As mentioned in the Introduction, focusing this book on selling your timeshare is likely to sell more books than focusing the book on buying a timeshare. Thus, buying a timeshare has been relegated to the back of the book. And here we are at the back of the book. The first thing you need to understand before you buy a timeshare is the timeshare concept?
What is a Timeshare?
A timeshare resort starts out as timeshare project developed by a resort developer. Once construction has started, the developer starts to sell the timeshares. A timeshare is the right to use one unit (typically a condominium) for one week each year. Once the developer sells a certain percentage of the timeshares, the control of the resort typically goes to the timeshare home owners association (HOA). If the timeshare project is just one resort, the HOA manages the timeshare resort thereafter or hires a timeshare management firm to manage it.
Single resorts are no longer common, and major resort developers build and manage multiple timeshare resorts over broad geographical areas.
When a resort developer turns a particular timeshare resort over to an HOA, the HOA typically hires the resort developer to manage the resort. Thus, the timeshare resort stays inside the chain of resorts established by the resort developer. Being inside a chain of resorts instead of being a lone resort provides additional benefits to timeshare owners.
There are some companies that specialize in managing independent timeshare resorts (resorts not in a chain) for HOAs. Such companies appear to be timeshare resort chains because they provide management, marketing, and internal exchanging thus acting like a resort chain. That gives independent timeshare resorts the opportunity to appear as if they were part of a chain and to provide additional benefits to timeshare owners.
Whether it’s a timeshare resort chain or a management company imitating a chain, each has its own rules and regulations that apply to timeshare owners and their use of their timeshare annual weeks.
Times change, and the rules governing the operations of resort chains change too. Today there are many different operating arrangements in the timeshare industry. It is well beyond the scope of this book to be concerned with them all. In addition, each resort chain amends its rules from time to time.
Legal Structure
What is a timeshare? Typically a timeshare is the right to use a timeshare unit in a resort for a certain period each year (or in some cases every other year), normally a week. Thus, a timeshare might be the right to occupy Unit 405 for Week 32 (in August) each year at XYZ Resort in Boca Raton, Florida.
Week 32 is defined in the annual timeshare schedule, normally published for several years in advance, which provides the exact dates. A week normally starts on Friday, Saturday, or Sunday.
Units
A timeshare unit might be a hotel room without a kitchen, a four-bedroom unit with a kitchen and a private hot tub, or anything in between. More typically, however, it is a one- or two-bedroom unit with a full kitchen. Timeshares are normally in resort locations. Some, however, are in major cities such as New York and San Francisco.
Legal Interest
Originally, a timeshare was an interest in real estate that had to be conveyed by a deed. Many timeshares are still interests in real estate. But today many are not.
An alternative is an interest in something other than real estate. This could be in several forms. One form is an organization that holds title to the real estate (all the units) in trust for the timeshare owners and provides each timeshare owner with a beneficial interest in the trust. Another form might be an organization that owns the real estate and provides each timeshare owner with a membership in a vacation club; the club (and its members) has the right to use the resort for a long term.
An ownership in real estate is the most secure and most understandable form of timeshare ownership.
A timeshare might be for each year, although some are for every other year. There may also be a time limit on the timeshare. If so, the limit is typically between 30 and 50 years. A real estate interest is typically deeded in perpetuity (forever).
Float
Some timeshares, whether real estate or otherwise, are not for a specific week. Rather they are the right to use a week sometime during the year. These timeshare annual weeks are said to “float.” Each timeshare owners makes a reservation each year for a week according to a set of rules established for making reservations fairly.
Points
Some timeshare resorts do not operate strictly on weeks. They provide points to each owner who in turn spends the points to buy days of occupancy. (In some resorts the points are backed by real estate but in others are not.) Assuming you spend all your points to get a week (7 days), the point system operates like a timeshare float. However, the point system offers more flexibility. You can use your points to buy only a few days at a time instead of a full week. Point systems operate on a first-come-first-served basis just like float systems.
Management
The developer of a timeshare resort that deeds interests in real estate typically forms a Home Owners Association (HOA) to manage the resort. The timeshare owners run the HOA democratically. The HOA usually contracts with the developer to manage the resort on behalf of the HOA. The HOA usually has the right to hire another manager if the developer doesn’t manage the resort well.
