There are a few choices available for prospective buyers. Remember, the savvy buyer will always check out his options before committing to any agreements. The three main funding alternatives are:
1. Traditional Lenders – Banks, credit unions and other financial institutions will lend money for timeshare purposes; however, because the loan is rarely secured with property, rates are generally higher than mortgage notes. Some banks simply won't finance timeshares. But many will provide a personal loan for a borrower, again with little or no collateral required but with higher rates attached.
2. Developers, Management Companies, Third-Party Lenders – Many times resort companies will offer financing or recommend a specific lender they work with. If the company will self-fund the loan, it can be convenient for the buyer to deal directly with them. Third-party referrals will likely be attractive as well, because they usually have a history with the developer or the property. The trade-off for this convenience, however, is paying a higher rate than traditional lenders. It is important to research these lenders just as you did with the developer or operator of the timeshare. Ensure that the institution can withstand financial downturns, so you don't get caught having to pay the loan off early. Also, interest rates can be significantly higher than traditional lender rates, sometimes higher than credit card rates.
Owners must traditionally contribute at least 10% toward the purchase price in order to obtain financing. According to a 1997 survey conducted by ARDA, roughly four out of five resort developers required a minimum of 10% down. If an owner pays more up front, experts say, they put themselves in a better position if it comes time to sell (discussed in Module 11), as they traditionally receive less than what they paid for the timeshare. The less you owe on it, the lower you can set your resale price and still cover your outstanding obligations.
Timeshare financing is usually done with fixed-rate loans, and rates are higher than average home mortgage rates. The ARDA survey also revealed that half of the respondents claimed charging rates of 13-15%, with some higher than 17%. Repayment periods are generally shorter, more in the four- to eight-year range, rather than the traditional 15-plus year loan periods.
The good news is: there are rarely prepayment penalties for early payoff. Many times you can repay the loan with an equity loan or second mortgage on your home. The earlier an owner repays the loan, the quicker the savings over traditional vacations are realized.
As with any purchase, buyers should review all documents and clearly understand all fees, rates and repayment terms contained within. If possible, have a qualified professional review any documentation.
There are some general guidelines to keep in mind:
Ø Property Taxes
If you hold a deeded timeshare, you will generally pay property taxes on your home unit. Many times this will be included in a maintenance fee. This occurs when the facility is billed from its municipality, but each timeshare owner is assessed individually. Sometimes a timeshare owner will be billed directly. Other times, when the property is assessed as one tax parcel, the facility owner will bear the tax burden, and owners will have no property tax to pay. In these cases, owners are not eligible for tax deductions on property taxes paid. Municipalities vary in assessment procedures, so check with your local tax finance authorities and the operator to determine your obligations.
The maintenance fee owners pay is generally not deductible. However, the portion of your maintenance fee allocated to property taxes is deductible on your tax return, if the timeshare qualifies as a vacation home according to the IRS and the taxes are itemized on your monthly invoices. Utilities, special assessments and service charges are not deductible, however. Also, RTUs or vacation plans (points program) are different, because they are considered personal property and require no property taxes, so owners aren't responsible for property taxes. In any case, if property tax expenses are not clearly defined (as in a tax bill or timeshare statement), owners are not eligible to deduct the expense.
Ø Mortgage Interest Charges
Many owners finance the purchase of a timeshare. With prices averaging $18,000, it is no surprise that buyers obtain loans or mortgages to defray the upfront cost. When the timeshare is deeded, the IRS allows for interest paid on the loan to be deducted against income taxes. There are restrictions, however. For instance, filers are only allowed to deduct interest expense on two homes: your primary residence and one additional vacation "home" per year. Even if you have no interest expense on your primary house, you can only choose one other loan from which to deduct the expense. Additionally, if you have loans on more than one timeshare, you are eligible to deduct interest on only one.
In order to deduct interest expenses, the loan must be secured by the financed property. If you pay any portion of the purchase price with secondary credit, like a credit card, that portion is not eligible for a deduction. Points programs also do not qualify for the deduction, as there is no real property to assess. Owners who finance through developers often find they are ineligible for this deduction because the loan is not secured by the property.
Ø Renting Your Unit
Tax laws generally prohibit rental losses. If your expenses outweigh your income, you cannot claim losses if rental periods are seven days or less. Since your interval is typically seven days or less per year, you're unable to claim a loss.
Resort Management CompaniesOnce properties are operational, developers may engage a timeshare management company to run the day-to-day functions at the resort. Many development companies have their own management arm, so if a buyer purchases an undeveloped unit, there is a seamless transition once the building is opened. If issues arise regarding a unit, the management company handles the situation.
Timeshare Sales Agents
There are several agencies with an online presence, so buyers and sellers can broker a deal without sitting down with a sales agent. Some have long histories in the business; if an agency does not have a lot of experience, make sure to investigate the agency as much as you can. Though the industry has improved its image, and most agents and developers are reputable, there still exists a small percentage who use unethical – and potentially illegal - tactics to get you to buy. Most traditional real estate brokers will not list timeshares; however, some may list deeded properties.
· advocacy regarding legislative and other issues
· networking among members
· business partnership/bridge-building with related or complementary industries in the US or overseas
· providing outreach and knowledge sharing with audiences of all types
· providing education about timeshare legal, governmental, ethical and other issuesThere are some resources which can be helpful in the research you conduct. The group holds regional meetings and an annual convention. Though most members appear to support resort owners and management companies, as a timeshare owner you may be eligible for some protections and rights that the organization has backed.Exchange Companies
RCI handles exchanges among Wyndham, Fairfield and Trendwest properties. It is the oldest and largest exchange company in the world. Agents deal with over 3,000 resorts in 85 countries, according to industry sources.
II manages trades between Marriott, Carlson and Hyatt resorts. Founded in 1976, it is the second oldest agency and now serves two million members. The company website states that II works with over 2,200 resorts worldwide.
As a growing number of owners sought alternatives to dealing with only two companies, several independent operations opened during the late 1970s. The flexibility of trading among unaffiliated resorts - along with dissatisfaction with the policies and fees of the "big two" – made independent exchanges attractive to owners, so more small exchanges have been opening over the past fifteen years.Exchange companies do not own the properties they deal with. They manage a bank of "deposited" intervals at various properties, among which owners may choose to stay at instead of at their own resort. The company is basically a computerized reservation system. This service requires a membership fee and is considered a separate purchase when you buy your timeshare. We'll discuss exchanging in detail in Module IX.
The Internet provides an uncensored media environment, where owners, experts and timeshare professionals can voice their concerns, complaints and observations. Several sites host forums to stimulate discussion, while several weblogs ("blogs") exist primarily to discuss timeshare ownership. Many times you will learn firsthand what other owners are experiencing, and a buyer can ask questions online.
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