If you absolutely love travel, you’ve probably entertained the idea of purchasing a timeshare. The thought of visiting your favorite destination on your own property without the expense of buying a vacation property is often tempting, even if you have to share it with other people.
But timeshares are usually not as simple as they seem. Although you’ll pay less for this style of vacation home, there are some serious drawbacks you should consider before diving in.
1. It’s not a good investment.
Remember this: You will almost always lose money when you buy a timeshare, even if you manage to sell it later. A timeshare is great if you actually use it three or four times per year, but it’s not worth the purchase if you’re hoping to get your money back someday.
Some people try to purchase a timeshare and rent it out when they’re not there, but that’s not always easy. You must get approval from other shareholders, and the complications often make it impossible. There’s also low demand for timeshare rentals, but huge supply.
A vacation rental is a much better property investment. You’ll have a beautiful home for visiting your favorite destination, and you’re free to visit whenever you want. You won’t lose money in the process, and while you’re not vacationing there, you can rent it out. If you make even minor improvements during your stay, you’ll likely make a profit at resale.
2. Sellers will try to inflate the price.
Because the market is less well-known, you might not recognize a seller’s tricks. You could easily find yourself overpaying for the place because you didn’t negotiate or carefully do your homework ahead of time.
Timeshare brokers will often try to inflate the price, and sometimes they’ll ask for as much as 55 percent above market value, according to Gary Prado, director of marketing and business development at RedWeek.com.
“The reason why timeshares continually get mocked is the way they get sold,” he said. “People don’t go out and say ‘I want to buy a timeshare today’, it’s sold as a heavy impulse buy.” Brokers will use the impulsive nature of the purchase to their advantage.
3. You could fall victim to a scam.
Even worse than facing a hard selling broker is dealing with timeshare scammers. Both buyers and sellers fall prey to their schemes.
Scammers will claim to be timeshare brokers who can help you sell your share at a great price, but you’ll end up paying hefty up-front fees, and the scammer will disappear before your timeshare sells.
Buyers can run into timeshare scams through the web, email, mail, and even radio, and it’s not always easy to spot the fraud You could end up sending your money to a scammer and never see your piece of the property.
“Truly we have an epidemic of fraud in this area,” said Charles A. Harwood, acting director of the FTC’s Bureau of Consumer Protection to CNN Money. “These victims, many of them elderly or in financial distress, looked to sell their units to help make ends meet or pay other bills.”
Laws have been established to limit scams, and the media tries to make buyers and sellers aware of these deceptions, but thousands still fall for them every year.
4. You can’t default on timeshare payments, even one time.
When you purchase a timeshare, you’re in it for the long haul. You’ll be expected to make regular payments on your piece of the property until you decide to sell it to someone else (if you can sell it to someone else).
Most timeshare brokers are unyielding when it comes to payments. If you miss a payment, the penalty is often foreclosure. This goes for your property taxes, maintenance fees, mortgage, utilities, special assessments, and any other pre-set fees.
Since a foreclosure can leave a lasting impact on your finances, the risk can be great. It will impact your credit score and make it very difficult to get future loans. Never buy a timeshare unless you’re certain you can keep up with the payments.
5. You don’t have as much freedom with scheduling your timeshare as you might think.
During the sales pitch, the broker will try to hook you with a promise of visiting pretty much anytime you like. Scheduling sounds like a piece of cake at the beginning.
However, it’s not always that simple. Depending on the other timeshare holders and the owners, you may have to do some hefty schedule negotiations. Don’t be surprised if the property is unavailable when you want it.
If you’re the kind of person who knows a good business deal when you see it, has steady excess cash flow, and takes several vacations to the same place every year, a timeshare could be exactly what you need. Just do your homework before making your decision.