Tmeshares are a $10.5B industry in the US with over 1500 resorts offering over 200,000 units and owned by nearly 10MM US households. Love ’em or hate ’em, timeshares are a thing. As Plum CoOwnership is an alternative to timeshares, we get asked a lot of questions about them, so we thought we’d wax philosophic for a moment and share an overview.
Let’s start with the basics…
What is a timeshare?
A timeshare is a form of vacation ownership that allows multiple people to own a portion of a vacation property. Timeshares are typically sold in units of one week or two weeks per year. Owners can use their timeshare weeks to stay at the property during their designated time period, or they can exchange their weeks with other owners to stay at different properties. It is critical to understand that timeshares do NOT provide equity ownership. What you own is a contracted right to use the property for a set amount of time each year.
This lack of equity ownership is one of the key differences between timeshares and other modes of fractional ownership.
Are there different types of timeshares?
Yes, they come in a few different flavors, all of which have to do with allocation of the time you’ve purchased under the timeshare arrangement.
- Fixed-week timeshares: Owners have a set week each year that they can use their timeshare.
- Floating-week timeshares: Owners have a certain number of weeks each year that they can use their timeshare, but they do not have a set week.
- Points-based timeshares: Owners are given a certain number of points each year that they can use to book stays at different properties.
What are the Pros and Cons of timeshares?
Timeshares have a mixed reputation and deservedly so. We believe that at $10.5B a year in annual revenue, clearly timeshares are filling a need in the marketplace, so there has to be some good with the bad. Here’s our take on the pros and cons that you should consider:
- Convenience: Timeshares can be a convenient way to vacation, as you do not have to worry about booking hotels or finding rental properties.
- Affordability: Timeshares can be a more affordable way to vacation than staying in hotels or renting properties on a week-to-week basis.
- Flexibility: Timeshares can offer some flexibility, as owners can exchange their weeks with other owners or book stays at different properties using their points.
- High upfront costs: Timeshares can be expensive to purchase, especially if you are buying a fixed-week timeshare.
- Annual maintenance fees: Timeshare owners are typically responsible for paying annual maintenance fees, which can add up over time.
- Lack of flexibility: Timeshares can be inflexible, as owners may not be able to use their timeshare weeks when they want to.
- Difficulty reselling: Timeshares can be difficult to resell, and owners may not be able to recoup their investment.
How do timeshares work?
The purchase process:
To purchase a timeshare, you will typically need to make a down payment and then finance the remaining balance over time. Timeshare sales are often high-pressure, so it is important to do your research and read the contract carefully before signing anything. You will often be lured in with offers of a free weekend stay, with the condition being that you attend a 1 hour seminar that turns into a hellish high pressure sales experience with a rotating cast of characters hammering on you to convert before you get your promised free weekend. Just go in eyes wide open…
Ownership rights and responsibilities:
As a timeshare owner, you will have certain rights and responsibilities. You will be entitled to use your timeshare weeks during your designated time period, and you may also be able to exchange your weeks with other owners or book stays at different properties using your points. However, you will also be responsible for paying annual maintenance fees and other costs associated with your timeshare ownership. One of the hard things about timeshares is that you are obligated to these capital calls, even if you’re not using the property and are stuck with them until you sell your timeshare, which can be very hard to get out of.
Maintenance fees and other costs:
Timeshare owners are typically responsible for paying annual maintenance fees, which cover the cost of maintaining the timeshare property and amenities. Maintenance fees can vary depending on the property, but they typically range from a few hundred dollars to several thousand dollars per year. Timeshare owners may also be responsible for paying other fees, such as transfer fees, exchange fees, and late fees. Just know that what you plunk down at the beginning is not only payments you’ll be making. Make sure you get a full accounting of expected future costs, both from the timeshare resort you are considering, and from your own research on user chat forums.
Selling timeshares on the secondary market:
The secondary market for timeshares is a tangled web of factors, from an excess of units to the stigma of ownership. The demand versus supply for timeshares may also be limited, making that a key challenge. High annual fees and the overall costs can also deter potential buyers. Overall, the negative reputation and the frequent lack of transparency surrounding the timeshare industry can also create skepticism among potential buyers, further complicating the resale process.
Cool, thanks… How is co-ownership different again?
The benefits of lowering the cost by fractionalizing is the key similarity. After all, very few of us can afford a $1MM vacation house, but significantly more of us can afford a fraction of one.
The key difference between the timeshare model and the co-ownership or fractional model is what you actually own. In co-ownership or fractional ownership, you actually own the underlying equity in the real property. You may be doing that directly through a tenants-in-common structure where your name is actually on the deed for the property. Or, you may be doing that through an LLC (limited liability corporation) structure where you own shares (technically, they are “units”) which represent a percentage ownership in the company. The company owns the property, so your ownership percentage of the company generally conveys the value of the property to you. Either way, the takeaway here is that you own part of the property, where in timeshare you own the right to use the property (but not the actual property).
Here’s a nice comparison between co-ownership and timeshare if you’d like to learn more.