The concept of sharing ownership in a space for vacationing purposes can be traced back to the 1960s in Europe. Swiss and French resort owners sought a unique way to market their properties and tap into the growing travel class which exploded due to increased airline flights. One eager resort owner coined the phrase "No need to rent the room; buy the hotel, it's cheaper."1
In the US, timesharing was first introduced in 1969 on the island of Kauai in Hawaii. A short while later, Florida became the first state in the continental United States to offer time share rights. Most of the first timeshare agreements were leasehold arrangements, whereby the lessee obtained occupying rights for several decades (typically 40-year increments). The industry has expanded to include other assets like boats or planes.
Condos – Individually owned units within a single residential building
Houses – Single family homes, cottages, or townhouses
Condotels – Hotels (typically high-rise buildings) that offer individual units for sale. Each unit looks identical, and owners receive the benefits of a full-service hotel.
Private Residence Clubs – High-end residences typically in luxury developments offering extended stay rights through fractional ownership. Fractional ownership requires a buyer to purchase longer intervals (a few weeks to several months) and involves more personalized amenities.
Boats, Planes, and Other Assets – Though rarer, luxury items can be shared through similar agreements as real estate properties.
Unit sizes can range from studios to three-bedroom suites. Resorts offer varying degrees of amenities; some of them come with an extra charge. These properties are designed for vacationing families, so you can get the perks of high-quality hotels combined with the convenience of larger accommodations.
Timeshare property developers (operators) will sometimes sell weekly increments before construction has been completed. This assists their financing efforts. You should investigate potential properties before committing to an agreement. Though the comparable living spaces will be typically identical, make sure you have a good idea of what you are buying if you cannot visit the site. Depositing down payment funds into an escrow account can help protect you from disreputable developers in case of default.
As we'll discuss in detail in Module V, the purchase price is not the only cost associated with a timeshare purchase. Maintenance fees, transfer fees, recording fees, and assessment fees are additional costs you will need to pay, and most maintenance fees are adjusted according to inflation. Check with individual properties for exact rates. You will need to pay for the privilege of exchanging your timeshare with others as well.
Point systems are set up by developers to determine values when owners swap units for different locations or intervals. Points can cost extra if you are "trading up" for a more popular week, larger accommodations, or a more popular location.
If used over a long period, timeshares have been shown to drastically cut vacation costs. Four- and Five-Star accommodations can be bought at a fraction of comparable overnight rates. You will not see those savings however, until the principal amount is paid off. Some experts advise buyers to pay for the entire purchase up front. Others recommend defraying costs over time. Keep in mind that you will be occupying this property for only a week (or a few) out of the entire year. When you finance the purchase, you'll be paying each month. For some, that is a difficult pill to swallow.
Before You Buy
How do you choose which timeshare is best for you? First, you must determine three things:
1. Where would you like to vacation? Do you have a favorite spot? Is there a dream location out there? For reasons detailed later, you should only choose a property that will fulfill most, if not all, your preferred recreational activities.
2. How much are you willing to spend on this personal investment? Do you want to finance the purchase? You will want to calculate all the costs and terms associated with this venture.
3. When do you want to vacation? Do you want the same time each year? Will you travel for one week or more? If you have a vacation history, examine the times you have gone; unless there are changes to your work or lifestyle, these will likely be the times you will continue to take a holiday.
Know exactly what you desire in options before you buy. Include the amenities, local entertainment, food sources, attractions and other aspects of vacationing that you value. Create a list of desired attributes about your vacation destination choices. Remember past trips and mark down your favorite activities. Use this checklist when you investigate listings at your chosen location(s).
While researching, ask the following questions:
Ø Does the resort provide security? Does it maintain security personnel?
Ø Does the package include additional services or amenities (golf, sailing, etc.)? Is there a fee involved? Is it optional or mandatory?
Ø Does the facility and location fit your vacation lifestyle? Do the amenities meet your recreational habits?
Ø Does the resort carry awards like Gold Crown or Five-Star?
Ø What are the prime periods at the facility? (We'll discuss this in Module VI.)
