Timeshares: Renting or Exchanging Your Unit

Renting Your Unit

Sometimes circumstances may prevent an owner from using his annual interval. Many times, the timeshare agreement will allow renting of the unit. It can be a way of recouping some expenses in lieu of a visit. Owners can rent their unit on their own or hire an agency to handle it. Rental agencies will typically charge a fee to list the timeshare and another fee to execute a rental agreement.

If you choose to have a rental agency, here are a few things to keep in mind:

Ø Commissions can vary between 20%-50% of the listing rental price, according to industry experts

Ø Agencies will typically charge a fee for listing and another fee to execute a rental agreement

Ø Nearly all states require a third-party agency to be licensed

Ø Experts recommend the following guidelines for choosing an agent in the US:

o 1^st choice – Licensed in your state and the resort is in the same state

o 2^nd choice – Licensed in the resort's state

o 3^rd choice – Licensed in your state

Renters must abide by the same covenants and restrictions as owners, and the resort must be notified about the rental, including contact information for the renters. Additional service or amenities fees are normally paid by the renters during their stay.

There are restrictions, such as the rental being subject to availability. For example, if an owner has deposited her week with an exchange company, an exchange member has priority over renters to occupy the unit. Also, if the timeshare is a floating week the owner must reserve his week prior to renting the interval.

A deposit is generally paid to reserve the unit, with the balance due shortly before the rental period. This deposit can be forfeited if the rental party defaults on the agreement prior to renting the unit. Disputes may postpone payment and are usually required to be resolved through an arbitration process. Renters are responsible for all damages caused during their stay. Some agreements require retribution directly to the resort, others directly to the timeshare owner.

Some owners choose to use a rental escrow service to conduct rental transactions. This third-party authority ensures that both the owner and renter each delivers and receives what they should. The agency should be bonded, insured and hold applicable licenses. Real estate title companies can sometimes perform this function. They will collect funds, distribute agreements, close the transaction and handle issues between the two parties. The fee for this service is paid by the owner or renter, and typically the service is completed within a few days following the rental period.

Timeshare authorities generally agree that the ability to rent a unit is a benefit of timeshare ownership (in the event a week will be unused). Some advise that owners can receive twice the annual maintenance fee for one rental week. But many caution that buying a timeshare in an attempt to make a profit is not prudent. Both the personal and monetary cost of renting a unit can sometimes overshadow the income you receive. However, you can create goodwill by offering it as a gift to a family member or use it as a reward to someone for accomplishing a goal. The bottom line is, according to experts, buy the timeshare because you will enjoy using it.

Exchange Your Timeshare

One of the most attractive features for owners is the ability to exchange your unit or interval for another. Vacationers can travel to different destinations each year if they choose. Exchanging – like renting – can be done directly between two parties or with the help of a third party. In order to engage an exchange company, an owner must pay a membership fee; in return she will have access to multiple resorts and intervals to choose from. Points programs and Right to Use agreements are specifically designed to allow exchanges.

Exchange Companies

Exchange companies arrange trades between multiple owners who commit their weeks by "depositing" the interval in a central reservation system. Resort Condominiums International (RCI) and Interval International (II) manage thousands of timeshare intervals all over the world. Most owners use one or the other to arrange trades, though there are smaller exchanges available. As mentioned before, the two big exchanges are affiliated with the most popular resort chains in the world. Policies and procedures do vary among exchange companies, so owners should examine the benefits and costs of several companies.

Most exchanges, including RCI and II, will conduct searches for desired locations and intervals. An equal swap through a third-party generally requires the trade to be "like for like" (for instance, one week during July at a coastal resort in New York for a week in January at a ski villa in Utah). The units to be traded must also be comparable in size and amenities. However, exchange companies will allow an unequal trade, if the owner desiring an upgrade pays an additional fee or contributes additional points from his program.

Requests are filled on a first-come, first-served basis, so experts advise owners to do three things when requesting an exchange through a third party:

1. Deposit Early – As soon as you can, contact the exchange company and deposit your interval. Remember that floating week or RTU owners must reserve their week prior to depositing.

2. Request Early – The sooner you make a request, the better chance you have of landing your desired trade. Most exchanges have policies which restrict the amount of advance notice you can give, but owners are advised to make their request as soon as they determine travel plans.

Interested in learning more? Why not take an online Timeshare Basics course?

