Timeshare - Still Not An Investment!

We are on vacation in Cancun, Mexico at a nice resort and just barely missed having to sit through a timeshare presentation.  Upon arrival here, I was reminded that the timeshare industry is alive and well.  Very generous gifts and a nice breakfast await you if you are willing to sit through a one hour sales presentation.  You will often hear people say how great it is to own a timeshare, especially one in a high-demand location since since you can exchange your week(s) for just about any place in the world easily.  That's really cool if 1) you can actually get regular vacation time each year for one or two weeks, 2) you can find a suitable place to "exchange" into each year, or if not 3) you are happy returning to the exact same place year after year.  The thing you have to remember is that timeshare (also called vacation ownership) is really pretty simple:  it's a prepaid vacation.  If you return to the same place year after year it might make sense, but why own when you can rent and why prepay your vacation at all?  We just stay in different places whenever we go on vacation and this place is no different - great amenities for the whole family (sandy beach, pool with a waterfall/water slides, swim-up bars, activities for the kids - check!).    I have really enjoyed our vacations at timeshare resorts - you book your trip online, find a good deal and away you go.  If you can manage to avoid the sales presentation and high-pressure sales pitch, you're good to go.

Don't believe the timeshare sales agent when they say this is investing in real estate - it's not.  You own a fractional interest in a unit, it's true, and you may even be able to deduct the interest on the loan (assuming you don't pay cash) as a second or vacation home, but you are on the hook for your proportionate share of all costs of ownership (including insurance, property taxes, homeowner association, etc.).  In addition, you are also responsible for your proportionate interest in a vacation ownership association, which runs the front desk, housekeeping, maintenance of the units, etc.  This can be quite costly and as an individual owner you have very little control over these costs.  Reselling your timeshare can also be a nightmare - the resale market is generally loaded with units that are often priced below the developer's pricing (all the more reason not to buy from the developer if you do decide to buy a timeshare).

You might think owning a "condo tel" is better since you actually own an entire unit and when you aren't using it, the hotel rents it out to individual travelers and you get a share of the revenue (after covering all costs, of course).  Unfortunately, these are much better for the developer (who gets to cash out by selling the units to individuals) and the operator who gets to run a hotel without having to own the property.  As a unit owner, you are exposed to all ownership/proportionate hotel operating costs of the unit and if there are no visitors which can happen in difficult economic times, you are likely to incur a sizable loss each month.  Not only that, but resale of these units will be a challenge since the buyer pool is limited (some units have very small or no kitchen - just like a hotel room).

If you really like taking vacations, stay in a condo or hotel - even if it's a timeshare operation, just avoid the free breakfast and/or the discounted tour/luau tickets.
If you really want to invest in real estate, then buy an investment property (if you're interested in getting started in real estate investing, check out my book here) . 

For more investing ideas, click here.

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