If the developer of a timeshare project provides an interest in an organization rather than an interest in real estate, it usually maintains perpetual control and management of the resort. The owners don’t have as much voice in the operation of the resort as they do through an HOA.
Fractional Ownership
Fractional ownerships are timeshare interests in single units or small multi-unit buildings. Instead of getting one week a year of occupancy per year, you typically get 5 to 12 weeks. The original cost is much higher, and the annual maintenance is much higher. There are fewer owners, of course. Fractional ownership is beyond the scope of this book
Security
What about the security of your investment in timeshare? If you pay full price for a timeshare because you buy it from the resort developer, your investment will be substantial. You might want to consult with an attorney regarding the legal structure of the timeshare investment. No legal structure is ultimately secure, but some structures are more secure than others. If you buy from a reputable big-chain timeshare resort, it’s less likely to go bankrupt than an independent resort. Of course, we all know there is no assurance of that, but it may increase your odds of being part of a successful timeshare project instead of an unsuccessful one.
If you buy a timeshare in secondary market for a fraction of the price of the timeshare sold by the resort, you can probably take the risk of losing all your money without worrying too much about security. That means you can put the desirability of other benefits ahead of a sensible desire for security. (Nonetheless, the transaction should be closed by a professional closing firm.)
An important issue concerning security is your ability to resell your timeshare once you’ve decided not to use it any more. Timeshares typically sell for 5% to 30% of their original purchase price in the best of times. In the worst of times there are so many timeshares for sale that you can’t give one away.
Investment
When you talk about investing in timeshares there are two things to keep in mind. First, a timeshare investment may be a great investment for personal use. Vacation time! Second, timeshares are almost always a terrible investment with which to make money.
Most people are fully capable of determining whether a timeshare is a good investment for their personal use. Nonetheless, it seems to me that many people make such a decision to buy a timeshare based upon their needs and desires for the near future. That can be a mistake.
When investing in a timeshare for personal use, you need to take into account what your needs and desires are far into the future. If your need for a timeshare is going to end in five years, it probably doesn’t make sense to buy one. You’ll probably do better financially by renting one every year. On the other hand, if you fully intend to use a timeshare far into the future, a timeshare purchase may be a sound personal investment.
In the best of economic times, buying a timeshare for full price from a resort as a way to rent the timeshare in order to make money will be a disaster for you financially. In the best of times, even the purchase of a timeshare on the secondary market for 5% to 30% of the original purchase price is likely be a disaster as a financial investment.
However, if you can acquire a high-quality timeshare for a nominal price plus closing costs, you may be able to make a profit renting it in good economic times provided you are very careful and diligent in managing it. You need to use a very sharp pencil to figure out the income and expenses. You also need to figure out the time factor. Managing a timeshare for rental may take more time be more trouble than it’s worth. Keep in mind that I said, in the best of times. In the worst of times (e.g., during a recession), owning a timeshare to generate rental revenue will be a disaster for you as a financial investment regardless of what you paid for the timeshare.
You and the Resort
The major timeshare developers typically sell timeshares to people who then belong to the homeowners’ association (HOA). When timeshare resort is sold out, the HOA takes over the management of timeshare project. The HOA is made up of timeshare owners who elect the officers who manage a nonprofit HOA corporation. Typically, the HOA makes a deal with the resort developer to manage the timeshare resort. Thus, the resort developer stays in the picture and effectively calls most of the shots. There’s nothing wrong with that so long as the developer is fair to the HOA. In fact, it’s a benefit to owners. Resort developers provide management expertise and a chain of resorts that operate under one name.
Nonetheless the resort developers are in business to make money, and they make money anyway they can. Nothing wrong with that; that’s the way business works. What you need to know is where you stand.
Your most efficient use of a timeshare is just to pay your yearly maintenance and use the timeshare week each year. If you do anything beyond that, there’s a likelihood you’ll be charged a fee. There are fees for exchanging, renting your timeshare to strangers, giving your timeshare to relatives, and overusing the average resources of your timeshare resort. Indeed, each timeshare resort has rules governing the operation of the resort (or chain of resorts). The rules get more complex each year. The rules are essentially set up to save expenses, charge more fees, and protect owners’ investments.
