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The promise and pitfalls of timeshares
Buying into a timeshare can be a great way to have an established vacation getaway. But do your homework before you pack your bags. - photo by Jeff Wuorio
If youre in the mood to get away from it all, $1 might seem more than a fair price to pay for a vacation in a resort destination.

That may seem the stuff of holiday fantasies, but thats what some timeshares a form of ownership of vacation property are going for on venues such as eBay.

However appealing from the standpoint of a bargain, timeshares an industry that's often associated with high-pressure sales tactics and other caveats still mandate careful thought and a fair amount of homework into the annual maintenance fees, exchange fees and other costs not included in the upfront purchase.

No matter the cost, you should never go in on a timeshare on a whim, said Lisa Ann Schreier, a timeshare blogger and author of Vacation Timeshares for Dummies. Approach any timeshare opportunity with a healthy amount of skepticism.

Timeshare basics

A timeshare is essentially a program in which a group of people divides the right to use a vacation property for a specific period of time generally one week per share per year. Almost all timeshares are condominium/hotel type accommodations located in vacation or resort destinations.

One advantage to timeshares is the guaranteed access to the property at a designated time. Timesharing also eliminates physical upkeep, property management and other ongoing headaches that can come with owning a vacation home.

Another plus is the flexibility to swap locations with other timeshare owners. Exchange programs are offered by resort developers that own a number of different vacation venues. Further swapping opportunities are available, for a fee, through private companies such as RCI and Interval International.

The biggest misconception is that youre stuck at the same resort year after year, said Schreier. There are all sorts of ways to trade or exchange.

Timeshare caveats

Along with the benefits, there are significant pitfalls, beginning with the means through which timeshares may be purchased. As Brian Rogers, owner of the consumer advocacy website Timeshare Users Group, points out, many prospective timeshare owners assume that they can only buy from the developer a mistake that can cost them thousands of dollars and more.

Everyone assumes you have to attend one of those sales presentations that take several hours or more, he said. The average person has no idea how much you can save by buying a timeshare through a resell. Everyone knows you can save a lot of money buying a used car as opposed to a new one, but most dont have a clue that you can do the same thing with a timeshare.

The cost disparity can be attributed to sales and marketing expenses which, Schreier said, can account for as much as half the cost of developer-sold timeshares. Zap that overhead and the price of a timeshare on the resale market plummets to as little as $1.

An average price of a timeshare sold by a developer that costs $21,000 for a week a year can be bought as a resell for about $5,000, Schreier estimated.

No matter the bargain, never consider a timeshare as a financial investment that will generate a return.

One hundred percent garbage, quipped Rogers.

Not only are owners confined to property use during very specific periods of time, they are not at liberty to use the property as they wish, such as improvements and alterations.

Remember, when you buy a timeshare, you are buying time, not an appreciable asset in the majority of cases, said Steve Rhode, a debt blogger and founder of the Personal Finance Syndication Network.

Another factor in pricing of timeshares is competition driving resell prices down, not up, as evidenced on eBay.

Its a complete misnomer to call this an investment, said Schreier. Ninety-nine percent of owners wont even break even.

"We're adamant about not referring to them as an investment," agreed Ed Kinney, global vice president of Marriott Vacations Worldwide. "It's an investment in your lifestyle, but from a real estate investment standpoint, it's misleading."

How to shop

There are other costs to consider besides purchasing time at a favorite vacation spot.

Ask the seller about ongoing maintenance costs, which can easily approach $1,000 annually (in particular, ask for a breakdown of maintenance costs over several years to gauge long-term trends.)

Inquire about resort delinquency rates. These can increase maintenance fees and property taxes for timeshare owners who end up picking up the financial slack for others who dont follow through on the financial commitment of ownership.

That doesn't even factor in the special assessments some timeshare owners have had to pay for new roofs or community air conditioning, added Rhode.

Know as well that the price paid for a timeshare can be impacted by the time of year. Spring break, the Fourth of July and other more localized events such as the Daytona 500 in Florida can boost the price of a timeshare, Roger said. The flip side is such timeshares can command greater appeal on the trade and exchange market.

If you attend a timeshare sales pitch meeting, be wary of high-pressure presentations. As Schreier pointed out, timeshare salespeople are adept at leveraging guilt for not snapping up an amazing deal for your family today and at using guardedly exaggerated terminology.

Youll hear things such as, This is the vacation capital of the world, she said. Its essential to keep your wits about you.

By contrast, Marriott's Kinney said the industry has largely abandoned in-your-face selling strategies: "There's really no benefit to those sorts of hard-sell presentations," he said.

There are also drawbacks of buying on the secondary market. Some developers that own multiple timeshare properties dont allow secondary buyers to participate in internal trade or exchange programs. Secondary buyers can arrange trades themselves or use an outside private company.

The experts recommend approaching any potential timeshare with a long-term outlook: Do you want to be locked into a vacation arrangement that may be exceedingly difficult to sell five to 10 years down the road?

Think about your childrens vacation tastes, Schreier said. When theyre 15 years old, they may not want to go to a place like Disney anymore.

But pick a place that you enjoy thats also within your budget and consider the money spent as an investment in your enjoyment and relaxation. As Rogers noted: You dont take a vacation with the idea of getting your money back.
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