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How Do Timeshares Really Work?

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How do Timeshares Really Work?
When it comes to vacations, everyone thinks of a different spot as their ideal destination. Many people dream of someday having a beach-side property to call their own. Others would love to own a cabin alongside a ski resort. Some want to own a luxurious part of a vacation resort.

Timeshare companies will try to convince you that for a fraction of the price, they can give you that dream. But they don’t tell you what you actually pay for once you agree to their terms.

Is it still a dream if you only get to use it one week out of the year? Or if you can only go on the same vacation for the next 20 years? Is it still a dream if you have to pay for it with a 20% interest rate? Or if your hidden maintenance fees increase every year? What if, instead of generating income in the off-season, you lose money?

It’s easy to fall for the picture of paradise that the timeshare representative paints for you, but they don’t tell you that they aren’t selling you a dream — they’re selling you a nightmare.

If you don’t do your research beforehand, when they come to you with the flashy sales pitch, it can be incredibly difficult to understand what you’re actually signing.

So what is a timeshare, and how does it work?

Before you sign away your freedom, here’s the truth about timeshare ownership that will make you second-guess signing the dotted line.

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What Is a Timeshare?

By definition, a timeshare is a type of vacation real estate in which multiple purchasers share ownership and, in return, receive an allotment of usage. Generally, the timeshare you pay for is a week at the property.

But this isn’t the kind of straight answer you’ll get from a representative trying to make a sale. They’ll only tell you their scripted responses.

On the surface level, a timeshare sounds like a great concept. You only spend about a week out of the year on vacation, so why should you pay full price for a property you won’t visit year-round? The timeshare representative sells you their solution — sharing the costs with strangers. They try to reason that you don’t need to pay full-price for a property you’ll only use a fraction of the time.

Unfortunately, this is not a cabin you split the rental fee on when vacationing with a group of friends for a get-away weekend. In that scenario, you get the freedom to choose the location, the facility, the time of year and you don’t pay annual maintenance fees.

With a timeshare, you lock yourself into one vacation spot for a fixed amount of time every year for however long your contract lasts.

You pay for this slot of time through an upfront down-payment and then annual maintenance and other assorted fees.

It’s like prepaying for one vacation in the same spot every year and then having to pay for it again every year after that.

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When you buy a property outright, the down payment costs more, but that’s because you’re buying the entire property. Once you pay off the property, you alone own it and can do with it what you wish. You can make upgrades, rent it out year-round and visit whenever you want. You answer to no one, and when you decide to get rid of it, you can usually sell it for a profit. When you buy a vacation property, you make an investment.

You do not make an investment when you buy a timeshare.

You can’t get a loan from a bank to buy a timeshare because if you fail to make your payments, a bank cannot repossess a week of vacation time. This example proves that you’re not really buying anything tangible or substantial. You’re not buying anything of value — your buying permission to use a property that does not really belong to you. Even if you choose a deeded timeshare, you still only own a fraction of the property, and so you only get a fraction of a say in its improvement or use.

Most people can’t predict what their life will look like next year. So why would you plan out your vacations for the next 50 years?

You have to use the timeshare every single year to “save” money, and sometimes, the fees and upfront costs are so high that you could be paying more per night than you would if you just rented a hotel every single year.

You can't get a loan from a bank to buy a timeshare because if you fail to make your payments, a bank cannot repossess a week of vacation time.

What Are the Different Types of Timeshares?

When it comes to timeshares, there are two contract types — deeded and non-deeded. Within those two types, multiple formats outline how you are allowed to use the timeshare. Each comes with its own rules and regulations, and it can be difficult to understand how those timeshares work.

Deeded

Deed contracts are the most similar to buying a house — except for the fact that you share this house with strangers. You pay for a deed of your portion of the property. This transaction is permanent. You keep the deed and can pass it on to family in a will, and you can rent it or sell it. While this may sound like a good investment, you’re actually just signing up to pay that increased yearly maintenance fee indefinitely.

Also, you can’t treat it like a regular property you own. You have to remember that you own it along with other people, so any decision you make must be made collectively by all other deed owners.

If you buy the deed for one week of a timeshare, in theory, the owner could sell 51 other deeds to the property. Imagine trying to make a decision about an upgrade with 51 complete strangers!

Under a deeded timeshare, you get to access your property in one of two ways:

  • Fixed-week transaction: This type of property access means you lock in your use of the property for the same week every single year until you no longer have the property. So if your seven days to access the property is the second week of May, and you can’t get off of work or have an obligation you can’t miss, you can’t vacation there that year. This only works for a very habit-oriented, ritualistic person who enjoys extreme structure and doing the same thing every single year at the same time.
  • Floating-week transactions: This option seems more attractive on the surface — depending on your contract, you could theoretically book a vacation on your property whenever you want. However, if you aren’t quick to book, the time slots you have available could book up fast, and you’ll have to compete to get the time slot you want. If you’re too slow and the weeks you’re available are taken, once again, you can’t use your timeshare that year.

