Inevitably all of us get hit on by people selling timeshares when we go on vacation. And if you listen to the timeshare sales pitch they often sound great. But why are some owners dissatisfied with their timeshare?
The most common issue timeshare owners have with timeshares is being almost impossible to sell or get out of the contract and the fact that annual fees are still due regardless of whether the timeshare is able to be utilized.
But that’s just a quick snapshot.
So in this article, we’re diving deep into timeshares. How they work, what they cost, how to get rid of one, and what happens if you just stop paying.
Ultimately a timeshare is a complicated financial decision. So there isn’t a quick one-and-done answer for everyone. So let’s take a look at why it works for some people and not for others.
A timeshare, often known as vacation ownership, is a commitment to pay for annual trips to the same resort or family of resorts for the rest of one’s life. Today’s guests discuss the key factors to a positive timeshare experience. https://t.co/2GJT7uuDdI #financialeducation pic.twitter.com/fmld9zAMzV
— Kim Kiyosaki (@kimkiyosaki) October 20, 2021
How do timeshares work and are they worth it?
With a timeshare, you are purchasing the right to use a specific resort or hotel property often for 1 week a year for as long as you own the timeshare (often decades). You pay a large fee upfront and then typically have annual fees to cover maintenance and repairs.
Those timeshare ownership fees have to be paid even if the timeshare goes unused.
You might also hear the term interval option. This simply means you are buying the option to use a vacation property one week a year. But you’re not buying the right to 1 specific timeshare unit.
They have the right to change where you stay. And while they will tell you the properties included in the program, you have to take what they give you. You also can’t give or rent your week to someone else.
Most of the time, we get hit up by a timeshare company when we’re on vacation.
Back when I used to go to Puerto Vallarta frequently, it was constant. I just learned to not make eye contact and not break my stride when I was walking.
If you stop and talk, most likely they’ll offer you a freebie of some kind (show tickets, free dinner, etc) in exchange for coming to a “short” sales presentation. That presentation may well end up being 2 hours and will be a hard sell using high-pressure sales tactics on trying to get you to buy a timeshare.
What timeshares are NOT:
- They are not considered personal real estate
- They are not considered an investment
- It is not a retirement plan
A timeshare contract is more like a car lease. But even then, you’re the only one driving that car during the lease term. So imagine leasing a car but you gave it to other people to drive for most of the weeks in a year.
But you still had to help pay for insurance, repairs, and maintenance.
Are they worth it?
If you can accept that they can be costly, are not usually good from a financial investment standpoint, and you foresee no financial changes on the horizon that could make keeping and paying the fees on it challenging, then maybe.
The other factor is how important is it to you to always vacation at the same place in the same town?
Some people like that consistency. They know what to expect and the surprises are a minimum. And I’m guilty of tending to always go to the same places, eat at the same restaurants, and order the same items. I get it.
But if you love adventure, trying new things, and exploring new places, you’ll likely tire of your timeshare and be looking for any and all ways to get out of it after a year or three.
Vacations mean good moments, good vibes and good margaritas by the pool. pic.twitter.com/I70OiPMVQD
— Grand Solmar Timeshare (@GrandSolmarTime) October 21, 2021
How often do you pay for a timeshare?
In most cases, timeshare owners pay a 1-time purchase fee of around $8,000-$10,000 and then pay an annual maintenance fee of around $500-$800. The annual fee is due even if not using the timeshare that year.
But of course, some uber-resorts may be a lot more than that.
And, of course, it’s worth pointing out that what if you get a timeshare in the Caribbean and your week happens to fall smack in the middle of hurricane season?
If you guessed that you just don’t get to go that year if there’s a bad hurricane, you would be correct. So think not only about the location, but also make sure you know the options for when you can use it.
Otherwise your vacation plans could easily be at risk.
— La Rosa Realty Jacksonville (@LaRosaRealtyJax) October 21, 2021
What are the disadvantages of owning a timeshare?
The top disadvantages of a timeshare are:
- Annual maintenance fees can (and will) increase over the years. This makes it hard to know what the real cost will be over a decade or more.
- Selling a timeshare is difficult. It often requires taking a loss on the initial investment and may take much longer to find a buyer than selling a home.
- Challenging to swap weeks or switch to a different resort. Often timeshare owners don’t have the luxury of ensuring that same week every year is totally free. But switching to a different week or different property can be very difficult.
