Glossary

What Is a Timeshare and How Does One Work?

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A timeshare is an agreement in which many individuals share the costs of a property. People who buy a timeshare receive a set time they can spend at the property in exchange for covering part of the property’s expenses. Timeshares are most often associated with vacation homes and typically include condominiums and houses.

Timeshares started in Europe in the early 1960s, a time when many Europeans couldn’t afford vacation homes. Through these programs, people could own otherwise-unachievable vacation property. Timeshares then came to the United States in 1969 – and now, the timeshare industry is worth $10.2 billion, according to the American Resort Development Association (ARDA).

In 2018, 9.6 million households owned at least one timeshare.

How Do Timeshares Work?

A timeshare property is similar to renting a vacation home for a specified period every year. You own the right to use the property during the time your contract stipulates. You may or may not own a portion of the property depending on the type of timeshare. With a timeshare, you’re paying for the use of the property as well as for a part of its maintenance, upkeep, and taxes.

Some timeshares allow you to visit only during a specific week each year, while others allow you to earn points. These points can be used toward stays at other resort properties within the same timeshare resort ownership or its partner properties.

What Types of Timeshare Contracts Are There?

There are two types of timeshare contracts: shared deeded and shared leased. Here are the details about each one:

Shared deeded

Contracts share fractional ownership across all timeshare members, allowing them each to use the property during a specific period each year. While each owner gets a deed to the property, they do not own the property outright.

Shared leased

Shared lease contracts do not give timeshare members ownership. Instead, the property deed stays with the resort or developer. Members pay for a block of time at the property, not ownership.

What Are the Different Types of Timeshare Ownership?

There are several types of timeshare ownership, including:

Fixed week

Timeshares allow members to pick a specific period each year – usually a week – to use the property. For example, the owner of a ski resort timeshare might book the week between Christmas and New Year’s Day. Then, they have the option to use the property that week each year.

Floating week

Timeshares allow members to pick a week to use their timeshare during a specified period of time. For example, they can select one week between July and September. Reservations operate on a first-come, first-served basis, so there’s no guarantee the property is available for the week the owner wants to reserve, which can be a hassle.

Points system

Timeshares equate timeshare ownership to a certain number of points. This is also called a “vacation club.” Owners can use those points to reserve time at a property within a timeshare resort system. For example, a developer who owns 10 resorts may sell timeshares using the points system. Members can use their points to book time at any one of the system’s 10 resorts.

How Much Does a Timeshare Cost?

Buyers will encounter two common timeshare costs: the upfront purchase price and an annual maintenance fee.

First, you’ll pay the initial purchase price. This can be expensive: The average cost of a timeshare in 2018 was $21,455 – and it’s not easy to finance a timeshare purchase. Most banks won’t lend money for timeshare purchases because timeshare members are not technically buying property. While many timeshare companies offer to finance, the interest rates are higher than average.

Also, expect to pay annual maintenance fees. Each timeshare owner is responsible for their own share of the property’s maintenance. According to ARDA, the average timeshare maintenance fee in 2018 was $1,000. But maintenance fees increase by 8% each year, on average. In other words, after 10 years, your $1,000 annual maintenance fee might turn into a $1,800 annual maintenance fee.

Do the math before buying. How much does a comparable hotel room cost? If you can vacation more affordably without buying into a timeshare, that’s likely the best option. Of course, some networks provide different location options, allowing you to visit Hawaii, Florida, or Las Vegas, depending on your mood. Comparing the cost-effectiveness of these programs requires more calculations.

How Do You Pay for a Timeshare?

Timeshares in the U.S. usually cost between $16,000 and $23,000. Even if a buyer can secure a loan, it will likely have a higher-than-average interest rate. Most developers of timeshare properties offer to finance the purchase of a timeshare, but their interest rates are high – often between 12% and 20%. Many developers use high-pressure timeshare sales pitches to draw in buyers, which is important to keep in mind before meeting with them.

Homeowners looking to buy a timeshare can use a home equity loan, which gives them the difference between their property’s assessed value and the balance on their mortgage, up to a certain point. Most loans won’t allow you to borrow more than 80% of your home’s equity.

