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Having said all that, a time share can be a perfectly reasonable purchase -- if you stay informed. The basic idea is to buy a place that you'll want to visit every year or that is in high demand among other travelers. Time shares, like cars, sustain most of their depreciation early on. So you must expect to get value from your own enjoyment of a time share or in trade for other vacation spots, not from reselling it for cash.
To judge the merits of time shares, get familiar with the business. You should know that though many are deeded properties, others (especially outside the U.S.) are leases or right-to-use agreements, which don't give you permanent real-estate ownership. Also, vacation weeks come in three flavors: fixed (the same slot every year), floating (you can reserve different times in different years) and point-based.
Under point systems, which are used by several of the giant hotel companies that operate time shares, such as Walt Disney, Marriott International and Starwood Hotels & Resorts Worldwide, time shares have specific values depending on the location of your resort and the time of year you stay. You can use the points to stay at any locale and sometimes for airline tickets or car rentals, too.
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Also key: The trade value of your property will be determined by whatever time-share-exchange company is affiliated with your resort. That firm will handle transactions between your time share and others around the globe, usually for a fee of about $160 per trade. The two largest are Resort Condominium International, owned by Wyndham Worldwide, and Interval International, owned by InterActiveCorp. For more details on ownership, use and trading, buy Schreier's book and join the Timeshare Users Group, or TUG ($15 a year).
The keys to remember
Beyond learning about the industry, here are three rules to follow:- Skip the shtick. You don't need to go to a sales presentation to buy a time share. You can save 10% to 50% by purchasing a time share that's just a few years old. This also allows you to talk with actual owners of time shares, not just sales staff. So check TUG, your local real-estate listings and Internet auction sites for time-share resales.
- Pay cash or don't pay at all. Because time-share developers essentially will offer financing to anyone who walks through their doors, they typically charge whopping interest of about 16%. Paying that is like putting 20 years of vacations on a credit card all at once, which doesn't make sense. The average cost of one week of time share is about $16,000, according to the American Resort Development Association. If you don't have something like that amount of cash to play with, take annual vacations and stay away from time shares until you do.
- If the time share you're interested in uses a point system, make sure it's inflation-proof. If it takes 10,000 points to stay in New Mexico for a week this year, ensure that similar stays will cost 10,000 points again next year or that your points will increase by however much prices are going up. Some time-share operators lure buyers into a point system, then increase costs, forcing you to buy more points just to stay even with your original purchase. If you can't get a guarantee that your points are protected from such shenanigans, walk away.
Finally, keep in mind that if you find a sensible time-share deal, the decision to buy will be as much psychological as financial. If you like traveling to the same spot for a week or two every year, or if the idea of playing a vacations market appeals to you, you're a time-share person. If you enjoy booking trips without having to follow any set rules, or if your ideal getaway is a house in the woods that nobody else can touch, you're not.
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This article was reported and written by Peter Keating for SmartMoney.
Published June 5, 2007
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