While time shares continue to gain in popularity among the general public as vacation accommodations, there are a lot of secrets that the time share industry would rather potential buyers not know.
A time share unit can make sense in some specific circumstances, such as when you have a family reunion the same week and at the same place every year, but for most people, they aren't near the great deal that they are made out to be. Here are some of the secrets that the time share industry doesn't want you to know or do before you purchase one:
1. Time Shares Are a Lousy Investment
In fact, they aren't an investment at all, since it makes little sense to put money into a depreciating asset and expect a return. While you will not find many time share sales representatives outright pushing time share sales as a quality investment these days (it was common in the past), they will still use subtle wording during the sales presentation to give the impression that purchasing a time share is a good financial move. Terms like "life-quality investment" are often used to try and tie the words "time share" and "investment" together. If you don't listen carefully, you will think that a time share is a great investment when, in fact, it's far from it.
2. You Can Get the Same Time Share for Half the Price
Time shares are notoriously difficult to sell. That means that those who have purchased a time share but no longer want it must greatly discount their unit to sell it. You can find the exact same units being sold directly from the time share resorts on time share resale sites at a discount of 50% or more.
3. You Lose 50% or More When You Sell
As mentioned above, reselling a time share is extremely difficult even for the best of them. Similar to a car driving off a dealer's lot, time shares will lose 50% or more of their value the second you sign on the dotted line. In the worst-case scenario, you will be trapped with a time share unit (and the yearly fees) that you can't even give away.
4. It's Cheaper to Rent a Time Share
Every year there are many people who can't use their time shares for various reasons. Instead of just letting the time share sit unoccupied during the time for which it is already paid, many time share owners try to rent out their weeks to recoup some of their money. In many cases, you can rent the same week at the exact same resort for less than it would cost to own the same unit (and many times for less than the time share fees would be) without any of the associated risks that come with time share ownership.
5. Time Shares Come With Multiple Hidden Risks
When you purchase a time share, you purchase a part of that building. That means that if there is a disaster, you are responsible for a portion of rebuilding the time share. While time share resorts are supposed to retain adequate insurance, they don't always carry the amount they are supposed to, and there are certain disasters for which coverage may be too expensive. This leaves you responsible for covering these losses if the unfortunate should happen.
6. Miss One Year and You're Better Off Without a Time Share
All the calculations the time shares sales representative offers will be assuming that you use the time share every year for years into the future. When all costs related to the time share are taken into consideration, a time share's price can range from being much more expensive than a comparative hotel to being slightly less expensive. This, of course, is if you use your time share every year.
If all your time share expenses add up to $1,500 a year and a comparable hotel in the area for the same week would cost $1,600, you may think you have made a financially wise decision by saving $100.
If you use a hotel, rent a condo, rent a time share unit or use some other similar accommodations for your vacations and one year you can't go for some reason, you aren't out any money. With a time share, however, you lose the entire $1,500 you have already paid. Nobody expects that they won't be able to travel every year, but life throws out unexpected twists that will probably keep you from using your time share at some point. If you miss that one year, you would likely be financially better off had you not purchased the time share.
7. Trading Isn't Near as Easy as Claimed
When you hear the time share sales pitch, the sales representative will make it sound like you will be able to trade your unit with others around the world with ease. Rarely is it easy to exchange, and often you will have to pay additional fees to make a trade happen, if it is possible at all. If you won't be going to the exact same spot year after year, a time share won't save you any money and will likely cost you a lot.
8. If You Can't Pay in Full, It's a Terrible Deal
Another issue that the time share sales representatives will often leave out during the calculations is the cost of financing a time share. Banks know that time shares will lose their value and therefore don't consider them real estate in the loans they provide.
Instead of low rates that are tax-deductible, a time share loan will come with a double-digit interest rate and in most cases will not be tax-deductible. When you add the cost of this financing to the overall cost of the time share, it makes little financial sense to purchase one if you can't pay for the unit in cash.
9. Travel Is Not Calculated When Comparisons Are Made
One of the tricks time share sales representatives use when attempting to show you what a "great deal" time shares are is that they will include your travel expenses when calculating the cost of your current vacation, but conveniently forget to include travel costs when calculating the cost of the time share. If you aren't paying attention, you may believe you're getting a deal when in reality all the savings came from leaving out the travel expense that you must still pay.
10. Hotel Prices Are Increasing (But So Are Time Share Fees)
Another one of the tricks time share sales representatives use is telling you how much hotel prices are increasing and then telling you that your time share will still be the same price 15 years from now. What they fail to tell you is that the time share fees are not locked at the current rate and will also likely increase as time goes on so the time share can be upgraded to keep up with newer competition. This means all that money you were supposed to save is unlikely to ever materialize.
Keeping the above information about time shares in mind when deciding whether a time share is right for you will go a long way toward keeping you from making an extremely costly mistake.
Jeffrey Strain has been a freelance personal finance writer for the past 10 years, helping people save money and get their finances in order from Japan to the U.S. He currently owns and runs Web site SavingAdvice.com.