For example, a homeowner with $60,000 remaining on the mortgage of a $100,000 home can receive a $20,000 home equity loan. Yet there’s risk inherent in home equity loans: the bank can foreclose on your home if you default on your timeshare agreement.

Borrowing from a 401(k) plan is another way to pay for a timeshare. Most people with 401(k) retirement plans can borrow up to 50% of their vested balance. If you have a $150,000 401(k), you can take a loan out against your plan for up to $75,000. But borrowing from your 401(k) means less money invested in your retirement savings. Plus, the IRS requires you to pay back the loan within five years.

Pros and Cons of Timeshares for Real Estate Investors

Are timeshares ever worth it? Typically, not as an investment property. But let’s look at the pros and cons of buying a timeshare so you know what you’re getting into before you purchase a timeshare:

Pros of purchasing a timeshare:

You can rent out your time at the timeshare, but you’ll probably be required to work with a rental agent, who charges for their services, decreasing the likelihood of recouping the cost via timeshare rentals.
You don’t have to think about where you’re going to go on vacation, as you can visit the timeshare every year.
You may not be able to afford a vacation home in an area where you enjoy spending time, so a timeshare gives you an affordable way to have a place you can go.
You may be able to get a good deal on a timeshare that someone wants to get out of, giving you an inexpensive way to have access to an area you visit frequently.

Cons of purchasing a timeshare:

You’re buying time at a property, not a property itself – and the timeshare resale market is almost nonexistent.
Timeshares are not real estate investments, meaning they’re not suited for real estate investors.
Timeshares depreciate over time, and the longer you own a timeshare, the less valuable it becomes.
It’s often difficult to resell a timeshare – only about 3% of owners have resold their timeshares.

Real estate investors will earn better returns by pursuing other investment vehicles, such as owning a rental property, house flipping, or investing in a real estate investment trust (REIT). All of these methods will likely produce a higher return on investment than a timeshare.

How Long Do Timeshares Last?

The length of time that your timeshare contract lasts will depend on its terms, so read them carefully before you sign anything. Some leased resort property timeshares expire after a few years, with the ability to renew the contract or opt-out. However, many can last a lifetime. If you own a portion of a deeded timeshare unit, the contract will last until you sell or transfer your ownership of the property.

You’ll want to look at all the costs associated with owning the timeshare, including maintenance and property taxes. These fees often increase over time, so you need to budget for the cost years down the road. Timeshare companies may not be upfront with you about everything you’ll owe or how much your costs could go up in the future. Do your due diligence to ensure you’re not surprised when the timeshare fees increase in a few years.

How To Get Rid of a Timeshare

Many people own timeshares, but a timeshare contract can be difficult to get out of once you’ve signed it. Use these tips if you want to get out of a timeshare ownership deal that’s not benefiting you anymore:

Rent it to someone else

To rent your timeshare to someone else, you’ll need to check with the resort, as some don’t allow this. By renting the timeshare unit to someone else, you can get them to pay the fees for the timeshare. This does have some expense, though, especially if the renter damages the unit.

Talk to the resort developer

You may be able to work with some resort developers to end your timeshare contract, so making a simple phone call can get the process started without much hassle. Depending on why you want to end your timeshare contract, the resort developer may be willing to start the process of terminating the contract so you can get out of the deal and they can sell or lease the place to someone else.

Sell it to someone else

Those who have partial ownership of their timeshare have the option of selling it to another party. Don’t think that you’ll make money when you sell your timeshare, as this is rarely, if ever, the case. When you purchase a timeshare, you’re buying a vacation rental that you plan to use personally, not a place you’ll rent or sell for a profit at a later date.

Give it to someone else

Some timeshares can be given away. If you really want to end your timeshare deal, this may be an avenue to consider. Passing your timeshare responsibilities to someone else means they’ll be on the hook for paying the fees associated with the cost of ownership. You can also leave your timeshare to someone in your will.

Stop making payments

One of the last resorts for getting rid of your timeshare is to stop making payments. After you’ve tried all other avenues, you may have to just stop paying for the unit. Doing this forces the resort developers to decide whether to evict you or allow you to rescind ownership of the unit. A foreclosure will often cost more for the timeshare company than taking over the unit and reselling it.