| What is a timeshare? |
|---|
| A timeshare is when multiple individuals collectively invest in and share the use of a vacation property, often in hotels or resorts. |
How do timeshares work?
In a timeshare, multiple individuals (usually up to 52) collectively invest in and share the use of a vacation property, often situated within hotels or resorts. Each timeshare owner is allocated a specific number of days or weeks to use the property each year. Unlike a vacation club, co-owners of a timeshare are typically limited to a single property.Timeshares operate on fractional ownership, where individuals secure the right to use a specific property for predetermined durations. Essentially, if you invest in a timeshare, you acquire the right to occupy the same accommodation, like a hotel or resort unit, for a set period each year. It's crucial to understand that with timeshares, you will purchase usage rights rather than actual property ownership. For instance, if 52 parties invest in one unit, each party typically gets usage for one week annually.Real-world timeshare example
Let’s say your family buys a timeshare property in Los Cabos, Mexico, for an initial cost of $25,000 and an annual maintenance fee of $1,300. In this example, the contract states you’ll have two individual weeks to enjoy the timeshare throughout the year.If you vacation there for 10 years straight, you’ll have spent $38,000 ($25,000 initial cost + $1,300 annual fee x 10 years) plus any additional maintenance fees. Divided across 140 nights (14 per year), that adds up to $271 per night, which may be cheaper than the cost of the room if you book on the resort’s website. The potential savings via a long-term contract are why some people find timeshares so appealing.
Types of timeshares
There are a lot of timeshares out there, and not all timeshares or timeshare alternatives are structured the same. Here are the two main types of timeshare contracts.Shared deed timeshares
Transferable co-ownership for lifeShared deeds divide ownership into smaller parts that reflect how long you can stay. A timeshare that’s divided into two-week stays would have 26 simultaneous owners, and it’s not uncommon for deeds to have a 52-part split, one for each week of the year. Shared deeds lock you in for life and can be passed on to family or sold. The majority of timeshares are deeded.Shared lease timeshares
Limited-time right to use contractShared leases are like an apartment you’re paying to stay in a few weeks out of the year, but you commit to a certain period. The kicker here is that you don’t get a deed because you’re only leasing a specific time at a property. You’ll still share it with many other people — typically 52 families, including yourself.
How timeshares are split
Now that you understand how the two types of contracts work, let’s look at the three main ways to divide time for timeshare properties. To avoid a vacation home mistake, be clear about the terms and conditions of your property access. Here's what to consider:- Understand the product: Know the exact type of timeshare you're being offered and learn about industry rules and regulations.
- Get clear terms: Ask for a concise, easy-to-understand outline of the purchase terms.
- Assess the property: Look for signs of good property management and well-maintained facilities. Review the resort's annual budget.
Fixed weeks
Fixed weeks mean you’re locked into the same week every year (say, the third week in April). While this offers the predictability of always having your vacation secured at a specific time, it also means your travel dates are rigid. Changing your fixed week usually comes with a hefty price tag in the form of an upgrade fee, if it's even possible, making it less flexible for those whose schedules vary from year to year.Floating weeks
Floating weeks let you choose your week seasonally. This offers more flexibility than a fixed week, since you're not tied to the exact same dates every year. However, that flexibility comes with a trade-off: floating week systems are very competitive among timeshare owners, and the best slots during high season get snapped up quickly. You'll often need to book far in advance to secure your preferred dates. If keeping your average vacation cost low is the priority, consider choosing a slot during the low season. It will be easier to book, but you might also find fewer crowds and a more relaxed atmosphere.Points system
Some timeshare properties operate with a points system, similar to an airline. You “pay” for your stay with points, giving you greater flexibility in how you travel. This means you're not restricted to a single property or a specific time slot each year. Choosing an off-season, weekday stay or downgrading to a smaller room may cost fewer points overall, allowing you to stretch your points for more frequent, shorter getaways or save them up for something bigger. By contrast, you can also use points to upgrade components of your vacation, such as getting a bigger room or a better view — or even enjoy another second home destination via a timeshare exchange program.How much does a timeshare cost?