3. Be Flexible – When making a request, give the company three to four choices for them to search. If you can be flexible, you'll have a greater chance of getting an attractive location.

Bear in mind that exchanging occurs on a supply and demand basis. As mentioned before, most vacationers travel within peak seasons, so if you desire a Gold Star beachfront resort during the Fourth of July holiday, you will be requesting against many other owners. On the flip side, if you own an attractive timeshare, you would be eligible to request from a larger pool of deposited units – including the most demanded timeshares. The ability to trade for popular or five-star resorts usually depends on the location and interval you own. If your timeshare is a three-bedroom, three bath villa in an exclusive resort on Florida's coast, you likely will have great trading power when it comes to exchanging.

Note: Your deposited unit does not have to be requested in order for you to have your request fulfilled.

Other Exchange Considerations

Exchanging timeshares offers a different dimension to this vacation lifestyle. For a relatively small cost, owners can "taste" different resorts and still have a home resort to come back to next year. Though there are many considerations to exchanging (and we encourage you to investigate as many as possible), here are a few common aspects to think about:

Timeshare Exchange Values

The value placed on deposited weeks is affected by the unit's location; the season, length of stay and weekly interval; the resort's rating; and demand for the unit.

Inflation Protection

Usually exchange values are associated with the listings. These values typically decline over time. For example, a six-night stay in Napa Valley, California might cost 100,000 points this year, but those same points only allow an owner to stay for five nights next year. A buyer can purchase protection that ensures the values will increase accordingly for a specific period of time.

Internal/External Exchanges

Most resort companies offer internal trading between units on properties owned by the company. Many allow external swaps with other resorts. Again, these are offered on a first-come, first-served, supply and demand system.

Fees

Membership rates vary. For an RCI annual membership, expect to pay around $90, for II the cost is closer to $80. In addition there is a fee for each exchange made, which can cost between $120 and $160 per domestic (US) exchange and between $150 and $190 for each international swap.

Request Fulfillment Priority

Exchanges typically use the following priority structure for fulfilling requests:

1. The quality of your home resort

2. The demand for your resort

3. The demand for the geographic area your resort is located in

4. The demand for your weekly interval

5. The size of your home resort unit

6. The date of your timeshare deposit

Guest Passes

Most exchanges allow owners to release their request to guests. You may also bring as many guests as the facility allows. There are usually additional fees for this privilege, ranging from $30 to $60.

Sometimes owners make the decision to sell their timeshares. Reasons often include changing vacation tastes or needs, increasing annual expenses or poor financial conditions. Some advise that buyers seriously consider future expectations before purchasing. This includes an expectation of owning the unit for at least five to ten years, or until the payment period ends if financing is used.

Most credentialed, trustworthy timeshare professionals advise that buying a timeshare with the expectation of a profit upon selling it is foolhardy. Because of the ever-increasing inventory of packages available – and most times there are more sellers than buyers – owners don't always make money on their investment. The Federal Trade Commission strongly urges buyers to purchase if the intent is to hold it as a family "heirloom." Generally speaking, only those who hold coveted packages (peak season at the most popular resorts) will see any return on their purchase.

Owners may sell their units themselves or hire a professional to do so. Keep in mind, deeded property is handled like any other real estate transaction, including a closing. Most states require the professional to be licensed to act in a real estate-related capacity. (Remember to prioritize your choice as we discussed in Module X.) There are several online agencies that can list the property and execute the sale, and there may be local title companies, real estate attorneys or realtors who can handle your needs. Many times, the resort itself will resell the unit. As with any important transaction that you enlist third-party assistance, research that agent thoroughly. Examine its history; perhaps talk to some owners with listings and check with the Better Business Bureau or state Attorney General's office for any complaints against it. Above all, avoid paying up-front fees, but if you must, ensure that there is a refund if the agency does not perform appropriately.

If you do decide to sell it on your own, timeshare experts suggest the following guidelines:

1. Know what you have. Make sure you know the value of your timeshare against others, especially those currently listed for sale. Create a list of attributes your timeshare has, such as season, location, unit size, amenities, etc. Then search through comparable listed properties online and examine how your timeshare compares to them.

2. Check for restrictions or covenants. Review with the resort and/or homeowner's association any selling requirements, restrictions or fees that may affect your situation. One common caveat that resorts include in membership agreements is the Right of First Refusal (ROFR), whereby the resort can purchase the unit before the general public.

