Close-up: Timeshares

Physician's Money Digest, November 2006, Volume 13, Issue 11

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Timeshares: A form of vacation property ownership. With timeshares,the use and costs of running the resort are shared among multiple owners.

It seems like timeshares have been around forever, buttheir origin can actually be traced to 1960s Europe inthe French Alps. According to Wikipedia (www.wikipedia.org), an innovative ski resort developer decided thatit might be more advantageous to have guests purchaseownership in the hotel rather than simply rent a room.After all, how many people wouldn't want to own someproperty in the French Alps? Not surprisingly, the idea wasa success, and quickly spread across the globe.

Just how successful has the timeshare concept been?According to the American Resort Developmental Association(ARDA), in 2004, approximately 6.7 million peopleworldwide owned the rights to about 10.7 million timeshareweeks. In the United States alone, some 3.9 millionpeople own shares in more than 1600 timeshare resorts.And in Florida, which might be the timeshare capital of theUnited States, if not the world, the timeshare industrymade a $7.9-billion economic impact in 2002.

Types of Ownership

The ARDA details that there are essentially three differenttypes of timeshare ownership arrangements: fixed,floating, and rotating. That may sound like some type ofhome mortgage interest rate, and at times it can be justas confusing.

The type of ownership you purchase should be gearedtoward your specific vacation tendencies. Most timesharesare purchased in weekly units. With a fixed-week ownership,you would own a specific week during each calendaryear, such as the week leading up to the Fourth of July orthe week between Christmas and New Year's Day. Theweeks are usually designated as Week 25, for example.You then own that week and can use the resort duringthat time period each year.

With floating ownership arrangements, you're able toselect the week or weeks you wish to use your timesharefrom a pool of weeks. As Wikipedia illustrates, "A timesharemay be a floating summer week where the ownermay request any week during the summer season." Inmany cases, these weeks—particularly around prime holidays—could be in high demand. So just because youhave a choice of weeks doesn't mean you're going to getthe week you want. Remember the 3.9 million other UShouseholds that own timeshares?

Lastly, timeshares are also sold as rotating weeks. Thisarrangement attempts to even the playing field, so tospeak. Rather than having one owner lock in a specificweek each year, the weeks rotate. One year you may haveWeek 26. The next year it would rotate to Week 25, andthen Week 24, and so on.

The Bottom Line

According to howstuffworks.com, the cost of owning atimeshare can vary significantly based on size of the property,its location, and the time of year you intend to usethe property. New and used timeshares also impact theprice. A new timeshare—in the case of new retail property—can cost $10,000 or more, while a used timesharecould cost as low as $1500.

But just like purchasing a permanent residence, the initialprice of the timeshare is only part of the cost equation.Annual fees for maintenance, utilities, and taxes can rangefrom $400 to more than $1000 depending on the size of thetimeshare and the season in which usage is purchased. Inaddition, these fees are not locked in. Just like maintenancefees when owning a condo, these fees can and do increase.And depending on your purchase arrangement, propertytaxes may or may not be included in the purchase price.

During the course of your ownership, the resort maydetermine that major repairs are in order or a costly propertyupgrade needs to be made. Timeshare owners couldbe assessed a fee to help cover those costs. Lastly, if andwhen the time comes to sell your timeshare, a transfer feeand a recording fee could be tacked onto the sale. So it'simportant to consider the overall bottom line and not justthe initial purchase price when considering a timeshareinvestment.

Pros and Cons of Timeshares

A 2003 survey of US vacation timeshare ownersconducted by the American Resort DevelopmentAssociation found that almost 85% aresatisfied with their timeshare product. That's anencouraging number, because there are many prosand cons to timeshare ownership. According toWikipedia, "The timeshare industry has alsobecome a magnet for attracting illegal and barelylegal methods for the sale and resale of property." The following are some points you need to considerbefore pursuing a timeshare purchase:

•Timeshare owners make a major financialpayment up front, and there are those who questionwhether timeshare buyers ever recover themoney they spent.

•Escalating maintenance fees have led someowners to complain that they can no longerafford to use their timeshare weeks. Other costscan include travel. If your timeshare is in Floridaor Colorado, you may have to factor in the cost ofairfare and car rental to get to your resort.

•Some owners complain about returning tothe same resort year after year. There are timesharecompanies that enable owners to "exchange" their shares with other owners in variousparts of the world. Just remember the law of supplyand demand, and you might not always get thelocation you want at the time you want it.

•If you know that each year you're going tohead to the slopes of Aspen or the South Floridabeaches at a specific time of the year, and youdon't want the hassle of finding prime accommodations,timeshare offers a genuine advantage.

POPQUIZ

1) Where did the timeshare concept originate?

  1. Swiss Alps
  2. French Alps
  3. Rocky Mountains
  4. Catskill Mountains

2) In 2004, how many people owned timeshares in theUnited States?

  1. 3.2 million
  2. 3.5 million
  3. 3.7 million
  4. 3.9 million

3) Which of the following is not a form of timeshareownership?

  1. Fixed
  2. Floating
  3. Rotating
  4. Circulating

4) In addition to the purchase price, timeshare costscan include:

  1. Maintenance fees
  2. Utility fees
  3. Taxes
  4. All of the above

5) What percentage of vacation owners are satisfiedwith their timeshare ownership?

  1. 75%
  2. 80%
  3. 85%
  4. 90%

Answers: 1) b; 2) d; 3) d; 4) d; 5) c.