The best way for you to handle this is to know the rules well and use them to your own advantage. There are typically trade-offs in the rules. Some trade-offs will be a benefit to you and others will not. It’s up to you to know the rules and work the system to benefit yourself.
Can you game a timeshare system? Yes. You can usually game a timeshare system by knowing the rules well and figuring out how to use them to your own advantage. For instance, I have a timeshare (points) that enables me in high season to use a two-bedroom condo for one week or a one-bedroom condo for two weeks. In this particular timeshare resort many of the one-bedroom condos are almost as big as the two-bedroom condos. Unless you absolutely need the extra bedroom, you can get a two-for-one deal every year (i.e., two weeks of use for a one-week maintenance fee). That’s a straightforward and easy to understand situation regarding the point system of that particular timeshare resort. Yet, if you want to really game the system, you may be able to dig much deeper and come up with some clever technique.
When you add an exchange service such as RCI or II to the mix, it gives you even further capability to game the system. The exchange services have their own particular rules and fees that seem oppressive, but they may also open opportunities for you.
Unfortunately, gaming the system takes time. It’s one thing to figure out how to game the system and another to actually put in the time and energy to do it every year. It may not take a lot of time, but it does take some time.
Types of Timeshare Resorts
Timeshare resorts come in a limited variety:
- City hotels (hotel rooms)
- Resort condominiums with bedrooms and kitchens
Condominiums resorts come in a variety:
- With ammenities (e.g., hot tub)
- With ammenities nearby
- With activities (e.g., golf)
- With activities nearby
- At attractions (e.g., beach)
- Nearby attractions
Thus, it pays to research exactly what a timeshare resort offers. For instance, a timeshare resort that bills itself as being a beach resort may not be on the beach. It might be two blocks away or two miles away.
Seasons
Most resorts have periods of high occupancy (high season) and periods of low occupancy (low season). For instance, ski resorts in the Rockies have high occupancy during the winter months and the summer months but not during the spring and fall. Thus, timeshares during the winter and summer at those resorts are more valuable than timeshares during the spring and fall.
Locations
You will find timeshare resorts in many popular resort areas often near or adjacent to some physical attraction such as a lake, a river, a golf course, a ski area, a major tourist attraction, the seashore, the mountains, the desert, and the like.
Amenities
For many timeshare resorts, it is enough just to be at the location. The location itself provides the amenities and attractions. For other timeshare resorts the location may be pleasant but offers no amenities; the resort itself must offer the amenities to attract users.
Resort Developers
Timeshare resorts are built by developers. Some developers develop a timeshare project as a single project. What you see is what you get. Other developers develop or acquire many timeshare resorts and maintain and operate them as a chain of timeshare resorts under one name. With such a developer you typically have access, at no additional cost, to all the resorts in the chain through an intra-resort exchange system (read Chapter 8). Therefore, what you see is not what you get. You get more. You get the opportunity to use your timeshare week at many more resorts.
Visits
The sales organizations at timeshare resorts are always looking for new prospects (buyers). The only chance they have of selling a timeshare is to someone who visits the site; that is, the only place people buy timeshares from the resort developer itself is at the resort. Therefore, timeshare resorts will do almost anything to get prospects to visit the resort and come in contact with their sales force.
They offer cash, televisions, free dinners, and most importantly free stays. In other words, you may be able to go to a timeshare resort and stay free for the weekend so long as you agree to participate in a timeshare sales presentation.
If you’re the type of person who gets sold easily, I would not use this approach to visit the timeshare resort. Nevertheless, if you’re the type of person who can resist the sales presentation no matter what, then a weekend trial at a resort in which you’re interested makes a lot of sense. And if you decide you want to buy a timeshare in that particular resort, you don’t necessarily have to buy it from the developer. There are other places to buy that may be less expensive. Read Chapter 12.
I advocate going to the sales presentation for any resort in which you are interested simply to start learning the system. If you don’t know how the system works, you can’t game it. Yet, be careful. The timeshare sales force is very convincing.