3. Establish your price. Once you've compared your unit, choose a price that falls within the range of similar properties. Don't be upset if the price doesn't allow a profit; make sure you can unload the package at a fair price, because this should attract the most buyers. Bear in mind that prices are regularly negotiated downward – not upward – so do not start with the lowest acceptable price, unless you're in a hurry to move your timeshare.

4. Gather important information. The FTC recommends sellers obtain the following information to when listing:

a. Name, address and phone number of the resort

b. Deed information and membership agreement number

c. Financing contract, if a balance remains

d. Information that discloses your interest or membership

e. Exchange company affiliation

f. Amounts and due dates of ongoing fees, such as the maintenance fee

g. Real estate tax information

5. Get an appraisal. If your interest is encumbered by real estate, you may want to obtain an appraisal by a licensed timeshare appraisal service.

6. Market, Market, Market. The ARDA recommends that you post your listing wherever you can, including popular websites, blogs, travel magazines, etc. Hang a flyer on bulletin boards at work, church or local businesses. The more people who know about your listing the greater your chance of selling.

7. Be willing to negotiate. As with most real estate transactions, a timeshare sale can be a negotiating process, requiring flexibility, consideration and humility. Don't be stubborn about the price or a circumstance of the sale as it may cost you the sale. Remember, you are likely selling to unload this extra "burden," so manage your role so that you achieve the sale!

Other Options

There are a couple other options to selling, if the environment is not good for a sale. When the real estate market is down, or if the economy is struggling, timeshares typically suffer accordingly. Owners might consider renting the unit or donating the package. Let's look at the advantages of both:

Renting

Renting your unit can provide annual income to offset maintenance fees, taxes, etc. It allows you to hold onto the property through a downturn in timeshare values or your financial situation. Renting can also provide an offset while you continue to pay down the financing, so that – when the balance is paid – you can be in a better financial position.

Because there are always infrequent vacationers looking for locations to go to, renting out your timeshare can appeal to that set of travelers. Also, if your unit is near a convention hall, large corporate building or similar business function facility, your unit could be appealing to traveling businesspeople.

Even with the costs of listing your unit, a decent rental income may bring in more (over a long period) than a sale at a loss.

Donation

Many charities and promotional companies will accept a timeshare donation. This can be a good option if you contribute your unit for benevolent reasons, not to gain a tax advantage (consult with a tax professional). An owner could donate the right to use his interval on a year-by-year basis. For example, he can donate his 2009 interval to a local raffle one year and the 2011 interval to a Make-A-Wish charity the next year. This way, you can continue to hold onto your vacation spot through difficult times and enjoy it again when circumstances get better. There may be restrictions on these practices, but investigate what your resort or timeshare company allows.

Or an owner can donate the entire package to charity. If circumstances require a sale but his attempts to sell are unsuccessful, his agreement may allow transfer of ownership to an organization; however, not all resorts allow this, so, again, check out any restrictions the resort or homeowners' association imposes on property transfers. This form of donation may enable the owner to claim a charitable deduction

Before donating, collect the important information discussed above before offering the timeshare.

If neither of these options is appealing, an owner may want to consider ways of making the sale more attractive, such as trying to get a deal on available weeks adjacent to her interval then selling the longer package. (This, of course, requires another purchase and associated fees.) Offering creative financing options for buyers may also help speed the sale. The trick – say the experts – is to make your unit as inviting to as many people as possible.

Finally, when considering if it's time to sell your timeshare, think back to when you purchased your package. Think about why you bought, why you picked this timeshare and what benefits it has provided over the years. Owning a timeshare can be a wonderful way to explore the world or enjoy your favorite "paradise," but ownership is not for everyone. As with owning a luxury car, boat or a recreational vehicle, there are benefits and pitfalls to ownership of this asset, but in the end, your timeshare should bring you fond memories of vacations throughout your life.

The Bottom Line

When you factor in the purchase price, financing costs, fees and assessments, taxes, covenants and restrictions, travel expenses, ownership rights and obligations, and any other aspects of owning this commodity, does it make sense to "buy" your vacation this way? Or would you be better off "renting" your vacation year in and year out? A timeshare purchase is an individual choice. If owning one would fit your lifestyle for the long run, then start looking into your favorite spots – and see if there are timeshare opportunities available.