Are Timeshares a Bad Investment?

It is widely known that timeshares are a bad investment, if you're looking at it from a purely financial perspective. An investment should generate income, increase in value or, in the best cases, do both. Timeshares don't do either.

That's not to say they don't have their place in the vacation industry. Some people hand over the large upfront cost and end up quite happy with them. If you're looking to invest in a lifetime of memories at the same time and location year after year, and are sure you're in it for the long haul, then a timeshare might be a sensible purchase for you. If you are the average vacationer however, and can’t always promise you will go back year after year, timeshare ownership probably isn’t a good investment for you.

A timeshare costs you money for as long as you own it. There's the original outlay, often in the neighborhood of $10,000 or more. Count on a high interest rate on your loan from the timeshare company, too. On top of purchase payments – even after you pay off the loan in five or seven years – you're responsible for annual maintenance fees.

These typically run at least several hundred dollars – in fact, the average is well over $600, as Forbes reports – and they usually go up every year. You're responsible for all payments whether or not you use the timeshare for your allotted period, and if you miss a payment, the timeshare company can foreclose on you.

Be weary of the salesperson in your timeshare presentation trying to downplay these yearly costs or making guarantees that you can avoid them or get them reduced. If it isn’t specifically outlined in your contract or they won’t answer your questions about it, it’s most likely a scam that will drain you of money.

If you have deeded ownership, which you usually do in the U.S., you can probably rent out your timeshare. This would be the only way to generate income from it. And if you manage to book it for the full week you have it, you might break even on your annual maintenance fee, or even make a little more. You're going to have to pull this off every year though, and it's going to take a long time to recoup and profit over the initial purchase price.

It might be difficult to ask specific questions about renting your timeshare units to the salesperson however. A tactic used during the sales presentation focuses on pressured decisions and “act now” instructions. The sales pitch will lead into an intense discussion with the sales representative who will put you on the spot, not give you much time to think it over, and try to get you to hand over your credit card before you leave the room.

In fact, timeshares reliably decrease in value, even when they're in a highly desirable location. This means their resale value is decreasing as well. Just like vehicles, timeshares start losing value right away, and their value usually continues to dwindle as time passes. Plus, timeshares are nearly impossible to put up for resale in general.

Both the new and used timeshare markets are glutted with supply outweighing demand. There just aren’t enough people interested in becoming timeshare owners, so if someone wants enter the timeshare industry, they’ll probably buy a brand new one instead.

Even if you do manage to sell off a timeshare eventually, expect a price considerably lower than you first paid. And try not to think about the thousands you shelled out for maintenance fees over the years. This is something to seriously consider before you decide to own a timeshare.

Not only are they pretty much guaranteed to lose value and be difficult to sell, there are other important differences between timeshares and other types of real estate investments. A big one, of course, is that you don't actually own the property outright. You co-own it with numerous other people, usually dozens. So you can't do anything to the property to make it more valuable or attractive to buyers.

You also can't rent it out all year long while you're not using it, as you would with a vacation home. If you are considering renting the property as a way of making your money back, reconsider all of the limitations imposed on you by the company or vacation club you’re a part of. Then, just to rub salt in the wound, when you take a hit selling your timeshare, you can't even claim it on your taxes as a capital loss as you can with other types of real estate investments.

Many people think that if they own a timeshare, it will make sense in the long run and don’t do appropriate research. The key to research is it needs to be done before you step into the room to hear the sales pitch. If the representative starts to put time pressure on you, that extra period of time to step away and research their claims won’t exist. In the room, be equipped with questions and information. When in doubt, don’t be afraid to say no.

Timeshare salespeople love to point out that a family of four can save tens of thousands of dollars over 20 years of vacations. The thing is, they like to overlook the annual maintenance fees when they talk like this. Let's take a look at the math.

In 20 years, you'll pay, say, the original $10,000, plus another $16,000 in annual maintenance fees for 20 weeks/120 nights of vacation lodging. How does that compare to spending perhaps $200 per night for a hotel suite? That $26,000 would get you nearly 22 weeks/130 nights in a hotel. And you're not locked into the same week and same location every year with hotels. So, timeshares don't look like such a hot money-saving investment, either.

There are so many alternatives for saving money on vacations instead of signing away your money on a timeshare contract. Airbnb is a increasingly popular service that families, young adults and more use to pay less than they would for a hotel, but often get to stay in an entire apartment or even house. A timeshare purchase will force you to spend a lot of money over the years in upkeep and fees. Purchasing a 5 day rental on Airbnb once a year will probably cost you less in the long run.

If you are looking for another site to take a break from timeshare prices and not have to worry about vacation ownership, VRBO is a great online marketplace for finding places to stay on vacation. It is similar to Airbnb, allowing you to rent out cabins, condos, houses and more per night.