How Do Timeshares Work?
Posted on April 15, 2021 in Money
A timeshare is a vacation property arrangement in which you share the cost of the property with others in exchange for guaranteed time at the property. Just about everyone that has a mailing address has received an invitation to listen to a timeshare presentation. Even though there is usually an offer for some fantastic gift or prize for attending, most of these offers go straight into the garbage. However, while these offers may involve dealing with highly talented salespeople trying to sell you an expensive unit, they might not be the worst option in terms of a vacation. So what exactly is a timeshare and how does it work? Read on to find out.
What Is A Timeshare?
The definition of a timeshare: A timeshare is a vacation property arrangement that will allow you to share the property cost with other people to guarantee time at the property. This ownership is typically split up into weekly increments and will enable owners to have an increment at a time in which they can use their shared ownership. In other words, you will be sharing a unit with other people but “own” an assigned week of the unit annually.
How Does A Timeshare Work?
There are just two things to consider about a timeshare: the type of contract you are signing and the type of ownership you will have. The most typical way that a timeshare will work is by owning a specific week at the same time every year, at the same location. However, more options are being offered as the business expands.
The first thing to look into about the timeshare opportunity is the owner of the property. Will you have the deed, or does someone else?
Shared Deeded Contract
Shared deeded contracts will divide the property ownership evenly between every person involved in the timeshare. Each owner will usually be tied to a specific week or set of weeks that they will be able to use the property. Since there are 52 weeks in a calendar year, the timeshare company could possibly sell the one unit to 52 separate owners. This type of ownership usually does not expire and can be sold, willed, or given to others.
Although shared deeds will mean that you get an actual deed to an actual piece of property, it can’t be treated like typical real estate. For example, you won’t be able to make changes to the bathroom tiles or repaint the guest bedroom. It’s a shared deed, so the ownership is split evenly – similar to crowdfunded real estate through platforms like DiversyFund and Fundrise.
Shared Leased Contract
Shared leased contracts will typically have the same arrangement as shared deeded contracts, except that the deed for the property will remain with the resort where the property is located. Since you will only be leasing the use of a specific property, it’s more like renting the same hotel room at the same resort for a few decades. The shared, leased option will also have a set time limit before the lease will expire. That could be a few years or a few decades, or when the owner dies.
Timeshare Ownership: How Does it Work?
Timeshare ownership is the various ways in which you will be able to use the property for a vacation.
Fixed Week Option
With a fixed week option, you will select a specific week of the year in order to use the property. Resorts will often create their own individual schedules or calendars of available weeks, but they are typically assigned from the first week of January through the last week of December. The more weeks that are available, the lower the cost will be split, resulting in more people buying in. These weeks will usually begin with a check-in date on Friday but will vary based on the resort.
It may be possible to change weeks, but that may cost a hefty upgrading fee. Often the most desired weeks will cost more than the less desirable ones. For example, going to the beach in early December will probably be cheaper than going on the Fourth of July weekend.
Floating Week Option
The floating week option will allow you to choose your week within certain limits. For example, an offer may be something like any week between January 2 through May 4 with the exception of the two weeks before Easter. Each reservation would also have to be made during a specific window of time.
Since this option is based on “first-come, first-served,” calling early to set up a vacation date is critical to how valuable the timeshare will be. Otherwise, you may end up paying the same price for the middle of winter that someone is paying during the peak of summer.
A growing trend amongst timeshare owners is this type of timeshare system, where the week of ownership is converted into points that are used as currency on all kinds of vacations. Each year, owners will receive their annual allotment of points. This allotment will give owners the flexibility and control of when and where they will book, with access to various hotels and resorts of all sizes, during different seasons, and for varying lengths of time.
Pros And Cons Of How a Timeshare Works
Although timeshares may not be for everyone, they do have a few advantages for people looking for a vacation spot that is convenient and reliable. However, a few distinct disadvantages need to be considered before entering into a timeshare agreement.
Most timeshares are owned by large corporations and are located in desirable vacation spots. Timeshare owners will have peace of mind knowing that they will be able to vacation in a familiar location every year without dealing with unpleasant surprises. Most timeshare properties will include resort-like amenities and services along with being professionally managed.
Compared to a hotel room, a timeshare is more likely to be significantly larger and have many more features. Timeshares are more suitable for people that prefer vacationing in a predictable setting every year, without the hassle of venturing into new and unfamiliar territories for a relaxing vacation.
- Familiar location every without surprises
- Resort-like services and amenities
- Avoids the hassle of booking new vacations every year
The drawbacks of a timeshare include the often high ongoing costs, after factoring in the substantial upfront payment and the annual maintenance fees, which generally trend higher on a percentage basis year after year. For a deeded timeshare, the owner will also have to proportionate the share of the monthly mortgage. As a result, the total costs of owning a timeshare may be significantly higher when compared to staying for a week in a comparable resort or hotel in the same location.
There is also very little flexibility when changing your dates of a fixed week timeshare. Even the floating week option will have to be reserved well in advance, and since it’s a first-come, first-served basis, it may be very difficult to ever end up with a preferred week. Compared to financing a hotel room, a timeshare contract is also a fairly binding one, meaning the owner cannot simply walk away from a contract because of a change in their financial or personal circumstances.
It can be incredibly difficult to resell a timeshare, assuming the contract even allows this possibility in the first place, and the lack of liquidity may be a huge deterrent to a potential investor. A timescale resale may end up being a much lower price than the initial cost. This is because the value of a timeshare depreciates quickly. There is often a mismatch in supply and demand due to the number of timeshare owners looking to exit their contracts.
- Ongoing costs can be significant.
- There’s little to no flexibility when changing weeks or contract details.
- It’s difficult to resell or exit timeshare contracts.
The Takeaway on Buying a Timeshare and How it Works
Hopefully you have a good answer in your head by now to how do timeshares work? To sum everything up again, timeshares are vacation properties that are split up and shared by several dozen owners. You will typically pay annually for the right to use the property for one week each year.
Although the timeshare details may be different, they will all typically work in the same way. You pay an upfront purchase price, the current average is $22,000, and yearly maintenance fees, HOA fees, exchange fees, and any special assessment fees for repairs made to the unit. While there are plenty of benefits to owning a timeshare, such as convenience and familiarity, there are also many potential downsides and high costs. You may want to consider other options for a potential vacation before you enter into a timeshare contract.
Related blog posts
Need expert financial advice?
Let TurboFinance connect you with the best consulting services and resources to help you take control of your finances and find a path to build wealth.TAKE CONTROL OF YOUR DEBT