Timeshare (Vacation Ownership) - A Prepaid Vacation, Not An Investment!
timeshare ownership (Photo credit: GGtimeshares)
I'm just back from a trip to Hawaii and we had a great time there visiting family and relaxing. While staying at our resort, I was reminded that the timeshare industry is alive and well there. You will often hear people say how great it is to own a timeshare in Hawaii since it is in such high demand and 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? We just stayed in a different place than we have for the past few years and it was terrific - great amenities for the whole family (sandy beach, pool with a waterfall/water slide and a poolside bar serving Kona Brewing Company beer on tap - 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 "free" breakfast, you don't have to sit through the presentation and high-pressure sales pitch.
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), 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).
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 hotel. As a unit owner, you are exposed to all ownership/proportionate hotel operating costs of the unit and if there are no visitors, 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(here are some tips when shopping for investment property) .
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