Everyone has heard of timeshare properties, but most of us haven't really done much research on the subject. We know that we'll be offered a free gift in exchange for visiting a timeshare resort property, but that's about all we do know. The fact is, the free gift is a way to lure us in and purchase a one- or two-week admission to a resort. We are sharing the ownership not only of the guest suite itself but the entire resort property. The one big advantage is that we can book guaranteed reservations at the property because we already know which week or two each year is ours.
This sounds good, but keep in mind that a timeshare property is not real estate. It cannot appreciate in value. Instead, much like a car, it loses value as soon as it's purchased. The exception is the timeshare guest suite purchased through the resale market because this purchase is far less costly. Either way, however, a timeshare property is not a fruitful investment.
Okay, Then What Is It?
Most of us love to take vacations, and most of us would love to travel yearly to an exotic destination. White sand beaches, huge outdoor infinity pools, and fabulous dining at a cost that competes well with the traditional hotel stay is an attractive idea indeed. The problem is, when you buy a timeshare, you are doing just that — purchasing only a piece of a property.
Call that an investment if you like, but the reality is quite different. You have just taken on the cost of developing the property if it is new or maintaining it if it is old. You have to pay annual membership fees. This means that the property, in terms of what you just paid or promised to pay, is already worth only about 50-60 percent of its original value.
You do enjoy perks such as membership points, and these can be used to trade your dates with another member or for reservations at another partner resort in another part of the world. That's fine as long as you are committed to actually taking the vacation each and every year. You'll end up spending just about the same amount of money over the life of your timeshare as you would if staying at a traditional four-star hotel in Rio, Cannes, Puerto Vallarta, or elsewhere if purchased retail. You'll probably have an all-inclusive membership, meaning you have access to nightly entertainment, fine dining, spa and health club, but remember that you've already begun the repayment of any loan you've secured to buy the timeshare in the first place, so you're paying for that all-inclusive package even if you never leave home. Loans obtained through timeshare companies directly are often huge scams charging interest rates as high as 17%!
What About The Resale Market?
If you really want guaranteed reservation dates and all the perks of membership, consider purchasing a timeshare through the resale market. These are hotel, condo-style, or villa-style suites already owned on a timeshare basis. The owner wants out of the deal, but just like when selling a used car, he or she will have to lower the price to attract attention. This can be a good deal for you, but remember to check out the full list of membership perks before you buy a timeshare on the resale market. Is the resort in an area you'd like to frequent, and if it isn't, can you trade your reservation dates and resort location with members of partner resorts in other areas of the world through exchange services like RCI and II?
Timeshares basically commit you to taking vacations, and that's not a bad thing in and of itself. However, as an investment property, timeshare resort suites aren't even on the list because they aren't considered real estate. If you’re going to buy, always buy resale.