Have you ever considered trying timeshare vacations? If so, there are a few things you need to know first. Read on for our full guide to how timeshares work.
Is there a special place you and your family hold in your hearts? Is it a place you love to return to year after year?
If you visit the same place over and over, then you may have encountered a proposition for a timeshare.
Purchasing a timeshare is different to another kind of property, even a vacation home. Rather than looking at it as an investment, it’s better to consider it as a lifestyle purchase.
Have you thought about timeshare vacations but aren’t sure whether it’s the right option for you? Check out our complete guide timeshares.
Timeshare Vacations 101: The Basics
Let’s dive into the bare bones of a timeshare scheme:
What Is a Timeshare?
A timeshare is a system of ownership that allows people to share one property. In most cases, the property in question is a unit within a resort area; it could be a house, condominium, or even a hotel room.
The ‘share’ occurs when each buyer purchases a specific period in the property, often one- or two-week shares. Want to buy more time for an extended vacation? If the option is available, then you can be multiple consecutive timeshares for an extra-long trip.
Three Types of Timeshares
You’ll discover that timeshare vacations are rarely as straightforward as a sales agent makes them sound. This is in part because there are multiple types of timeshares and contracts available.
Broadly, there are three different ways that you’ll use timeshare vacations.
Right-to-Use
A right-to-use timeshare provides the buyer with a lease for a set amount of time to use annually. The contract also establishes a certain length of time after purchase.
Fee Simple
Fee simple timeshare vacations allow you to purchase a set time at a specific property every year. In return, you’ll pay a purchase price and annual fees as well as other costs like property taxes or assessment fees.
Vacation Club
A vacation club or points club allows you to use the points accumulated from a hotel or resort chain or specific property to use within the property or the wider network.
Instead of locking you into a specific property and date, you’re allowed to look at properties worldwide.
Who Owns a Timeshare?
Timeshare vacations use a unique ownership scheme that is unrecognizable even to those who own their own home. There are two legal ownership structures used in the industry including:
- Shared deeded ownership
- Shared leased ownership
Here’s a quick explanation:
Shared deeded ownership is a contract that grants each owner a percentage of the property itself. The portion allotted correlates to the amount of time you purchased. This form of ownership means that many deeds are created for a single property.
Shared leased ownership interest allows the property developer to keep the deed. The owners then hold a ‘leased’ interest in the property. By leaving the deed with the developer, you eventually relinquish your ownership after a set term or when you die.
Because you don’t have a deed, you have a more difficult time selling or transferring your timeshare.
Key Words Every Timeshare Owner Needs to Know
Timeshares come with a whole lot of jargon that the average person is unfamiliar with. Here are some words that arise in the early stages of timeshare hunting.
Accelerated Use
Accelerated use is part of a right-to-use timeshare and allows you to use weeks faster than your annual allotment according to availability. For example, if you purchased one week per year over ten years, then you might use two weeks every five years.
Amenities
Amenities are features that come along with the purchase of the property like access to swimming pools, fitness rooms, laundry facilities, and golf courses. While amenities increase desirability, they may also add on additional ownership fees.
Closing Costs
Closing costs are assessed to buyers during the finalization of the transaction. Closing costs are not included in the initial purchase cost and often include administrative fees, deed preparation, and escrow fees.
Cooling Off Period
The cooling offer period is a period after signing a purchase agreement where the buyer may cancel the contract without paying a fee.
Cooling off periods varies by state in the United States. Properties purchased in Mexico are afforded five days.
Deed/Deeded Property
A deed is a legal document stating that you own the property and outlining your ownership rights. A deeded property is one where the buyer is provided with a deed.
Deeds make it easier for buyers to offload the property either through a sale or exchange.
End User Finance
End-user finance describes the loans provided allowing the purchase of timeshare vacations. In most cases, end-user finance is an unsecured personal loan. However, it may also be a secured loan (for deeded properties) or a mortgage on your full-time residence.
Exchange
An exchange is a trade of your week or points for those at another resort or another specific week. The system allows you to visit whatever resort you can trade with and thereby allows you to travel more widely than you otherwise might with the same ownership.
Fixed Weeks
Fixed weeks relates to the date of the time purchased at the property. If you’ve bought into a fixed week contract, you’ll choose the precise dates that you’ll spend at the property every year.\ Those dates won’t change because other buyers will purchase other weeks and will retain ownership of them.
Floating Weeks
A floating week contract is more flexible than the fixed week contract. Rather than locking in set dates, you’ll be asked to buy within a time period, often a season. You’re then able to schedule timeshare vacations at any point during that season as long as the unit is available.
A floating week doesn’t secure you more time in the property; it only provides more flexibility in the date you choose to visit.
Guest Certificate
A guest certificate is issued when you give up your exchange and nominate a guest to take it in your place.
Odd or Even Year Usage
In some cases, timeshare vacations aren’t granted annually but bi-annually through the use of an odd or even year system, meaning you have access during odd years but not even years and vice versa.
Buyers who are involved in this type of ownership are only granted half the value of full ownership because they don’t have access every year.
Trading Power
Trading power refers to the value of a week when you’re trying to exchange or trade it for a different week at the same resort. Trading power is governed by supply and demand, meaning owning high demand weeks provides more tradition options than off-peak ownership.
Signing a Vacation Contract: Pros and Cons of Timeshares
By now, you should have a better idea of what a timeshare is and what timeshare vacations look like. In essence, they’re ideal for people who take annual vacations at the same time every year and often travel to the same place or within the same network of places each year.
Still, there’s so much negative press about timeshares that you may wonder what the pros and cons of timeshare vacations really are.
Here are a few:
Pros of Timeshare Vacations
Here are four advantages of timeshare vacations:
1. Predictability
If you travel to the same place every year, then you know you’ll always have a place even if you have to put off thinking about your vacation. It’s great to know that even when popularity wavers, you always have a place to call ‘your own.’
2. Set Prices
Vacation prices fluctuate all year long, and prices skyrocket when there’s demand. With a timeshare, you don’t need to worry about hotel prices or your villa been rented out – you’ve got a place to stay, and it won’t cost you any more than it did last year.
3. Ability for Limited Trading
Finding a flexible contract means you can trade weeks and properties for some time at other resorts, allowing you to travel the world without increasing the cost of your accommodation.
4. Potential for Renting to Other Travelers
Want to head somewhere new? Your contract may allow you to make some money back to other travelers.
Cons of Timeshare Vacations
There are more than a few drawbacks involved with buying a timeshare. Here some of the most important ones:
1. Hard to Offload
Timeshares are notoriously easy to buy () and challenging to sell. Often, you’ll need to speak to an attorney to find out how to sell your timeshare property.
2. No Tax Write Offs
Lost money on your timeshare? Unlike other property ownership schemes, the IRS doesn’t allow you to write off timeshare losses or annual fees.
3. Increasing Fees
If you’ve heard negative things about timeshare vacations, it’s likely been related to the annual fees. The yearly maintenance fee of an American Resort Development Association timeshare is $660.
Annual fees are liable to go up without warning, and they may outweigh the cost of your actual vacation.
Are Timeshare Vacations Worth It?
If you fit the profile of a timeshare owner and you’re able to negotiate a great contract, then timeshare vacations may be one of the best purchases you can make. But there are pitfalls to these schemes that make them difficult to navigate.
Are you a timeshare owner? Share your advice with prospective buyers in the comments below.