A timeshare's cost involves two main components: an initial purchase price and ongoing annual fees.The initial cost to buy a timeshare is more than $20,000, though this can vary significantly based on the property, location and the specific contract terms.In addition to the upfront payment, you'll be responsible for annual maintenance fees and any other charges outlined in your contract for the lifetime of your timeshare. These fees cover essential expenses such as maintenance, utilities and property taxes. They average around $1,300 per year and are mandatory, regardless of whether you use your allocated days at the property each year.Timeshares vary in format, ranging from fixed-week to floating-week systems, and this can also influence the overall costs associated with them.Be sure to check the terms of your timeshare contract before signing. This document should outline all of the one-time and ongoing costs, including:- Initial purchase price
- Closing costs
- Maintenance fees
- Transfer fees
- Property taxes
Financing a timeshare
Banks usually don’t loan money for timeshares, so buyers have few financing options other than the timeshare company itself. Little competition means some timeshare companies use high-pressure sales tactics on potential buyers, plus 14-20% interest rates — way higher than most second home loans on the open market.This can significantly increase the overall cost of a timeshare, making it crucial for potential buyers to scrutinize the full financial commitment before signing any agreements. You might consider using a second home mortgage calculator to compare potential costs.Pros and cons of timeshares
You may fall in love with timeshares because they’re in destinations with lots to do. Some timeshares allow you to trade locations with other owners, use some of your nights to explore somewhere new or let your friends and family members use your nights. Unfortunately, timeshares also have quite a few detractors. Annual fees and special assessments can be expensive, and if you decide it’s no longer the right choice for you, timeshares can be hard to sell on the secondary market. The timeshare industry also gets a bad rap for pushy sales tactics. Timeshare ownership also sidesteps most of the fiscal advantages that owning real estate normally brings, like equity, tax deductions or rental income.| Pros | Cons |
|---|---|
| Access properties in great destinations | Expensive annual fees |
| Only pay for the time you use | Pushy sales tactics |
| Point systems with unique perks | Difficult to sell |
Exiting a timeshare
If a buyer eventually decides to sell their timeshare, the likelihood of recouping the investment and yearly maintenance fees is incredibly low. Supply and demand are way out of balance, with 201,600 timeshare units on the market at 1,541 resorts in the United States, with more added each year. The market is flooded with owners looking to pass their timeshare (and annual maintenance fees) on to someone else.The second home difference
One of the main reasons people choose a timeshare over another type of getaway — like buying a second home — is cost. The price seems like a bargain compared to a home purchase. When you add in a resort timeshare’s ever-increasing fees and limited access, many owners find it’s not such a bargain after all.Although owning multiple homes can be costly, true real estate property ownership moves in value with the market, so any equity realized is yours. If the cost of second home ownership is out of reach, consider co-owning a second home.With Pacaso co-ownership, you enjoy the benefits of second home ownership without the hassles. Unlike timeshares, a Pacaso is a fully managed vacation home with a property-specific LLC controlled by the two to eight co-owners of the home. Costs flow through the LLC, too, so you’re not subject to hidden fees.Here’s one last major difference: You’re guaranteed far more than a week’s stay — on average, owners of a 1/8 share in a Pacaso stay at their homes six or seven times a year for about a week at a time. And should you decide to sell, you can sell at any time, at the price you set. Learn more about how co-ownership of a second home works with Pacaso and how it differs from a timeshare, then find your dream second home in your favorite vacation destination.Timeshares FAQ
01: What is the difference between deeded and leased timeshares?
Owners of a timeshare without a deed cannot pass down the property to loved ones. This means that upon the owner's death, the timeshare interest typically reverts to the developer or management company, rather than becoming part of their estate.
02: Do you own anything when you have a timeshare?
Whether you "own" anything with a timeshare depends on the type of timeshare. With a deeded timeshare, you do own a fractional interest in the physical property itself, similar to real estate. However, with a "right-to-use" or leased timeshare, you only own the right to use the property for a specified period, and the developer retains the actual deed.
03: Do you ever pay off a timeshare?
While you can pay off the initial purchase price of a timeshare, you will almost always continue to pay annual maintenance fees and potentially other assessments for as long as you own it. These ongoing fees mean a timeshare is rarely "paid off" in the same way a traditional mortgage or car loan is.
