What About a Timeshare?
If you get a call or information in the mail offering you a free or greatly discounted vacation at a popular tourist destination, chances are that you've been targeted as a potential purchaser of a timeshare.
Timesharing, basically, is when individuals purchase the right to spend a specified amount of time each year at a specific place. Most timeshare agreements allow you to trade with owners in different locations.
Timeshares were hot commodities 15 or 20 years ago, and then became less popular for a while. Sales are on the rise again, however, increasing by 14 percent during the past 6 years. More than 1.7 million Americans currently own timeshares, according to the American Resort Development Association.
If a timeshare company identifies you as a potential buyer, it may offer you, your spouse or partner, and maybe some other family members a couple of free nights in a hotel or motel. It probably will throw in some other incentives such as free or discounted meals, shopping, and admission to area attractions.
In exchange for the free stuff, you've got to agree to spend a couple of hours with a salesperson who's trying his darnedest to get you to plunk down $10,000 or so to buy a timeshare offered by his company. He'll tell you why his timeshare company is the best, and show you catalogs of all the great places you'll be able to visit when you trade timeshare locations with other owners. He'll probably show you a couple of timeshare models that are nearby, and then ask you to commit on the spot to buying one.
The average timeshare owner is 49 years old, earns $70,000 in annual income, is married, well educated, and has children.
If you've done your homework and decided that a timeshare is for you, you may enjoy one of these presentations and the opportunity to buy. Just remember, however, that many of these salespeople use high-pressure tactics and don't give you the opportunity to sleep on your decision.
The average price of a timeshare is $10,500, which normally guarantees you the use of your timeshare for one week per year for the rest of your life. Prices vary based on the time of year you'll use the unit, and its location and size. Buyers traditionally put down 10 percent, then pay the balance over the next 7 years.
For the privilege of owning a timeshare, you get to chip in for property taxes, general upkeep, furnishings, and maintenance. Those costs average about $400 a year. An upside, however, is that you can get a mortgage to buy a condo and deduct the interest you pay on it.
Timeshares are interesting concepts, and many people think they're great. Most timeshare deals allow you to trade for different locations, allowing you to test out new spots without the cost of having to rent a house or hotel room while you're there. Some timeshare deals allow you to buy a week a year and use one or two days at a time, making them attractive to businesspeople.
Don't Go There
Most timeshare companies are happy to give you a loan, but they usually come at a much higher rate than a mortgage you could get on your own. Don't be talked into taking a company loan.
According to the Better Business Bureau, you should keep the following tips in mind if you're considering buying a timeshare unit.
A timeshare is not a real estate investment. It is a pre-paid vacation accommodation. All expenses associated with a timeshare should be looked at as vacation expenses.
Make sure the timeshare property is in a location you don't mind visiting again and again. And check to see if you're bound to the same date each year, or if the dates that you can use the facility are flexible.
Make sure you understand all the implications of what you agree to at signing.
Determine if the unit is a deeded interest or a right-to-use unit. Deeded units may be more expensive, but they can provide some tax benefits (deductions) and can allow a buyer to have a voice in the management of the resort.
Buying a timeshare is a long-term commitment. Make certain the developer or owner of the timeshare resort has long-term plans for managing the property.
Many timeshare resorts are affiliated with exchange programs that allow owners to exchange their weeks for weeks at different locations. Keep in mind, however, that there is no assurance that the exchange program will be able to provide the timeshare owner with another accommodation that is desirable or available at the time the owner wants to swap. Also be aware that there is no guarantee a timeshare development will continue to affiliate with an exchange program.
Maintenance fees can rise as the property ages and upkeep becomes more expensive.
Money paid toward the purchase of a timeshare should be kept in an escrow account until the title to the unit is free and clear.
Consider all costs associated with buying a timeshare, including travel costs.
For more information about timeshares, including secondary sales, check out the Timeshare Users Group online at www.tug2.net.
A drawback of buying a timeshare is that you might have trouble getting what you want for it if you decide to sell. New timeshares are being built constantly. The company that sold you your timeshare generally won't buy it back, leaving you on your own to sell it.
There is a secondary timeshare market, which is something to consider if you're thinking about buying a unit. You can get some terrific deals on timeshares that have outlived their usefulness and now are burdensome to the owners.
Timeshares have their own set of advantages and disadvantages, all of which should be carefully considered before you buy. Try to avoid the high-pressure sales that come along with those free vacations, or be well prepared with questions and background information before you get into that situation.
More on: Family Finances
Excerpted from The Complete Idiot's Guide to Personal Finance in Your 40s and 50s © 2002 by Sarah Young Fisher and Susan Shelly. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.
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