Investing in a Time-Share: Good Idea or No?

May 8, 2018

Over the years, we’ve periodically fielded questions from clients asking whether purchasing one or more time-share units in vacation destinations is a good idea.  The locations range from Florida to Newport to Arizona, various Caribbean Islands and Mexico.  (During the Crash of 2008, we also received several panic calls asking how to unload units that had lost over 50% of market value, but I’ll get to that shortly.)

So let’s assume you’re on vacation (say, somewhere sunny, warm, with sand, surf and umbrella-garnished drinks at your elbow) and the thought – or sales pitch - comes along; “Why don’t we invest in a time-share here?” Naturally, this seems like a great idea.  You’d have a nice vacation spot to come back to each year without the hassle of finding accommodations, there’s no upkeep to worry about, you can potentially trade locations with other owners, and it’s a nice ego-polish to say at a social event, “Yep, I have a time-share in ‘fill-in-most-impressive-tropical-destination’” to friends, associates and the opposite gender.

Financially though, there’s more to it.  First is the up-front price which, depending upon the location, might be anywhere from several thousand dollars to $25,000 or more.  Then there are the annual fees.  Yes, even if you don’t use your time-share in a particular year and similar to a membership fee.  And that’s not including the “special assessments” which are apportioned amongst all unit holders if a major project has to be completed on the building you own a piece of.

Many get sold on the potential ‘profit’ feature of time-share ownership.  Sadly, the statistics bear out a different story.  Timeshares are often hard to sell, mostly because there may be a massive oversupply in the area.  This is what occurred to many owners after the real-estate crash in 2007-2008.  We still remember some clients asking whether we could offer any advice on how they could unload their ‘underwater’ vacation condos or time-share units, especially to save them the annual fees they were paying.  And to add to their woes, many found out from their tax advisors that the IRS doesn’t allow a capital loss deduction on selling a time share below the purchase price, as with other investments and real estate.

So as an investment, unless you happen upon an unusual situation, (and this would not be those offered by sales companies who offer free stuff to get you to hear the pre-hard-sell presentation), a time-share may not be the best idea.  Otherwise, here are few tips:

1) Think of the idea as a lifestyle purchase, not an investment.  If you really like the vacation spot and think you’ll be there each year without fail, then buying may not be a bad idea. 

2) Don’t buy on impulse.  Take some time to percolate on the idea.

3) Look before you buy.  And I mean physically-look, not just online, as you would a house.

4) Crunch numbers. Pencil out the costs of purchase and fees over 10, 15 or 20 years against renting.  How much are you really saving?

5) Try for a unit that will make you part of an owner’s association.  Having an association group banding together for disputes with management can often be helpful.