Why are timeshares bad? Here’s the truth behind why they’re one of the worst ‘investments’ you can make.
Why are timeshares bad? After all, how bad could a vacation home really be? Well, the answer might surprise you. There are several reasons why timeshares are such a bad investment, and why you're better off spending your money elsewhere. When it comes to timeshares, your money is at stake. Don't get caught at one of those dreaded sales presentations unprepared - keep reading.
In this post, you will learn exactly why timeshares are bad and why they are a bad investment. This post will help you avoid making a major financial mistake that could cost you thousands. Those slimy timeshare salesmen will have no chance at luring you into their trap after you've read this article.
This post is all about- why are timeshares bad?
So, What is a Timeshare?
Let's start with defining what a timeshare is. Although I'm sure you've heard of timeshares, many people don't fully understand what they are and often mistake them for owning a vacation home. This couldn't be further from the truth.
A timeshare is an arrangement where a vacation property is shared with several other "owners". The cost of the property is then distributed among many people in exchange for guaranteed time at the property (a vacation!). So, upfront it might seem like a good idea - you get guaranteed time at a lovely vacation property, but the cost is lower because it's split amongst many people. Sounds nice? Think again! Timeshare agreements typically last decades, or even worse - a lifetime! Please. I can barely commit to a waxing salon!
What Types of Timeshares Are There?
There are two types of timeshare "ownership". The first is a shared deeded contract, where the ownership of the vacation property is divided among each person involved. It’s not uncommon for your allotted time to be just one week per year, meaning you might have 52 different property co-owners (yikes). The second type of timeshare is a shared lease. The resort owns the deed to the property, and you and the other timeshare participants lease the property for a set amount of time per year. Shared deed contracts often last for life, while shared lease contracts typically span decades (like 20 years). With a shared lease, it's basically like signing a 20-year-agreement to rent the same room at a Marriott every single year.
In terms of the "time" portion of the timeshare, there are 3 types. The first is a fixed week option which is self-described in the name- you can use the vacation property for the same week every year. Of course, you can change your designated week easily. All that's needed is an act of God or an executive order from the sitting president. Simple.
The second type is a floating week option, where you can choose the week(s) you use the property (with major restrictions). There might be a monthly range offered to you. For example, any week from November 1 and January 1 (except the weeks of Christmas, Hanukkah, Thanksgiving, and Kwanzaa). You also have to register for your week on a first come, first serve basis and during a specific registration time. Hopefully, you're quick with the phone!
The third type is a points system or a timeshare exchange program. You are given a set number of points and will have access to other resorts in the timeshare system. Unlike the first two types described, this lets you visit other resorts. Of course, it isn't that simple. Prepare to pay enormous amounts for the more popular destinations, and you're still in fierce competition with all the other timeshare owners for your desired weeks.
Now that everyone is up to speed on what a timeshare is- let's get down to why they are bad (and NOT Michael Jackson bad).
Timeshares are Expensive
Probably the worst offense of timeshares is that they are expensive. FAR MORE expensive than what you'd spend on other vacation alternatives. Not to mention, you're at the same vacation destination every single year. I'm picturing a Squidville experience. At first, it's amazing, but day after day, year after year, you find yourself longing to return to your disruptive and absorbent neighbor in his pineapple house. Anyways, I digress. It's hard to imagine you'd never want to vacation anywhere else for decades (or for your whole life!), even for just one year.
Although marketed as a more affordable alternative to a typical vacation home or rental, timeshares end up being more expensive due to hidden fees and unexpected costs. First there is the purchase of a timeshare, either paid in cash or by financing. The interest on a financed timeshare is high, averaging almost 9% per the Federal Reserve. You might think this is the bulk of the timeshare cost, and you'd be mistaken.
Next up are the sneaky fees! This is where you'll really hurt. According to ARDA, timeshare maintenance fees average over $1,100 a year. And those are NOT the only fees you're on the hook for. As mentioned above, you must pay incidentals, property taxes, HOA fees, and exchange fees. As if one HOA wasn't enough of a horror show for one person, you'll also be responsible for upgrades and repairs to the property.
According to this article, the estimated cost per night of the average timeshare is over $700. That's $9,800 for a two-week vacation! That's enough money to order Cracker Barrel's entire menu 14 times. You tell me how you'd rather be spending your money.
In summary, in exchange for a week or two at the same vacation destination every year, you'll be saddled with exorbitant costs of maintaining the property, including property taxes, incidentals, and maintenance fees. Keep in mind you will be competing with everyone else in the timeshare agreement for the vacation dates you want. Good luck spending popular times like holidays there! And all for a property you don't even own outright. Oh, and you’re on the hook for all these fees — even if you skip the trip.
Timeshares Are Restrictive
Whether it's the location of the timeshare or the week of the year you can access it, timeshares are extremely restrictive. It is very difficult, if not impossible, to change the week of the year you can use the timeshare (if you have a fixed week contract), and obviously, you have to go to the same resort every year. If you want to experience redundancy to the point of tears, go rent Groundhog Day with Bill Murray - don't get a timeshare.
But the restrictions don't end there, timeshares are notoriously difficult - if not impossible - to get out of. The standard timeshare contract makes divorce look like an easier process! Because they are so hard to rid of, many timeshare owners will try to sell off their timeshare instead. It's not uncommon to find listings where people are trying to sell their timeshare for just $1! This shows just how desperate they are to be free. But don't be tempted by the cheap sales price, as outlined above the timeshare will cost you thousands of dollars a year.
Timeshares are a Bad Investment
In reality, they aren't an investment at all! Unlike purchasing a vacation home, timeshares don't earn you money in appreciation. This is because you don't actually own the timeshare. You simply own a set time per year to spend vacationing at the timeshare. This also means timeshares do not have any increased resale value. As mentioned above, you might find yourself attempting to resell the timeshare at a huge loss out of sheer desperation. You'd have better luck making a profit from reselling your prized 1990s Beanie Baby collection.
So, What are the Alternatives?
Okay fine, I've convinced you to never, ever, EVER buy a timeshare. But how else will you find affordable vacation options? Well, again, at $700+ a night, timeshares were never exactly a steal (stealer of joy, maybe). Fortunately, there are tons of other options that will cost you less (not just in dollars, but in sleepless nights racked with fear over your timeshare contract).
Simply saving up and paying for a vacation the old-fashioned way is a way better alternative to a timeshare. There are tons of cost-effective options with cheap flights and affordable rentals via AirbnB.
What is your debt free date? Let me know @ShesFinanciallyFree1 !
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