Timeshares are certainly one way to get into vacation properties. But even though the concept has seemingly stood the test of time (they’ve been around since 1969), are timeshares a good investment?
You’re probably already familiar with the basics. After a significant initial investment, you pay a yearly maintenance fee for the duration of your ownership. But should you consider investing this way, or is it more trouble (and money!) than it’s worth?
Here are some downsides to timeshares.
No Income Generation
When you hear the term “investment,” you usually think of putting your money into stocks or another type of “vehicle” that can generate passive income. Real estate companies often market their timeshares as a fantastic investment opportunity—but they’re typically not.
What you’re usually buying is the ability to use a vacation rental one week out of the year. This “investment” can cost you anywhere from $10,000 to $50,000 depending on the location and amenities, plus an annual maintenance fee to keep your ownership.
If you want to go on vacation every year, this might sound like a great deal. But look at it in terms of actual investments.
If you put the $10,000 that you would spend on a timeshare into a mutual fund with a 12 percent return, you’d end up with over $30,000 after 10 years—even with no annual contributions. In 20 years, you’d have almost $100,000.
But if you put that same money into purchasing a timeshare, you’re not going to make any money from it. You’re not investing in the real estate. You’re buying one week, once per year.
Increasing Maintenance Fees
Once you make your investment and purchase your timeshare, you need to pay annual maintenance fees to maintain your status as an owner. Once you sign on that dotted line, there’s no guarantee the costs will stay the same throughout your term of ownership.
If you’ve budgeted for a $500 annual fee and it suddenly jumps up to $1,000 or more, you could find yourself scrambling to make sure that you can cover it.
The Costs of Cancelling
You do always have the option to cancel your timeshare, but this can end up costing you a lot of money if you don’t do it right. If you’ve got a timeshare that you never have a chance to use or can no longer afford for whatever reason, it’s tempting to cancel it to shed the unwanted expense and free up those funds. But make sure you’ve read your timeshare contract carefully to determine what you have to do to cancel or resell it.
Unfortunately, only about 3.3 percent of timeshare owners in the past two decades report successfully reselling their property. If you do plan to sell or cancel your timeshare, seek out the assistance of a certified timeshare exit company to make sure you’re not spending more money than is necessary to get out of the contract.
Rigid Scheduling and No Variety
If you don’t mind vacationing in the same place every year, this isn’t a problem. But for most people, variety is the spice of life—and going back to the same vacation rental every year gets boring after a while. Timeshares don’t usually give you the option to switch up your location, which means you’re stuck with the same place, view, amenities, and attractions year after year.
With fixed-week timeshares, you’re also restricted to taking a vacation during the same week every year. Floating week timeshares give you the option to choose a different week every year, but you might find it challenging to book your vacation during peak times, such as spring break and summer vacation.
Whether this is a problem is entirely up to your schedule and how you like to vacation. If you prefer going to the same area every year, then a timeshare might be a cost-effective way to make that happen. However, if you prefer variety in your experiences, you should look elsewhere.
More Trouble Than They’re Worth
Are timeshares more trouble than they’re worth? That depends entirely on you.
If you’ve got enough disposable income for your initial investment, as well as the annual maintenance fees, and don’t mind traveling to the same area every year, then a timeshare might be a great option. Otherwise, timeshares tend to be more trouble than they’re worth.
They’re expensive—and contrary to what a real estate salesperson might tell you, they’re not actually an investment. You’re paying for a week of rent once a year, and it’s not making you any money back.
If you prefer to actually do something constructive with your investments, consider putting your money into a true real estate investment (i.e., a rental property), a mutual fund, or another high-return investment instead.
That way, once you start earning profits or dividends, you can enjoy a vacation wherever you want without being tied to a single unit in one location.
Do you own a timeshare? What’s your experience been like? Or are you considering buying into one? Have you read all the fine print associated with the investment?