Timeshares: A Smart Investment or a Costly Mistake?

An image depicting a couple on holiday on a beach resort. Generated by Microsoft's Copilot AI.

I'm sure some of you can relate to this scenario if you have ever gone on holiday to Boracay island in the Philippines. You are just strolling on a nice stretch of white sandy beach somewhere on holiday with your significant other when suddenly an innocuous-looking individual cheerfully asks you if you want to have a free buffet dinner for both you and your companion. Not wanting to miss out on the opportunity you readily say yes but you were then told that there are certain conditions that you have to abide by first. Namely, you agree to sit in for a 45-minute presentation from a certain resort/hotel developer about a timeshare that they are trying to promote. You start to get a little bit wary, but you think, why not? They did say that the offer for the buffet was no-strings-attached, and you may or may not sign up. You simply need to agree to finish the presentation. Before you know it, you are munching away at their buffet and wondering whether or not that timeshare you just purchased for 30 years was really worth it. 

Dubious sales tactics aside, let us explore whether signing up for a timeshare property is such a good idea or not. As with most major financial decisions, the answer isn't a straightforward yes or no but it's the unsatisfying answer: "It depends." I have to admit that the title of this article is probably not the right question you should be asking. So, the right question to ask is: when does purchasing a timeshare make sense and when does it not? Let's dive right into it.

What are timeshares anyway?

A timeshare is a type of vacation property arrangement wherein multiple individuals share ownership or usage rights, typically for a limited period each year for a particular accommodation type (normally classified in terms of the number of bedrooms and/or the capacity of guests). This allows people to enjoy the benefits of a vacation resort or a hotel without the full financial burden of owning a property in that location outright. Timeshares can usually be sold, rented, or exchanged (depending on the network your membership subscribes to), many timeshare programs offer the flexibility to exchange your time at one location for another within their network, providing a variety of vacation experiences.

The Financial Considerations

While the initial cost of a timeshare may seem reasonable compared to buying a vacation home outright, it's essential to consider the long-term financial implications. Timeshare owners are often required to pay annual maintenance fees, which can increase over time. These fees cover property upkeep, management, and other expenses. Additionally, there may be additional costs from special assessments for significant repairs or improvements.

The Flexibility Factor

Timeshares can offer flexibility through exchange programs (if that's an available option with your membership), but this flexibility often comes with limitations. Availability may be restricted during peak travel seasons, and you may need to book well in advance to secure your desired dates. Additionally, some exchange programs require additional fees, adding to the overall cost of ownership. In most cases, these additional flexibility options are opt-in and can be canceled after an initial introductory period.

The Emotional Appeal

For many, the emotional appeal of owning a timeshare is a significant factor. The idea of having a guaranteed vacation spot and creating lasting memories with family and friends can be incredibly enticing (and let's be real, it also includes the so-called "bragging rights" to your peers). However, it's essential to balance this emotional appeal with the practical and financial realities of timeshare ownership.

Who is it for

Purchasing a timeshare contract can make sense if you consistently vacation at the same destination and want to save in terms of long-term accommodation costs. However, it's crucial to consider the long-term financial commitment, including maintenance fees and potential resale challenges. If you value flexibility in your travel plans or prefer exploring new destinations, a timeshare might not always be the best fit although as mentioned earlier, there are networks out there that give you the option to swap out your allocated time for another destination, but you pay a premium for that flexibility. Always weigh the pros and cons based on your personal travel habits and financial situation.

Who is it NOT for

Purchasing a timeshare contract might not make sense if you prefer flexibility in your travel plans or enjoy exploring new destinations each year. Timeshares often come with long-term financial commitments, including maintenance fees, which can add up over time. If you don't plan to use the property regularly, the costs may outweigh the benefits. Sure, you can opt to rent out to family or friends your allocated time for the year and book at another destination, but you should also consider the additional hassle. Additionally, the resale market for timeshares can be challenging, making it difficult to recoup your investment if you decide to sell. Again, it's essential to carefully evaluate your travel habits and financial situation before committing to a timeshare.

Pros

• Simplifies planning of vacations in terms of streamlining the booking process.
• Familiarity with the property / knowing what to expect.
• Sense of community since you are essentially a part owner of the property.
• Can be used by friends and family (check specific membership guidelines).
• Transferable (check specific membership guidelines).

Cons

• Limits your choices in the long run depending on the availability of properties owned by the resort group.
• Be mindful of so-called Black-out dates typically for peak demand periods and need to plan way in advance to get your desired slots.
• Expensive for the short term since it usually includes a substantial initial down payment.
• Still need to pay an annual maintenance fee that may balloon in the future.
• Uncertainty of the longevity of the company (so please do your due diligence).
• You will always be subjected to up-selling tactics by the marketing team.

Be wary of these tactics

• Be wary of free buffet offers in exchange for "a few moments of your time to talk about something"
• creating a sense of urgency by telling you that a particular deal is only available while you are in the briefing room.

At the end of the day, whether you want to go for a timeshare will depend on your specific circumstances. Other things to consider: 

• Always consider the long-term use case and not only your needs for the immediate future. 
• Getting a long-term contractual obligation should necessitate a careful review of the terms from a professional (lawyer/financial planner). They usually prevent you from consulting any legal advice by insisting that the deal or promo is only effective that very moment and will be gone as soon as you go out the door.
• Evaluate the total cost of ownership not only of the face value cost of the offer but also include the recurring maintenance fees and associated travel and tour costs. Remember that typically, maintenance fees are not fixed in the contract but can increase anytime at the property owner's discretion (they will not always tell you this!).
• Find out whether the developer/owner has multiple locations or if they have deals with other developers. You might find yourself being limited to your holiday options in the future. Some timeshares are members of a timeshare network and this opens up your options even to international destinations.
• If your particular timeshare allows it, you can "sell" your available allotment for the year to other individuals and use the proceeds to go elsewhere.
• Timeshare contracts can be long-term; it may be a good idea to ask yourself the question of whether you will still enjoy that timeshare up in the mountains when you are over 80 years old. Some timeshares are transferable or can even be bequeathed as an inheritance (just be mindful that inheritance tax is another can of worms that your heirs have to deal with).

In conclusion, timeshares can be a double-edged sword. While they offer the allure of vacationing in luxurious destinations without the full burden of ownership, they also come with significant financial commitments and potential pitfalls. It's crucial for prospective buyers to thoroughly research and consider their long-term goals and financial situation before diving into a timeshare investment. Ultimately, whether a timeshare is something for you or not depends on your specific circumstances and how well you can navigate the complexities of timeshare ownership.