payments on the purchase price, plus paying the annual maintenance fee, property taxes and other costs, your timeshare may be more expensive than you expected.  In addition, you have to consider other vacation related expenses you will have when you use it,  such as the cost of traveling to the location and spending money on restaurant meals and local attractions.

2.  Owning a timeshare could limit your choice in vacation destinations.  While many timeshare operators such as Marriott and Hilton have multiple locations, there may be times when you would like to take a vacation somewhere exotic, or stay someplace other than one of the resorts owned by your timeshare operator.  If your annual vacation time is limited, you may have to choose between letting your timeshare week go to waste, gifting it to a friend, or using it when you would rather have stayed somewhere else. 

3.  Timeshares can be very difficult to resell.  Once you own it, it is your property.  In addition, if you or your heirs are not able to resell it, your adult children might inherit it, depending on the terms of your contract, and it can become their responsibility to keep up with the annual maintenance fees and other costs.  If your children look forward to using the timeshare, this may not be a problem for them.  However, if they are not in a position to use it regularly and the mortgage payments and maintenance fees become unaffordable for them, they may consider it an expensive liability which they do not want.

4.  Sellers may try to resell their condo back to the company, but the resort owners may decline to repurchase it.  The owners can also try listing it on a site like Redweek.com, for a fee, but there is no guarantee it will sell.  If anything, by announcing that you want to sell your condo, you could put yourself out there for scammers to find.

5.  Scammers frequently target owners who want to get rid of their timeshare.  In the June/July 2017 AARP Magazine, they published an article called "Time-Share Bandits."  It described how people who advertise their timeshares for sale are often called by scammers who tell the sellers there is a buyer who is interested in their timeshare.  The seller just has to put up a few thousand dollars in advance to cover escrow and title services.  Financially strapped sellers often jump at the chance to get rid of their timeshare, only to be told after a few months that the buyers "backed out."  Often the same sellers have been targeted repeatedly, paying fake escrow fees over and over again.

6.  You may decide to keep your timeshare, and donate the use of it to a charity during those years when you are unable to use it yourself.  Donateforacause.org has a list of charities which would like timeshare donations.  The downside of this choice is that you cannot get a tax deduction for your donation.  According to a U.S. News and World Report article titled, "Should You Invest in a Timeshare," the IRS ruled there is no value for the time used during a donated week.  As a result, you have to keep making your payments, even on the years when you cannot use the timeshare, and you cannot get a charitable deduction, even if you donate it.

For More Information About Timeshares

Despite the risks of timeshare ownership, you may still want to own one.  If you are interested in buying a timeshare, you can learn much more from ARDA, the American Resort Development Association.  With approximately 1,000 members, they represent vacation ownership and resort development companies, in both the U.S. and other countries.  They can help you find legitimate timeshare operators to help you.

American Resort Development Association
1201 15th Street N.W., Suite 400
Washington, D.C. 2005
(202) 371-6700
www.arda.org

Get More Information from the Federal Trade Commission:

https://www.consumer.ftc.gov/articles/0073-timeshares-and-vacation-plans

If you are interested in learning more about financial planning for retirement, travel, where to retire, common medical issues as we age, Social Security, Medicare and more, use the tabs or pull down menu at the top of the page to find links to hundreds of additional articles.

Watch for my book, Retirement Awareness:  10 Steps to a Comfortable Retirement, which will be published by Griffin Publishing early in 2018.

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Photo credit:  images.search.yahoo.com/search - Marriott Grande Vista

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