Over the last few months, I’ve received many questions about bitcoin, the cryptocurrency that’s getting all the fanfare these days. If you haven’t been following the bitcoin news, not to worry – it’s not too late. New innovations in financial markets don’t come along too often, and I think it’s good to be aware of this one.Read More
It’s the summer and I hope vacation is on your mind as much it’s on my mind. Eventually, I want to get to a place where vacation occurs everyday between 9am and 5pm, and work is what happens only 3-4 weeks per year. In the interim, I strive to find ways to go on vacation several times a year without incurring debt. One way that I accomplish this goal is to use my timeshare, which I purchased seven years ago.
Several clients have asked me whether investing in a timeshare is worth it. I want to first share my experience, define what a timeshare offers, and then give the verdict along with tips to increase your chances of success.
My timeshare experience and how to buy a timeshare?
Let me start off by saying that I have a love-hate relationship with my timeshare.
If you haven’t been haggled by a timeshare salesperson, you’ve missed an important experience in adulthood. It happened to me when I was with a group of friends in the Poconos at my friend’s Wyndham timeshare. I went to a mandatory “welcome” meeting and I ended up buying a timeshare with 168,000 points to use every other year for $10,000.
They started off at $16,000 and a finance charge of 15%. After calling my Mom (who owned a timeshare) and getting her advice, I said “no thank you” to the finance charge and asked if I could pay over 6 months with 0%. I then negotiated down to $10,000. Now, that 168,000 points usually equates to 5-10 nights depending on the location and time of travel.
Now, I decided to pay cash over six months because I had a savings stash at the time that I purchased the timeshare. Since I already had some money in the stock market and I loved traveling, I thought it provided a good diversification strategy. I also knew that I wanted to put in the investment now while I had the money so that I could have someplace to go in the future in case I didn’t have a salary but still wanted to get away for vacation. It offered me a good retreat from the world during my early entrepreneurial journey, when I spent a lot of my money on the business. The timeshare has also come in handy for family and friend retreats.
What is a timeshare?
When you “own” a timeshare, you only own a piece of a property that usually resides in well-traveled vacation areas, like Florida or Mexico. Other people also own that same property and you share the use and cost of maintaining the resort over the course of the year. I compare a timeshare to partially owning a condo at a beautiful resort with a kitchen, washer and dryer unit; you pay for the property upfront and you also pay annual maintenance fees.
The main difference in owning a timeshare relative to other properties (including the condo), however, is that if you want to sell your timeshare, you will most likely get less than what you’ve paid for it upfront. So, you are buying a depreciating asset on the hope that you get a ton of intangible value such as:
- Fond memories in a spot that is not a hotel, someone else’s house, or an Airbnb location. [I definitely have fond memories of utilizing my parents’ timeshare as a child and even sometimes as an adult – thanks Mom and Dad]
- A consistent place to go on vacation with family and friends.
- The convenience of booking and knowing that you’ll be in a particular location well in advance, especially if you can book early and place is available.
Now, you buy depreciating assets like cars or clothes all the time when you believe that there are benefits and intangible value. But, the key is to recognize that you are making such a decision, minimize the lifetime costs and still acquire a quality purchase, and try to extract as much value as you can.
There are additional tangible benefits such as the fact that you can potentially lower the cost of lodging. This is particularly true if you have a big family, thereby eliminating the need for multiple hotel rooms. You can also cook and clean your clothes in a timeshare unit, so you potentially save real dollars in your vacation expense.
So, is a timeshare a great investment?
No, I believe a timeshare does not reflect a great financial investment, where one would expect a positive return on their money. Rather, I believe that a timeshare really reflects an alternative way to go on vacation, with a lot of intangible and some tangible value. Great financial investments usually go up in value, and your timeshare will not. Furthermore, many people do not pay cash upfront for a timeshare, and thus must pay a finance charge that can be 15- 20% to pay for the timeshare in installments – just like taking out an expensive mortgage to buy a home – which drives up the total cost of the timeshare. And, let’s not forget those annual maintenance fees, which can run $500-$1,000 per year.
With disruptive companies like Airbnb.com and luxurylink.com, you now have more vacation alternatives that drive down the cost of lodging. And, if you’re a bargain shopper on sites like Orbitz or hotels.com, you will dig deep for a low lodging costs. Also, if you’re single or like the flexibility of travel, a timeshare can feel like a money drain because you cannot extract as much value as the big families can.
Remember, you still have to get to the timeshare, albeit by plane or car, and this is no different than any other vacation. Also, if your schedule changes at the last minute or your family cannot coordinate a time to go, the timeshare is worthless because you are not utilizing it.
At best, I think a timeshare is a mediocre investment if you extract a lot of value from it. You have to know how the game is played to outsmart the timeshare industry, which generated $7.6 billion in sales volume in 2014. In an industry this big, you know it has figured out a formula that preys on the uninformed and vulnerable.
How do you extract value from your timeshare?
Here are my top 10 ways to extract value from your timeshare and outsmart the timeshare industry.
- Know why you want to use your timeshare, albeit as a primary or secondary vacation alternative.
- Minimize the cost of your timeshare by paying no finance charge or a very low one, and looking for units with low maintenance fees.
- Negotiate the cost of your timeshare – it can be done.
- Don’t fall prey to the “nice” and aggressive salespeople, who entice you with gift cards and other prizes. Be strong and smart, and you can come out on top if it’s what you want. If the salespeople hate you, as they do me, that’s a good sign you’re negotiating well.
- Always ask a few people who’ve bought timeshares from the same company their advice on the financing deal, maintenance fees, perks, and drawbacks.
- Ask one of your friends with a timeshare to refer you for a weekend getaway to experience the product before you buy (If you’re interested in Wyndham’s Vacation Resorts, which is mine, email me).
- Ask if there are additional fees if you gift your timeshare, or allow a family or friend to go in your place. I’ve gifted several friends and family members several nights, and I did not have to pay additional feeds.
- Go for the points instead of the weeks. With points, you get more flexibility in where you can stay.
- See if you can a buy a timeshare in the secondary market (on Craigslist or Ebay) instead of buying it at a timeshare resort
- Ask the timeshare people what the process and cost of selling the timeshare will be.
Remember, the whole point of a timeshare is to go on vacation. And, you want to be stress-free in doing so. Only you can determine if a timeshare is right for you, but now you’re armed with some tools to help you on your journey.
Let me know your timeshare experience and how you’ve outsmarted the industry!