- If bad weather makes it difficult to go during your week, you are out of luck. Got a timeshare in Cancun and your week is in August? Guess what? Inevitably a hurricane will likely prevent you from using the unit. And this could happen multiple times over a decade.
- Special assessment fees. These are in addition to your annual fee. And depending on what’s being done, you might not get a lot of notice when they are due. Hurricane damage, flooding, or wind damage can happen quickly and be costly. And that cost will be passed on to the owners.
- You are locked into taking a vacation the same week every year. Many of us do go on vacation during the same times (spring break, 4th of July, Christmas, etc). But if your life involves working around you and a spouse’s work schedule and kids’ schedules, the flexibility to change your holiday week would be nice. But unfortunately, you’ll be locked in with not a lot of options to switch.
So make sure you really understand what you’re doing before you sign on the dotted line.
Have a boatload of cash, love the resort in question, and don’t care if it’s a terrible financial “investment”? Then go for it. But as with all financial decisions, make an informed and intentional choice having looked at all the aspects.
Can I Qualify for an FHA Loan if I Have a Timeshare Foreclosure? pic.twitter.com/s8KYl5yiwW
— Cory Williamson (@CoryWHomeLoans) December 4, 2017
What do unhappy timeshare owners do with an unwanted timeshare?
A University of Central Florida study found that upwards of 85% of timeshare owners ultimately regret ever buying a timeshare!
That’s a huge number of dissatisfied timeshare owners.
The American Resort Development Association is the trade association that represents timeshare properties. So they naturally have a skewed view of reality when it comes to their industry.
In fact, Peter Roth of the ARDA actually said: “We want to ensure that timeshare owners have the option to exit their timeshare in a safe and transparent way,”
But the reality is that these are most often lifetime contracts with little or no way out without taking your chances with a timeshare exit company. And that leaves you vulnerable to timeshare resale scams.
So your best bet is to start by talking to the timeshare company and letting them know you will no longer be paying the maintenance fee.
They will, no doubt, threaten to trash your credit report if you do that. But if you don’t regularly apply for credit, already own a home, and/or pay for things in cash, that isn’t much of a threat.
In most cases, eventually, they would rather have the property and try and resell it than have to foreclose on you which costs them money. And in that long process, they don’t get your money nor do they have your property.
If they eventually agree, you’ll sign a document called a deedback which grants the property back to them. You’re unlikely to get any money for it, but at least you can cut your losses and not be liable for anything further.
What happens if you abandon your timeshare?
Just as with a single-family home where the owner stops paying, an abandoned timeshare will get foreclosed on after a period of time when the annual fees have not been paid.
So minimally that will put a huge ding on your credit for 7 years.
Most likely you will be prohibited from buying a house during those 7 years (source). It also means any debt you take on (car loan, credit cards, etc) will likely see much larger interest rates. After all, you’ll now be seen as a financial risk.
But depending on how much you owe and what the likelihood is of selling your unit to someone else, plus all the legal fees you’ve cost the resort, you may well find yourself on the receiving end of a lawsuit.
A far better idea than abandoning it would be to Air B-n-B it each year during your week.
If your annual fees are $600 or under, you’ll doubtlessly be able to rent it for a lot more than that. So you’ll skip the headaches, bad credit, and lawsuits, and put a few extra bucks in your pocket.
And it’s still there during your week in the event you ever want to use it.
Falling behind on your timeshare mortgage payments? Learn about ways avoid a timeshare foreclosure.
— Nolo (@NoloLaw) July 1, 2020
Can I just give my timeshare back?
As a general rule, the resort that originally sold the timeshare is not obligated or likely to take back the timeshare in the event it is no longer wanted or the owner is unable to pay. The exception would be in a rare case where the demand was exceeding the supply and they thought they could charge more for it.
So in most cases, you’ll have to find a buyer on the secondary market.
And if you think back to when you bought it, there was likely some enticing freebie and a slick presentation. You won’t have those things to help. So it may be best to hire a professional to try and unload it for you.
But unless demand for that property is high, don’t expect to recoup your original purchase price.
Can I report timeshare companies to the Better Business Bureau or FTC?
If the timeshare developers or owners are located in the United States, AND have engaged in some kind of fraudulent or misleading activity is selling you the timeshare, or if the property is not kept in the condition it was when you purchased it and you’re seeing a deterioration of their facilities, you can file complaints and/or leave bad reviews with the BBB.