Non-Deeded - You don't own any part of the property. The lease could be anywhere between 10 to 99 years long.

Non-Deeded

With a non-deeded transaction, also referred to as a right-to-use system, you don’t own any part of the property. It’s essentially a fixed-lease. These leases could be anywhere between 10 to 99 years long. At the end of the length of your lease, the ownership reverts directly back to the same company you bought from in the first place.

With this system, you have no say in the ownership or development of the property. You don’t own anything — you simply bought the right to use it. While deeded transactions don’t grow in value, non-deeded transactions could never be an investment because once the contract ends, you don’t walk away with anything.

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Points-Based Systems

Many people wonder how timeshare points work. A points-based system works for resorts with multiple locations, and instead of having one piece of property, you buy a certain number of points you can redeem at any one of the resort’s locations. This type of timeshare sometimes disguises itself under the term “vacation club.” It’s another type of non-deeded transaction because, once again, you do not own any part of the properties.

Higher-value properties and more popular vacation times will cost more points, just like how the price of a hotel room fluctuates throughout the year and by location. You can save up your points to spend them on a more “expensive” resort.

Because the rules and guidelines change with every timeshare, the way these points work can quickly become extremely confusing. Since the points have no monetary value, it’s hard to tell if you got a good deal or not.

How Much Does a Timeshare Cost?

On average, a timeshare costs $22,180 - but that's only the upfront fees to purchase your fraction or right to use.

 

The American Resort Development Association estimates that, on average, a timeshare costs $22,180 — but that’s only the upfront fees to purchase your fraction or right to use.

In concept, you make an upfront investment, and then you don’t have to pay for your vacation for the next 10, 20 or more years. But you do. Representatives rarely mention the hidden maintenance fees. The average maintenance fee comes to $980 a year. The more expensive the timeshare, the more expensive the maintenance fees. And they increase every year — usually at a rate higher than general inflation.

That $980 alone could pay for a fantastic vacation. Not to mention the possibilities of what you could do with the $22,180 you already spent.

And the costs don’t stop there. You have to keep in mind additional fees to cover mandatory property assessments, upgrades determined necessary by management, homeowners association (HOA) dues and exchange fees if you plan on spending your points at a more expensive resort.

If there’s a natural disaster and the resort needs repairs and remodeling, you foot the bill for those as well.

If you were renting a room in a resort, no one would ever expect you to cover the cost of natural damages. On the other hand, when you own the property outright, upgrades increase the resale value. If you choose to rent out the property while you’re not using the space, you can increase those prices as well.

When you have a timeshare, these upgrades do not increase the timeshare’s resale value. Even though the money to pay for those upgrades comes out of your wallet, the developer never passes those increases in value along to you.

The timeshare industry perpetuates the myth that when you buy a timeshare, you make an investment. However, nothing could be further from the truth. Timeshares almost always lose value rather than increase in value. And they lose value rapidly.

 

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Like a car, your timeshare becomes worth less the minute you sign the paperwork. Its value depreciates even before you enter the property. The resale market for timeshares is huge because once people realize that the timeshare was not the investment they thought it was, they try to sell it online for a fraction of what they paid. They’re desperate to rid themselves of the property, so they’ll take any price.

Beyond the exorbitant price, what else does the timeshare cost you?

Freedom.

You’re paying to have the same vacation every single year because if you decide to go somewhere else, you’re paying for two vacations — the one you go on and the one you chose not to go on. Unless you want to pay for something you’re not using, you’re stuck going on the same vacation every year. You don’t get the chance to explore new opportunities and see new sights because you signed up to visit the same resort every single year.

Your annual vacation represents your chance to free yourself from the grind and try something new. If you’re resigned to the same resort every year, you don’t get the opportunity to visit a new location that opens your mind to new possibilities and experiences, because you’re stuck doing the same thing every year.

Don’t you want the freedom to spend your vacation somewhere that renews your sense of wonder? Or would you rather order the same martini at the same resort bar next to the same pool every single year?

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Get Help Getting Out of Your Timeshare With EZ Exit Now

What’s a timeshare? An expensive mistake.

If you were swayed by a timeshare representative’s flashy sales pitch, don’t feel bad — you’re not alone. Annually, timeshares constitute a $10.2 billion industry. Timeshares are not an investment. Instead of increasing in value, they only increase in how much they drain your wallet.

If you’re tired of a company taking advantage of you and your hard-earned money, contact EZ Exit Now to learn more and find out if we can help you get out of your timeshare.

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