Ø Can you bank unused intervals for future use?
Ø Do your ownership rights transfer when sold?
Once you have answered all these questions, create a chart with headings that include:
PROS & CONS
Enter the findings from your research. You can use the chart to do some comparison shopping. Consider as many pros and cons of each option as you can. If the location and accommodations are all comparable, you will likely use cost as your primary criteria.
In calculating the total costs of a plan, include your financing expenses, closing costs, broker commissions, travel costs, program fees, taxes and other fees required to obtain the package you want. Some fees will probably increase, so investigate historical changes and ask if there is a fee cap available. Keep in mind, you will pay annual fees and associated taxes whether you use your interval or not.
You may also want to compare your costs against renting at the same location for the same time period. If you are not convinced you'll use your unit year after year, consider available rentals on the property.
Narrow your search to a list of two or three favorite choices. Now check out the companies behind these operations.
· Do they have a strong track record with their developments?
· Are they financially sound? If they declare bankruptcy, would your investment be protected?
· What is the current maintenance budget for the property? What are management's policies?
· Are there complaints against the management company or resort developer with the Attorney General, Better Business Bureau, Federal Trade Commission or other consumer protection officials.
Once you have gathered this information, you are ready to make an informed choice.
Where Do I Find Timeshares?
There are several options to use while searching for your timeshare. From resorts to developers to intermediaries, you have a range of sources to choose from. Industry experts advise prospective buyers to deal only with reputable, well-established outfits or, if possible, with timeshare owners themselves. The ARDA publishes a Code of Ethics which guides members and industry professionals, but not all companies abide by its standards. You should be able to find appropriate entities through your research.
Timeshares can be sold by retailers (resorts), intermediaries (real estate brokers or resellers), or owners. Module VII discusses some important names to know in the industry.
Keep in mind that deeded timeshare ownership carries with it the same legal obligations as traditional real estate. There are also vacation plans available that do not represent a legal interest in a property, rather you own a membership that allows you similar occupancy rights as a deeded agreement. We'll cover legal issues in Module IV.
If you fit the qualifications (like being married) of resorts or development companies, you will probably receive a phone call or flyer indicating that you've won a fabulous prize – if you'll just come by and listen to a great opportunity. You will be invited to a presentation, which involves other prospects. Timeshare promotions often include gifts, food and drink, and other amenities. While you are there, you'll meet with salespeople and go through an interview about your travel habits.
Often, you can feel pressured at these events. Purchasing incentives may be offered, limited time offers might require immediate agreement. But don't buy on impulse or under pressure. Make sure you understand all the obligations and responsibilities attached to the agreement. Remember, you are under no obligation to sign any contracts at that time. As with any large purchase, this should not be a hurried decision.
Some developers and resorts will offer special promotional offers, called "fly bys" or "mini vacs." The company will invite you to visit for free or very inexpensively in exchange for attending their presentation. If you do travel there, make sure you do the following:
1. Evaluate the appeal of the location, the surrounding area including attractions, the accommodations, the staff, and any criteria that is important to you. Does the location provide many of your recreational preferences? You will likely visit this place for a long time, so make sure you're comfortable with your decision.
2. Learn about maintenance fees and other expenses. Maintenance fees should cover, cleaning, landscaping, upkeep and certain repairs, utilities, and other physical necessities. Question other owners and listen to their experiences. Also consider local expenses if you plan to sample nearby sights and sounds. Make sure you know all of the additional costs that come with staying at possible locations.
3. Keep travel expenses in mind. Determine if your weekly interval takes advantage of airline deals or other cost cutting promotions. If you are planning on purchasing a floating schedule, investigate potential travel expenses for your preferred times.
When attending promotional events, make sure promises that are made during any part of the process are written into the contract. Above all, experts agree that you should not sign a contract the same day as the sales pitch.
There are people who will accept vacation prizes repeatedly to get free trips. They will listen to the sales pitch and endure the high-pressure questions in exchange for cutting their vacation costs. Most resorts have methods of detecting these "mooches."