Through research and hearing stories from timeshare owners, Timeshare Relief knows that there’s a general misconception out there that timeshares can be thought of as a vacation/real-estate investment. With the number of timeshare presentations that stated that timeshares were good investments, the thought has stuck around for a while. Now, there are disclosures that must be presented that state that timeshares cannot be considered investments for future monetary gain.
Here are seven reasons why timeshares should never be considered investments:
1. The Timeshare Resale Market has an Over-Supply
According to the American Resort Development Association (ARDA), there were 1,629 timeshare resorts in the United States in 2008, representing approximately 182,100 units. If every unit is divided into 50 weeks, the result is over 9 million timeshare weeks available for sale just in the US (not internationally). There just are not that many buyers.
2. Upfront Timeshare Cost
The money that a timeshare owner pays upfront does not have a rate of return. It could be used for other purposes like true interest-bearing investments, or for future vacations. The money is spent regardless if the timeshare is used or not.
3. Maintenance Fees
Timeshare owners pay mandatory annual maintenance fees whether they stay at the timeshare or not. Maintenance fees in the US averaged $646 in 2008. They typically increase every year. These fees do not include special assessments that may occur due to emergency repair or other non-maintenance related cost.
4. Depreciating Asset
Timeshares are worse than new cars in terms of holding their value. Much of the upfront cost of timeshares goes to the marketing and sales of the units. Once the timeshare contract is signed, it can lose as much as 50 percent of its value. There are certainly timeshares where the resale value can go to zero over time. Check out eBay and the number of unsold timeshares priced at $0.01!
5. Developers Compete Against Owners in the Rental Market
In order to bring prospective owners to the timeshare resorts, the developers establish lower rental rates as incentives to visit their timeshare resorts. Many times these rents are lower than the maintenance fees charged to owners.
6. Exchanges
A perceived highly-valued benefit of timeshares is the ability to exchange a timeshare for another one in a different location. This benefit comes at the cost of annual exchange fees that again must be paid annually whether or not the exchange is used. Many owners have found it difficult to schedule an exchange to a desired location. As a timeshare ages, it also tends to lose desirability for exchange.
7. Long term Timeshare Contracts
Timeshare contracts have very long durations. Some are written so as to be virtually perpetual. With the financial obligations previously described, very few organizations or astute investors would want to pay so much annually without a guaranteed return (outside of the vacation accommodation that a timeshare provides).
These seven reasons are why many financial advisers do not recommend and even discourage their clients from purchasing a timeshare.
