Timeshare bargains abound, but are they really bargains?
These days, people are practically being paid to take a timeshare week off someone's hands. Look no further than eBay and you'll find auctions on timeshares for $1.
Yet as much as those deals look like absolute steals, that doesn't mean now is the perfect time to buy a timeshare. In fact, if a timeshare didn't make sense as an investment before the real estate market flat-lined, it still doesn't make sense now.
Historically, timeshares -- where owners are deeded a small portion of a resort property used for vacationing -- are lousy investments. They lose value just like a new car does when you drive it off the lot. You are paying up front for future use -- which is the antithesis of leveraging your cash flow -- you have to pay maintenance fees and your exchange value diminishes as the fickle public wants to stay in newer and newer resorts. Nevertheless, 4.5 million households have bought one or more weeks in one of the top 1,600 timeshare resorts, according to the American Resort Development Association.
In 2008 alone, 482,000 timeshare intervals were sold with a sales volume totaling $9.7 billion. And herein lies the rub: When it came to paying for their units, 27% of the buyers paid cash; 19% financed through the developer at interest rates that hover around a usurious 16%; and 16% thought it was wise planning to put it on their credit card. Guess which ones are now swimming in shark-infested financial waters?
Timeshares can be foreclosed upon if the owners don't pay their annual maintenance fees or when a loan used to purchase the share is defaulted upon. Industry experts say that timeshare defaults were up about 10% last year -- and yes, you can blame the economy for that.
The Big Sell: Inflated Real Estate
But the truth is, people have been walking away from timeshares since the dinosaurs roamed the Earth -- or at least since the point that they got home from one of those high-pressure sales pitches, slapped their foreheads and asked "what did we just do?" And that's in part because of how timeshares are marketed and sold. If the only way you can afford to take that Maui helicopter ride is to listen to a timeshare presentation, chances are you have no business buying your lifetime vacation week. Timeshares are sold by volume. For every 100 people in the room, 10 sales are closed, according to industry experts.
So the fact that in the world's greatest recession more people than ever before are trying to dump their timeshares is not exactly a huge surprise. But does that make those timeshares any better an investment? No, it doesn't -- although it may make them a slightly cheaper bad investment, if that's what you want.
The timeshare industry sells what it calls "prepaid vacations." What it really sells is inflated real estate. Do the math: If you buy a unit for $15,000 a week, plus maintenance (add another $646 a year on average), and then multiply that amount by 52 weeks a year, that's roughly a condo selling for $780,000. Chances are, the unit probably only cost around $250,000 to build -- including the land.
Of course, the timeshare promoter needs to build into his costs all those free giveaways that lured you there in the first place -- the free sunset cruises in Kauai, the free hotel rooms in the Poconos, the free meals and other bonuses you were offered. If this was such a great deal, would they have to work so hard to attract people?
Where the Deals Are
Lisa Ann Schreier -- also known as the Timeshare Crusader -- knows the timeshare market from both inside and out. She used to sell them and then went on to write Timeshare Vacations for Dummies and Surviving a Timeshare Presentation. She is now a timeshare consultant who helps people determine whether this is a good product for them. Her bottom line: They work for some people but clearly aren't investments per se. "They are investments in the quality of your vacations," she says. "When people ask me what's the return on investment of a timeshare, I ask them 'what's the return on an investment of a hotel room stay?'"
But the truth is, if you can get past thinking of timeshares as an investment opportunity and have no expectations in that regard, they can provide you with a better quality vacation experience than you otherwise might be able to afford. The average age of a timeshare owner is 48, they are employed full-time, and 62% of them have a college degree or better. Their mean income is $90,000 or more, and 91% of them own their own home; 75% are married. So smart, employed, higher-income folks have bought timeshares and they probably aren't the ones selling them for $1 a now.
Schreier says she doesn't understand why anyone would sell their timeshare for $1. "They are worth more than that," she says. The general consensus is that the better buys today are found on the resale market. Sites like RedWeek.Com and HolidayGroup.com enjoy solid reputations for reselling units. HolidayGroup even has a "make us an offer" feature where buyers can just state what they'd like to pay for a unit. The National Timeshare Owners Association also provides additional information and listings.
If you do go shopping on eBay, make sure to read the fine print. There's an on-going auction right now for a unit in Maui with no reserve and the bid is still just $1 for one week, floating, every other year (even years). You will have to pay $886 annually for maintenance and there is a $559 "convenience" fee (convenient for who?). You could also probably find a perfectly nice Maui hotel room for a lot less. There are also several units available on www.sellmytimesharenow.com for $1 per week. Again, annual maintenance fees make nearby hotel rooms look mighty attractive.
Schreier says consumers should ask the following questions before committing:
- Is the unit fully paid off?
- What is the annual maintenance fee?
- Is there a cap on it and do owners have a vote in any increases to it?
- Are there any special assessments now or in the past? (A special assessment is a fee collected for repairs that go beyond the maintenance fees and are frequently found in oceanfront and golf course resorts. Multiple special assessments could be a red flag for shoddy construction.)