From time to time, I am asked about vacation ownership programs. They come in a number of different forms, ranging from fixed-week, floating period, points, and term / period use. For the sake of simplicity, I use the generic term “timeshare” to describe vacation ownership programs.
Generally speaking, I do not consider the timeshares a “financial investment”. Perhaps the primary reason is that it can take years or decades for the “investment” to break-even. There is also an issue of affordability. Aside from the upfront cost to purchase the unit, which can range in the thousands to tens of thousands, there are annual maintenance and association fees. The fees are to pay for real estate tax (this is typically deductible, by the way), utility bills, insurance, reserve (for future maintenance and upkeep), and fees to the management company. It’s noteworthy to mention these yearly fees can often cost as much as renting a similarly equipped and located condo within reasonably close proximity to the unit under consideration. Novice buyers can sometimes underestimate the true cost of ownership. Instead, they are sold on the slick presentation and the ability of the sales agent to close the deal.
Timeshares are typically illiquid, meaning it can take years to resell the unit. To some, this is the largest drawback to timeshare ownership. Meanwhile, the annual maintenance fees are still required and a legal obligation that must be paid.
However, there are some benefits to vacation ownership. For instance, some people fall in love with the location and amenities of a particular resort. In their mind, they have resolved to make that particular place their summer vacation spot and will enjoy it for many years.
Some people are better suited to taking a vacation during a designated time of the year. However, in the case where a vacation cannot be taken in a particular year, the unit can usually be rented or traded. Renting the unit can help the owner get some of the maintenance fees back. Alternatively, when an owner participates in an exchange program, they may have the opportunity to visit other destinations in the US or abroad.
In my opinion, the best reason for owning a timeshare has little to do with return on investment. Instead, owners should focus on the reasons for a family to reconnect, rejuvenate, and build priceless memories together.
Neal Nolan, CFP(R)