Have you ever been to a tropical resort for vacation? Chances are some of the resort’s salespeople contacted you about buying a timeshare. I’ve actually been to one of those presentations before (I’ll talk about it more later). What did you think about the sales pitch? It was probably pretty aggressive, right? A lot of these salespeople like to target happy vacationers. In my opinion, timeshares are more often than not horrible purchases/investments.

What Exactly Is A Timeshare?

Under a timeshare, you purchase a small percentage of a vacation property the resort owns/operates. The program gives you the opportunity to use the property (or properties) a certain number of times a year (typically for a week).

Some of the newer time share programs are more advanced and confusing where you get a certain amount of points and can use them throughout the resort’s worldwide network of locations (i.e. a “vacation club”).

Timeshare properties are typically built like condos and are larger than traditional hotel rooms.  They come with a full kitchen, dining area, and potentially separate living spaces.

The cost of a timeshare depends heavily on the location of the resort and which weeks you can use the property. Most resorts will “generously” provide high interest rate financing for many purchasers.

In addition to the upfront payment, you must pay for annual maintenance dues for as long as you own the timeshare—think of it like a HOA fee. The annual maintenance dues can go up over time and help the owner cover the cost of maintaining and operating the resort.

Also keep in mind that if you are not current on the timeshare loan or annual maintenance fees, you can be foreclosed on.

My Experience At A Timeshare Sales Pitch

A few years ago, I went to Cancun with a few friends. We stayed at the Royal Islander. During our trip, we agreed to go to a timeshare sales pitch to hear about “an amazing opportunity.” The meeting took place at the Royal Hacienda in Playa del Carmen not too far away from the main strip.

This was the typical sales pitch. We met briefly in a large conference room with a sales rep. After that, he showed us around the property (it was beautiful).

After that, we lunch in the restaurant/buffet—basically they were trying to wine and dine us.

My friends and I must have each eaten three or four plates of food (we were mostly there just for the free lunch). I also had about three beers!

After lunch, we went back to the conference room and heard the sales pitch. It went something like this:

Sales rep:              What did you think of our property?

Us:                          It’s beautiful!

Sales rep:              Well…how would you like to own your own little slice of paradise? If you buy a timeshare you can come here every single year!

And that’s how it goes. These salespeople typically lure vacationers into a sales pitch while they’re still on a vacation high to pressure them into buying “a slice of paradise” on the spot.

Another common sales tactic they used on us was comparing the cost between owning a timeshare and just using a hotel. In fact, they even had an app on the computer that had us input some assumptions and compare the cost!

Let’s say the timeshare costs $25,000 upfront with annual maintenance dues of $1,000/year for a week’s stay.

If you were to just rent a room at the resort, it might cost $200 a night plus $100/day for the all inclusive option.

The sales rep would then say: “Well, by buying your timeshare, your total cost of ownership is only $50,000 over a 25 year period compared to $52,500 if you rented a hotel! It makes perfect financial sense to buy now!”

However, the sales rep never bothered to explain the impact of the time value of money (more specifically compound interest)!

There is a huge opportunity cost for the initial outlay to purchase the timeshare ($25,000 in this case). If you were to invest that $25,000 into a mutual fund and earn 7% over 25 years, it would be worth over $135,000! The initial outlay you pay for the timeshare is not offset by the hotel rental savings over the next 25 years.

Not to mention, these timeshare operators LOVE to provide financing so they can charge ridiculous interest rates (more on this later). Don’t fall for this trap!

An ironic story: One of my friends who went with us to the sales pitch actually owns a timeshare! In fact, we stayed at the Royal Islander using his timeshare/vacation club points (his father originally bought the timeshare and passed it down after he passed)! It’s been a while since I last talked to him about it, but I believe he still owns the timeshare even though he tried to sell it numerous times.

Think Twice Before Buying A Timeshare

Based on my Cancun experience, a lot of these salespeople use sleazy tactics to get people to buy timeshares who probably shouldn’t/can’t afford it.

Most often, these salespeople target people who are on vacation! Studies show that when you’re on vacation, you’re less likely to care about price—it’s the same logic for weddings. Second, as I explained before, many of these salespeople incorrectly portray how much a timeshare actually costs.

Here 6 reasons why timeshares may not be right for you:

1. Timeshares generally do not appreciate in value: On secondary markets, timeshares can sell for 50% – 70%+ less than what you paid for. That is a big discount! Unlike real estate, timeshares generally do not appreciate in value over the long-term.

2. Ridiculously high interest rates: Did your sales rep offer to provide financing? Of course he/she did! Timeshare operators make a killing on providing ridiculously high interest rates.

Diamond Resorts International is one of the largest public operators of timeshares. They operate 379 resort destinations across 35 countries and generate almost $1 billion in annual revenue.  Guess how much the average interest rate is on their loans?

5%?…10%?…no! For 2015, the average rate for their loan portfolio was 14.9%!

“The weighted-average interest rate for all of the loans in our portfolio as of December 31, 2015 was 14.9%, which includes a weighted average interest rate for loans in default of 16.4%.”–Diamond Resorts International 2015 Annual Report

3. Timeshares are incredibly illiquid: Selling a timeshare is notoriously difficult. In fact, I’ve heard of stories where people dump the timeshare at a low price in order to stop paying the annual maintenance fees.

4. The timeshare industry is populated with many scam artists: Many scam artists act as “brokers” to help timeshare owners unload their investment. Many of these brokers charge upfront fees and never close the deal.

5. Scheduling your allotted week may be harder than you think: Want to schedule a vacation for Christmas or New Years? Well, tough luck! Those are some of the busiest weekends under timeshare programs. Further, some resorts will actually sell more timeshare weeks than there are rooms available!

For example, if the resort has 100 rooms, they have capacity for 100 rooms x 52 weeks or 5,200 timeshare weeks. Some resorts may sell 6,500 timeshare weeks even though there is capacity for 5,200!

6. Renting your timeshare will often not recoup its costs: A common occurrence with timeshare owners is that they may not be able to go on vacation to the same place every single year. Most timeshares will allow you to rent out the room if you’re not using it, but you will not likely recoup your costs—you would have been better off buying a vacation rental property.

Conclusion

In my opinion, timeshares do not make sense for most families. They are expensive, can ruin your credit score, and are often sold by sleazy salespeople. Instead of buying a timeshare, I would suggest either investing in a vacation rental property or investing the money you would have spent on the timeshare in a low cost index fund.

Readers, what do you think? Am I totally wrong on buying a timeshare? Do any of you have experience with buying or selling timeshares? Share your stories below!