A timeshare may still be a bad real estate investment -- but the right one can be a great way to spend your vacation dollar.
By Elizabeth Razzi, Kiplinger's Personal Finance
Timeshare come-ons have become as much a part of the American vacation experience as a backup at the tollbooth. But while sales pitches may still be obnoxious, the product itself has largely outgrown the tawdry reputation it earned decades ago, when developers carved up second-rate resorts into one-week timeshare contracts. Today, world-class resort companies are setting a high standard for new developments, and the industry is seeing steady growth.
That's the good news. The bad news is that timeshare purchases remain a lousy investment. Most owners trying to sell unwanted timeshares can still expect to get back only 50 cents to 70 cents on the dollar, says Howard Nusbaum, president of the American Resort Development Association, the industry's trade group. That, coupled with the fact that timeshares are still sold with high-pressure, "buy-today" tactics, may turn you off completely to the idea of owning one.
But timeshares can be a good way to allocate your vacation budget. The key is to choose wisely, and to do that, you first have to figure out which type of timeshare owner you will be -- a user or a trader. If you're a user, you'll want a timeshare that's not too far from home and that can keep you interested year after year -- say, a beach resort you take the kids to for a week every July. A timeshare offers high-quality lodging at a set price.
If you're a trader, you give up time at a property you own in exchange for time at other timeshares. The goal is to buy cheap contracts at resorts in desirable locations where there is no surfeit of units. That means you're better off buying in a city with relatively few timeshares, such as New Orleans, rather than Orlando, the timeshare capital of the world.
Traders will also prize the new points-based systems, which are on the way to becoming the dominant form of timesharing. Marriott and Disney are among the leaders in establishing this type of system, in which a one-week timeshare may be redeemed for points that can be spent on hotels, cruises and airfare within the system. "It's more like buying currency than buying a timeshare interval," says Peter Giamalva of Resort Condominiums International, one of the two largest timeshare-trading organizations.
Here's a look at how two timeshare owners are pursuing the different approaches.
The users
Los Angeles residents Linda and Michael Rachlin paid $28,000 to buy into the Four Seasons resort system. Each year they kick in a $1,000 maintenance fee for the right to spend a week or two (depending on how large a unit they request) in luxurious condos at Four Seasons resorts at Aviara, north of San Diego; in Scottsdale, Ariz.; and eventually at a resort being built in Punta Mita, Mexico. At the Aviara resort, Linda, 43, Michael, 51, and their two daughters stay in a villa with a fireplace, patio, full kitchen and dining room, and enjoy the resort's lush landscaping, poolside restaurants, golf course and spa (for an extra fee). "It's so nice," says Linda.
The Aviara resort is only two hours from the Rachlins' home, which is an important consideration. A Hawaiian timeshare, for example, may be the closest thing to paradise, but using it usually demands a long, expensive flight.
While the Rachlins may never be able to sell their timeshare for a profit, Linda, who used to work in banking, figures the payback is only a few years off. Comparable Four Seasons units cost at least $720 per night. "We couldn't afford that for two weeks every year," she says. "We expect to break even in five to seven years. And then we will have the property for a lifetime."
Although they didn't buy their timeshare for trading purposes, should they grow tired of the Four Seasons, the Rachlins can trade timeshare visits via membership in Interval International, the other major timeshare-trading company. But for now, that choice offers limited appeal. "I looked in the catalog, but that stuff looks like the Hilton," says Linda.
For a yearly basic membership fee of $79, timeshare owners can join Interval. (For an additional $54 per year, preferred members can have access to more golf and spa resorts.) The company charges another $121 to arrange trades with other U.S. resorts, and $149 for international resorts. Miami-based Interval is smaller than Resort Condominiums (which has comparable fees), but it counts some of the more prestigious timeshare developers as members, handling trades for Disney, Four Seasons, Hyatt and Marriott. Owning a timeshare in one of those major resort brands typically confers easier trading privileges within their network of resorts and hotels.
The traders
For Minneapolis residents Susan and John Fisher, ages 43 and 45, timeshares are mainly vacation currency. They've spent nearly $12,000 over the past 2 1/2 years assembling a portfolio of timeshares that they found on the resale market. They now own visiting rights at resorts in London; Winter Park, Colo.; Cape Cod, Mass.; Tuscany (Italy); Provence (France); and a coastal resort called Wilderness in South Africa. All told, they pay annual maintenance fees of $1,524 for their six-pack.
As a family, the Fishers like to vacation for three weeks each year and take some long weekends. Among their six timeshares on three continents, they use only one regularly. Each January they take their children, Sasha, 14, and Luke, 12, to Winter Park for a week, staying in a three-bedroom, two-bath condo. They bought the timeshare for only $800 and pay an additional $330 a year for maintenance.
The rest of their portfolio is used mostly for trading. A one-bedroom Tuscan timeshare that Susan picked up on the resale market for $2,200 is her "A-number-one best trader," she says. The family will stay there for the first time this October, but Susan has already traded away the rights for 2003, having swapped for a château in the Auvergne region of France.
The Tuscan property, with an annual fee of $220, "fits the profile of what you want as a trader," Susan says. "You want to make sure that fees are not too high, so you don't have a situation in which the maintenance fee plus trading fee are more than you'd pay to rent."
Travel costs are an issue. Citing the cost of flying four people from Minneapolis, Susan says their personal use of the European timeshares is limited to every third or fourth year. Likewise, airfares keep them away from their South African timeshare indefinitely, and it's only a so-so performer as a trade. "That's the only timeshare-buying mistake I've made," says Susan.
The family's timeshare purchases and annual fees add up, but Susan says they're a good investment because the idea is to keep a lid on travel expenses in the future -- and still allow them to travel broadly. While the resale value of a timeshare doesn't usually increase over the years, buying into the timeshare system can shield you from the forces of inflation that drive up resort rents and hotel rates over the years.
How to buy
Whether you're a user or a trader, you should check prices of resale timeshares at a resort before paying full price to buy from the developer. The best places to get that information are the Timeshare User's Group and eBay. But be aware that when you buy a resale property, you may not be entitled to the same in-network trading benefits within the resort brand name. For example, if you buy a Marriott timeshare from someone other than Marriott, you don't get the right to use the points system and trade in your timeshare for a Marriott hotel visit.
To evaluate how valuable a property will be to trade, first look at the supply of timeshares in individual markets -- the fewer units, the better. A good way to size up a resort's popularity with other potential traders is to pay $15 to join the Timeshare User's Group for access to its members-only list of resort reviews.
Also, the opportunity to sample a timeshare without buying is growing. Resort Condominiums International recently launched the RCI Holiday Network, which allows nonowners access to some resorts.