Timeshares As an Investment
More than seven million people in the United States own some form of timeshare, whether it is a vacation club, deeded interest in a vacation property or a right-to-use interest in a resort. The attractions to timeshares are numerous, and usually specific to the individual purchaser. These include the resort location, amenities, time of year, flexibility in exchanging with other locations, and of course, cost. In 2010, the average price of a timeshare week, according to a 2010 study by Ernst & Young, was $16,431. But don't confuse this price with the value of the "investment," because industry insiders as well as regulators want you to know that you are making a vacation purchase, not an investment.
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Investments Have Returns
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Most investments have some form of measurable returns on investment. Traditional investing, in stocks, bonds or alternative investments, generate returns that are measurable. These include interest, dividends, royalties and, hopefully for most investors, capital gains. In other words, the investor will receive something in addition to the return of the original investment. Sometimes companies go out of business and the full value of the original investment is lost. This is generally the exception to the rule. This risk can also be reduced by the use of mutual funds or unit trusts that spread the risk over a large number of investments within a pooled fund. A timeshare functions similarly only by spreading the risk of owning a piece of real estate, or the use of that real estate, over a number different owners. A timeshare owner only has the use and cost of the property for the period of time purchased. But this has more to do with the cost of ownership than sharing in the returns on the property.
Cost vs. Value
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Timeshares have expenses that are on-going and can be substantial. According to industry statistics, nearly half the cost of each interval of ownership is related to sales and marketing expenses. So of the average price paid for a one-week timeshare in 2010, nearly $8,000 went to getting the buyer there, touring the resort, giving whatever incentive that was advertised to bring the buyer to the presentation, and paying the commission to the sales staff. The rest of the purchase price goes for the cost to build the property, including the developer's profit margin. Most investment costs in financial instruments are highly regulated by either the Securities and Exchange Commission or the Financial Industry Regulatory Authority and they rarely reach the level of half the purchase price, with the exception of rare collectibles, such as gold, silver and other precious metal coins.
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On-going Expenses
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The cost of owning a timeshare is not limited to the purchase price. There are annual maintenance costs, real estate taxes (for deeded properties) and also special assessments for expenses not covered by the annual maintenance fees. Maintenance fees depend on the quality of the property, its location, age and other factors. These fees will generally increase over time as the property ages. Assessments are unpredictable, but can be substantial. If you own a resort property in the Caribbean, for example, and a hurricane destroys the roof and the insurance wasn't adequate to cover all the cost, that can be assessed to each unit based on the number of weeks you own. There is also the cost of travel to get to the property. More traditional investments don't have these types of costs.
Resale Can Be Tough
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Selling a timeshare is more like selling a house and can result in significant losses. If you need to unload your timeshare because of financial hardship or lack of a desire to continue to use it, the process is not as simple as calling a broker and getting a bid like a bond or a stock. You must use a resale service and the costs are generally similar to selling a piece of real estate. A simple Google search for "Timeshare Resales" produces 387,000 results, as of March 2011. In most cases, a resale is going to result in a loss based on your original purchase price. Each year you use your timeshare, though, is going to bring you value that you don't get with a traditional investment. In that sense, it is more like a second home than an investment. It could also be considered similar to a private placement investment, which also has limited transferability.
Consider Timeshare an Expense
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A timeshare can lock in most of the cost of a vacation for many years. If you happen to go to the same resort every year, enjoy the amenities offered, feel comfortable in a familiar environment and don't have other financial needs for the money that would be spent on a timeshare, it may be the right choice for you. It should be viewed, however, as a vacation expense, not an investment. TimesharesOnly.com is a resale site for timeshares. If you pull up all the Marriott Aruba Surf Club listings for sale, you get a range of prices. For a two-bedroom unit during peak time, facing the ocean, the range is as little as $12,000 to more than $20,000 per week, as of March 2011. The annual maintenance is $1,200 per week owned. If you go to the Marriott website, you can rent that unit for $1,400 for the week. It sleeps eight people, so you could split that cost further and keep your $20,000 invested in shares of Apple.
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