And with the FTC (Federal Trade Commission), you can file a fraud report as well.
For that matter, if it is a US-based timeshare property, it’s worth looking at their BBB page for any timeshare-related customer complaints BEFORE you make your timeshare purchase.
You’ll almost always see some reports and bad reviews for almost any company. So look for a large number of complaints and bad reviews and see if there are any consistent themes in those.
However, many a timeshare agreement has been signed on a property in Mexico or other places outside the US.
In that case, complaining to a US-based company or government organization will not get you anywhere. So your best bet is to legitimate timeshare resellers or timeshare exit companies.
Is there a cooling-off period after buying a timeshare where you can cancel?
Many timeshare contracts do have a cooling-off period (often called a rescission period). This can vary but is most often between 3-15 days. So act quickly if you want to take advantage of it.
In theory, this allows you to cancel the agreement without any penalty. But in reality, even though this is in your contract, you’ll likely still have to hire an attorney and the process could take the better part of a year before you get your money back.
So it would be far better to never get into the agreement in the first place than to later try and get out.
What are timeshare exit companies?
Essentially this is a law firm that offers timeshare exit services. They help timeshare owners get out of their contract with the timeshare developers for a fee.
That being said, there are often just as many scams and consumer complaints about this industry as there are about timeshares themselves.
So do your homework before signing up with one!
Look at Yelp reviews and look at their BBB page. In most cases, there won’t be an exit program built into your contract. So the exit company would have to either bully the timeshare owner on your behalf or somehow prove fraud.
And in most cases, while timeshare buyers are often rushed to make a decision, they aren’t really being misled, and almost certainly not really a fraud victim.
These companies do often offer a money-back guarantee, or a guarantee they will get you out of your timeshare contract. And their large upfront fee usually ranges between $5,000-$10,000.
So depending on what your annual maintenance fee is, with a reputable company, it could totally be worth it.
— Linx Legal (@legal_linx) October 21, 2021
Do you pay property taxes on a timeshare?
As a general rule, property tax on a timeshare is included in the annual maintenance fee all timeshare owners pay and is not expected to be paid in addition to that fee. However, some timeshares do require additional payments of property tax and insurance, so make sure to read the contract before signing.
So make sure to ask and read the fine print.
The good news is that if your timeshare does require the owners to pay property tax and/or pay for homeowner’s insurance, you hopefully have a large number of timeshare residents that will be contributing equally.
But I also think about the issue of what happens in that scenario if someone (or multiple people) don’t pay or pay late. Seems to me the group responsible for paying would be liable anyway.
That sounds like a headache I don’t want.
So if I’m doing a timeshare (which I likely wouldn’t) I would absolutely only do one where some 3rd party handled that. And that way any deadbeat owners become their problem and not mine.
— Timeshare Hub (@timesharehub) September 9, 2019
Are timeshares cheaper than hotels?
If used every year, a timeshare can be more than $10,000 cheaper than a hotel over a 20-year span. And if the hotels being considered are more than $200/night, then the savings with a timeshare, if used every year, can be even greater.
But timeshares sometimes end up like the average gym membership; unused. In that case, it may not really be saving anything and could actually be costing more to do a timeshare.
Think about it.
If you only use your timeshare 60% of the time, then at best you break even over the cost of the hotel. And if you use it even less than that, you’re losing money. And that’s not taking into consideration what it may cost to get out of the timeshare.
Let’s take a look at some prices to get a better idea of the potential savings.
To timeshare or not to timeshare?
Ultimately if you are fairly well off and not naive enough to see this as an investment, and your life is flexible enough to go to the same place the same week each year, and you LOVE that place, then why not?
Or maybe you just want a place you can gift to family or friends and just it open for anyone of your choosing to use.
Those are all good reasons to buy one. But if you’re older, think about what happens when you pass away. You don’t want to burden your kids with a timeshare they don’t want or can’t afford.
And whatever you do, don’t think of it as an investment, or real estate.
While I have years of successful financial & budgeting experience and run several million-dollar businesses and handled the accounting, P&L and been responsible for the financial assets of them, I am not an accountant or CPA. Like all my posts, my posts are opinions based on experience, observations, research, and mistakes. While I believe all my personal finance posts to be thorough, accurate, and well-researched, if you need financial advice, you should seek out a qualified professional in your area.