Time shares are properties where you buy a share in the property rather than the property it self. You buy the right to use the property a certain week or weeks each year. Time shares are usually promoted very hard and is common in many places.
Time shares are always a bad purchase and should be avoided like the plague. I know that many real estate “experts” will paint a more nuanced picture and tell you that time shares have a bad reputation but that they can be a good purchase. This is bull shit and something they tell you because they want to be able to sell you a time share. It is true that some time share opportunities are better than others. They range from complete scams to bad deals.
The truth is that time shares are never the best option. It does not matter if you can not afford anything else than a time share. A time share is still a bad deal. The only reason you might want a time share is to be able to say “I got a little place in Aspen”. And you pay a very high price for that bragging right.
Why are time shares bad deals?
Lets look a little at what it is that makes time shares such a bad deal.
They are expensive to buy
Time shares are very expensive. They might seem like a cheap option but they are in fact an easy way for the time share operators to be able to sell the property for a lot more than it is really worth.
Lets say that they buy a house for $200 000 and turn it into a time share. They charge you 5 000 for your share. This might look like a good deal. You pay $5000 and get to live in the $200 000 house each year. But lets look at it a little closer. The time share company is selling the shares for $5000 each. Most likely they charge extra for premium weeks such as Christmas. There is 52 weeks in a year. This means that operators just sold their $200 000 house for $260 000. This number is likely to rise to $300 000 when you factor in the premium weeks. This means that you have paid more than your week was really worth. It is very common that the operators earn a lot more than what I shown in this examples.
They are expensive to own
All time shares are expensive to own. You need to pay a yearly maintenance fee that can be rather high. This is another way that the owner makes a lot of money. They might charge $500 a year for upkeep while only spending about half of that giving them a steady stream of income. You have to pay the yearly fee regardless of whether you use your week or not.
The yearly fee is often hidden in the fine print of the agreement. There is always a yearly fee. In some cases they might claim that there is no yearly fee. This is usually true but the contract is written in such a way that they can change the fee structure and start charging a fee in one or two years.
The contract you have read might not be the valid contract. In most cases the contract will state that if there is a difference between the original contract and the English contract then the original contract should be the valid one. This means that there might be subtle but important differences between the contracts that has been put in there to make it seem like a better deal than it is.
They are hard to sell
It is usually very hard to sell your time share if you decide you do not want it any more. There are very few buyers interested in buying second hand time shares.
There are plenty of owners that have been tricked into buying one during a high intensity sales seminar.
This means that there are 100:s of sellers for each buyer. The market is so bad that it often is very hard to give away a time share. Most people will back down when they see the yearly fees.
It is often very hard to get out of a time share agreement which means that you are stuck paying the fees indefinitely. The situation is so bad that many time share operators have started a side scam where they offer legal services that are designed to help you get out of your time share agreement. These services are usually scams designed to trick you out of more money.
You are very limited in your vacation options
If you own a time share you are only able to visit it during your week. This means that you have to time your vacation to this week. The week you own might be during the hurricane season or other low season. This is especially likely if you bought a cheap time share and didn’t think about the climate in the area where you bought it. Getting a week in September might sound wonderful until you realize that September is the height of the rainy season with anything but vacation friendly weather.
The time share can not be moved. This means that you have to go on vacation to the same place every year if you want to take advantage of the time share you are paying for. If you use a hotel or rent a property instead then you are free to choose to go wherever you want.
It is cheaper to live in a hotel
When you sit at the seminar and hear the sales pitch you will be led to believe that a time share is a cheap way to go on a luxurious vacation. This is an illusion. Lets look at an example.
The time share operator asks you how much you pay for your hotel room while you are there. You answer $1500. He will then say. See in just over 3 years you will have saved the cost of your time share and after that you will vacation for free. All this seems logical but is not true if you consider some factors that the salesman conveniently left out.
- The time share is unlikely to offer the same standard and the same amenities as your hotel does. If you settle for the standard offered in the time share than you might be able to find a cheaper hotel. Lets say that you can find a hotel that cost $150 a night in stead of $200 lowering your hotel bill to $1050 for the week.
- What week is he offering you to buy. Hotel prices varies a lot during the year. Odds are that you are there during high season while he is offering you a time share during low season. You will almost never get a time share slot during high season unless you insist on it and pay a premium for it. The hotel prices if you want to come during low season might be a lot lower than what you are paying. Use a hotel booking site to find out. In this example we are going to assume that you could live at the same hotel you live in for $150 a night during low season. We are further going to assume that the hotel with lower standard from point 1 would cost $100 a night during low season. The real difference are likely to be even larger. The hotels often offer aggressive discounts to avoid being empty during the low season. This all means that a comparative weekly hotel cost is going to be between $700 and $1050 depending on which hotel you choose.
- You will have to pay a yearly maintenance fee that can be rather high. We are going to assume that you pay $40 a month in maintenance fee. $480 a year.
- By spending the $5000 to buy the time share you lose the opportunity to invest that money instead. If you invested it you might be able to earn a 10% yearly return. That means that you loose 500 a year in lost investment income. The time share is unlikely to go up or even retain its value.
Now lets look at how much you save by buying a time share.
|You buy the time share
The example above show you that you only save $70 a year by buying the time share compared to living in the same hotel you were already living in. You can save a little more by cooking your own food in the time share but since it is a vacation you are likely to want to go out to eat. You are going to need to live in the time share every year for 70 years to earn your money back. If you miss a year you have to live an extra 14 years before you made your money back. This show you that it is impossible to save money by buying a time share. When you consider the loss of income it is impossible to make money this way even if you rent out your time shares some years when you do not want to use it.
If you decide to live in the cheaper hotel with the same standard as the time share then you will loose 280 every year by owning the time share. A time share is a prison with a hole that you trow money into.
The numbers in your unique situation might be different but if you do the calculations above you are likely to see that it is a bad idea in your situation as well.
You will not be able to rent it out
It is common that the operators promise that they will rent the time share out so that you earn money each year if you do not use it. This is nothing you should count on. They might rent it out (against a large fee) but you can not expect the property to be rented every year. It should never factor in as a part of your decision.
If you buy one anyway
If you against all better judgment want to buy a time share then you should make sure to buy one that has a contractual clause that allows you to surrender the time share back to the operators for free. Otherwise you can get stuck paying high fees for something you dont want and that you cant sell.
A buy to rent property is always a better choice. This is a property that is completely yours but that you only use for a few weeks each year. The rest of the time it is rented out. It is like owning a room in a hotel, When you are not there they rent it out for you. Rent to buy properties can be very profitable to own and you can read more about them here.