A Little Slice of Paradise

The people who sell timeshares have perfected the art of pitching paradise. They paint enticing pictures of dream vacations framed with special deals and "if-you-act-now" incentives. They make timeshares look so irresistible, even the most resolute tightwads have trouble not prying open their wallets. But be strong. If you are considering buying a timeshare, here are four things you should think about before you buy to keep trouble out of your little slice of paradise.

Do your homework

If you are considering buying a timeshare, skip the free dinner or teaser vacation deal and take time to learn as much about a particular property as you can.

You can get a lot of information about service quality and user experience from sources such as Redweek.com, Top10Reviews.com, and TimeshareAdvisor.com. Personally, I have found the Timeshare Users Group to be particularly helpful. Their website is old-school, but the information is timeless--especially the questions and comments in the user forums.

Another good source of information is RCI, one of the timeshare industry's leading exchanges. RCI uses the feedback from member comment cards to score affiliated resorts on specific quality measures. If resorts surpass the appropriate score threshold, RCI recognizes them as Gold Crown, Silver Crown or Hospitality. If they do not qualify for one of these categories, they remain unrated. More information on RCI ratings can be found here

Service quality is important, but as an owner you should also be concerned about the operational health of the property. An unhealthy property heading toward bankruptcy can bring headaches and surprises to the unsuspecting timeshare buyer, so learn all you can about the property's financial strength and the quality of its management. This can be difficult. I called several timeshare companies in the course of writing this post and none was willing or able to provide basic information such as financial statements, HOA bylaws, or information about the board of directors. I understand that I am probably a bit more compulsive about those sorts of things than the typical timeshare buyer, but I would be leery about taking an ownership stake in anything without first understanding its financial situation.

More than a vacation

Owning a timeshare, like any property, involves taking responsibility for ongoing expenses. Usually, when you buy a timeshare, you buy a deeded stake in a resort condominium. If you buy one week, you own 1/52 of the condo. Ongoing decisions have to be made about property maintenance, repairs and improvements. Property taxes have to be paid, along with managementfees, insurance premiums and utilities. Your timeshare will have a homeowners association with a board of directors to look after these details to to make decisions related to the property. The quality ofthe board will largely determine the quality of your ownership experience, so take time to learn how it is organized and held accountable for its decisions.

In most cases you will get two annual bills: one for maintenance fees and one for property taxes. From time to time, you may also get special assessments.  Factors that can lead to special assessments include the age of the property, the level of past-due maintenance fees, and damage from storms and other natural disasters.

Maintenance fees are a big deal with timeshare ownership. According to the 2012 State of the Vacation Timeshare Industry  study conducted by Ernst & Young and commissioned by the ARDA International Foundation, the average annual maintenance fee for a two-bedroom timeshare unit is $909 and has grown at an average annual rate of 9 percent since 2005. After property taxes, a timeshare owner is likely to spend $1,050 per year, or $150 per night, for the use of a two bedroom unit. Before buying, it would be wise to ask yourself if $150 per night is a good enough deal, relative to other vacation options, to make it worth locking yourself into an annual maintenance fee.

As you consider the prospect of paying maintenance fees, keep in mind that circumstances in life have a way of changing. What may seem like a relatively small fee today can become a serious burden in retirement or if you become ill. Unfortunately, maintenance fees continue regardless of your changed situation and selling a time share to get out from under the maintenance fee is not always easy.

Certain as death; more certain that taxes

Timeshare owners soon discover that the old saying about death and taxes also applies to timeshare maintenance fees—only more so.  Death will relieve you of some taxes, but it will not relieve your estate or your heirs from timeshare maintenance fees. They are relentless. As soon as you buy a timeshare (or inherit one), you are obligated to pay maintenance fees and any other assessment levied by the board of directors. This obligation continues as long as you own the timeshare, whether you use it or not.

Dying with a timeshare in your estate can give rise to some complications. Leaving your timeshare to your heirs means you also bequeath to them the obligation to pay the annual maintenance fees. An heir can disclaim the inheritance, but the estate is still liable for the maintenance fees. Since the executor of an estate is responsible to pay all claims on an estate before a final distribution of the assets, settling the estate may be drawn out until the disclaimed timeshare can be sold or given away. With these complications in mind, if you have a timeshare in your estate, you may want to have a conversation with your heirs regarding how inheriting the timeshare might complicate their lives.

No easy exit

Getting rid of an unwanted timeshare can be difficult. If you want some fun, do a search on eBay for timeshares for sale. There are always several listing of people trying to dump their timeshares for $1. Generally, these are lower quality properties, but even properties from high-end developers like Four Seasons and Marriott often resell well below the developer’s price. (With this in mind, consider carefully whether you really want to buy a timeshare directly from the developer. You can usually do much better buying from a current owner.)

The difficulty of unloading a timeshare has given rise to a number of scams. Resale fraud is rampant. For example, many would-be sellers have paid unscrupulous agents significant upfront fees only to find their timeshares were never sold and they couldn’t get their money back. The Federal Trade Commission, together with several states’ attorneys general and law enforcement agencies in several foreign countries, have cracked down on timeshare resale fraud. You can read about that and other aspects of timeshare ownership on the FTC website.

Conclusion

While timeshare ownership can be an attractive way to buy into vacation property, there are many potential pitfalls with timeshare ownership. Take the time to learn what you are getting into before you buy. Avoid high-pressure sales pitches and do your own research. Think carefully about what it means to own a property and the responsibilities that come with ownership including potential future obligations. Consider how a timeshare might complicate the settlement of your estate and discuss with your heirs how inheriting a timeshare might complicate their lives.