What Is a Timeshare? Pros and Cons of Timeshares

A timeshare is a piece of real estate that has fractional ownership or usage rights. Timeshare owners share the rights to a property with multiple co-owners. As part of their purchase price, the co-owners reserve a period of time in which to occupy the timeshare. For instance, if a buyer wished to purchase two weeks of annual vacation time at a specific timeshare property, they would purchase a 1/26th ownership (since two weeks is 1/26th of a year). Depending on the terms of purchase, they could hold these usage rights in perpetuity, or they could sell off their portion of ownership on the timeshare resale market.

The permitted use of a timeshare will vary depending on the type of timeshare a person purchases. Some timeshare purchases come with fixed-week ownership. In a fixed-week timeshare, the buyer has access to the timeshare unit during the same specific week or month every single year. Another model is a floating-week timeshare, under which co-owners can negotiate access to their shared vacation home.

The concept behind timeshares is simple—timeshare owners purchase the right to use a house, condominium, or piece of land for a fixed period of time each year—but the legal ownership structure can vary quite a bit. Consider the typical ways a timeshare can work:

• Deeded ownership: Under the deeded ownership model, a buyer legally owns a fraction of a timeshare property. They may use the deeded timeshare for a period of time corresponding to their ownership percentage. In most cases, this means they may personally occupy the timeshare or they may rent it out as a vacation property. They may pass deeded ownership along to their heirs, give it as a gift, or sell it off to a new buyer.
• Right-to-use contracts: A right-to-use contract does not confer deeded ownership. Rather, these timeshare contracts guarantee a certain amount of vacation time within a timeshare property. In most cases, these properties are located within a larger timeshare resort or vacation club. In some ways, buying guaranteed time at a resort property is closer to renting a hotel room than it is to buying vacation ownership in a timeshare.
• Timeshare companies: The timeshare industry is largely run through large property managers and timeshare exchange companies. These companies may sell off fractional ownership of a vacation property via fee simple ownership. In other cases, they may operate a timeshare exchange program, where timeshare purchasers can access one of several vacation resorts managed by the timeshare company. Many of these companies operate on a points system where points are exchanged for vacation time.

Consider some of the pros of timeshare vacationing.

1. 1. Low upfront costs: Travelers who often return to the same vacation destinations but who may be put off by the upfront costs of buying a second home may gravitate to timeshare properties. By only purchasing a small fraction of a property, they guarantee access to a vacation property for far less money.
2. 2. Flexibility: If you purchase your timeshare from a large timeshare company, you will likely have access to many different timeshare resorts instead of one single property. This expands your vacation options. Most timeshare companies offer access based on a points system, and your vacation flexibility will depend on the number of points you have for use.
3. 3. Perks: Many timeshares come with additional perks, such as discounts on travel.

Timeshares have attracted vacationers worldwide, but they are not for everyone. Consider some of the common disadvantages of timeshares.

1. 1. Annual maintenance fees: Depending upon your perspective, annual maintenance fees can be a pro or a con. They cover upkeep on a property and provide for working appliances (like stoves, washers, and dryers) and utilities. On the other hand, they are additional fees on top of your purchase price, and they may be difficult to negotiate downward.
2. 2. Property taxes: If you take fractional deeded ownership of a timeshare, you will owe a proportional share of property taxes. If your timeshare is in a gated community that isn't owned by a timeshare company, you may owe a portion of that community's annual dues in addition to your timeshare expenses.
3. 3. Ownership issues: In a right-to-use timeshare, you pay for guaranteed access to a vacation property, but you do not actually own any portion of the building. Although you can sell off your usage rights on the timeshare resale market, you will not benefit from the appreciation of the underlying real estate.
4. 4. Potential for scams: Most timeshare properties can provide value to a purchaser, but the industry has also weathered a reputation for scams. To make sure you are buying into a legitimate timeshare with redeemable usage rights, consider working with more established timeshare companies.

All investments, including real estate investments, come with inherent risks which may involve the depreciation of assets, financial losses, or legal ramifications. The information presented in this article is for educational, informational, and referential purposes only. Consult a licensed real estate or financial professional before making any legal or financial commitments.

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