Timeshares have been around in the US for a very long time. In the US, timesharing was first introduced in 1969 on the Kauai island in Hawaii, and Florida was the first state in the United States to grant timeshare rights.
Today, transformation within the industry has made it a viable travel option supported by several well-known names in the lodging sector, including Marriott and Disney.
Timeshares are the most popular product segment, with a market share of more than 55%.
What is a Timeshare?
A timeshare is also known as vacation ownership. It allows a traveler to use a specific property at certain times of the year while sharing the costs with other travelers.
Most timeshares are usually modestly sized units situated in big resorts.
Timeshares operate on the fundamental concept that multiple individuals own a single property and split up the time that they use it.
However, before you invest in a timeshare, there are a few things you must know.
Things to Know Before Investing in a Timeshare
Here are some timeshare facts, including both positive and negative features, that everyone should anticipate.
1) Ongoing Fees
Most timeshares agreements are structured so that different owners have equal shares in the timeshare property.
It makes timeshares appealing to some travelers since the upfront costs are relatively low.
For instance, if you purchase a timeshare in Hawaii, you may have to pay $20,000 for a 1/52 part of the property.
Those who frequently travel to the state might think this is a good deal. However, it does not account for recurring expenses for items such as property management and maintenance.
All timeshares come with yearly fees, also known as maintenance or homeowners association (HOA) costs.
These fees cover property management, property insurance, property taxes, landscaping and maintenance, common area and grounds, and improvement of rooms.
These expenses can typically range from $600 to $1,000 per owner, if not much higher, and often increases yearly.
2) Can be Difficult to Sell
It is easy to sell a luxury vacation retreat if there is only one exclusive or outright owner.
However, the timeshare version of that retreat is not easy to sell.
Purchasing a timeshare needs ongoing monthly fees and somewhat restrictive travel prerequisites, and many travelers do not prefer to buy into this type of commitment.
Hence, shares typically will not increase in value, and if a timeshare investor is anxious to sell, he will have to incur a loss on the initial investment.
There Are Different Usage Types
Depending on the ownership percentage, the owner can only use a timeshare for a specific period each year after purchasing it.
For instance, if the owner buys a 1/52 share of a property, he can expect to have access to it once a year for one week.
There are different ways to use a timeshare, which many prospective buyers may not know.
- Fixed week
- Floating week
With fixed week ownership, the owner has to use the same week in the same property every year.
However, there is more flexibility in a floating week, where an owner can decide when to use that week.
A right-to-use scheme restricts the time an owner can lease a property before the original seller reclaims ownership.
Points-based usage, which is becoming more prevalent, grant points to use as currency/cash to stay at participating reciprocal accommodations across the globe.
This arrangement is also known as a vacation club.
3) Timeshare Values Rarely Appreciate
One important thing to know is that timeshares are not the same as absolute ownership of a holiday home.
Owners who directly own holiday homes can make changes to, renovate, rent out, or sell the property as they see fit. In contrast, a timeshare gives the owner access to the property at specified times.
When buying a timeshare, the owner makes an annual reservation for one or two weeks of vacation.
Timeshare is more of a vacation expense than a financial investment because the principal owner owns the property title, and the owner is not entitled to any appreciation of the actual property.
In actuality, timeshare value rarely increases, and the majority tend to lose money over time while maintenance costs skyrocket.
A timeshare is generally not the ideal investment option if an investor is looking at investing in a vacation spot that will appreciate over time.
4) Years’ Worth of Vacation Has to be Paid in Advance
When an investor buys into a timeshare unit, he prepays for years’ worth of vacations.
It is best to consider the initial investment in a timeshare as a sunk cost paid for the vacations upfront.
Of course, this calculation excludes other costs such as travel, meals, and recurring annual expenses.
However, it is a simple approach to considering timeshare ownership.
Despite the negative press timeshares receive, some people may find them beneficial.
A timeshare can be a comparatively hassle-free way to know where and what the accommodation is for travelers who want to visit the same destination every year.
Furthermore, since the management company will take care of any problems with the vacation place, it is easier to deal with it than owning a vacation home in another state.
In addition, it costs a lot less than a down payment and monthly mortgage payments. Owning a timeshare can be a good option if an investor knows all the advantages and disadvantages.
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This post was produced and syndicated by Wealthy Living.
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