- ALTERNATIVE INVESTMENTS
- REAL ESTATE INVESTING
Googlawi / Laura Porter
What Is a Timeshare?
A timeshare is a collective model of vacation real estate in which multiple buyers own or lease allotments of usage for the same property. The timeshare model is used for many different properties, with units offered in vacation resorts, condominiums, apartments, and campgrounds.
In its 2023 industry report (the latest available, using 2022 data), the American Resort Development Association (ARDA), the main trade group for the timeshare sector, said there were 1,541 timeshare resorts in the U.S., with 252,470 total units. The average timeshare transaction had a price of $23,940 .
KEY TAKEAWAYS
- A timeshare represents distributed ownership or leasing of vacation property where multiple buyers have exclusive use of a property for a period of time.
- Timeshares are available for many kinds of vacation properties, such as resorts, condominiums, and apartments.
- Timeshares are available in fixed periods (the buyer has specific dates each year) or floating periods (use of the property is limited to a season during which it can be reserved, typically on a first-come, first-served basis).
- Scams abound in parts of the industry, especially in the secondary market, where owners are attempting to sell or rent their timeshares.
How a Timeshare Works
Timeshares are vacation properties where ownership or occupation is divided between several parties. Timeshares are popular in vacation locales where owners may want repeated use of a property without the cost of full ownership. Timeshares confer upon its buyer the right to annual exclusive use of a vacation property for a defined period, generally measured in one-week increments.
Timeshare properties include homes, condominiums, and resorts. The timeshare model has also been used for recreational vehicles and private jets.
Typically, timeshares are in one of the following models.
Fixed Terms
A fixed-period timeshare gives a timeshare buyer the right to exclusively use the property for a specific week or weeks each year. The main advantage is that the buyer can plan an annual vacation at the same time every year. The disadvantage of this method is that it may be very difficult to change the dates for the fixed period if work or school schedules change.
Floating Timeshares
A floating-period timeshare gives exclusive use of the property for a week or weeks during preset dates or throughout the year. While it is more flexible than the fixed-period system, the floating date model could mean the specific dates you need are already booked, e.g., during the busiest times of the year, and may need to be reserved well in advance.
Points
This system adopts points to represent timeshare use. Just as the cost of booking a hotel will depend on the resort location, size of the vacation unit, and dates, the points vary similarly, though they are usable for one or more resort properties. Those who own points can use them on exchanges within one company's resorts (internal exchange) or with other resorts (external exchange). While the points system provides buyers with increased vacation choices, there can be vast differences in the properties and across times of the year for how far your points can go.
Timeshares Types
Timeshares are typically structured as shared deed or shared lease.
Shared-Deeded Ownership
Shared-deeded ownership gives you a percentage of the physical property corresponding to the period bought. For example, one resort condo sold in timeshare increments of one week can technically have 52 total deeds. Buying one week would confer a one-fifty-second ownership interest in the unit, while two weeks would give you a one-twenty-sixth interest, and so forth. Shared-deeded ownership interest is ordinarily held in perpetuity and can be resold or willed to other parties.
Shared-Lease
Shared-lease timeshares give you the use of a specific property for a fixed or floating period each year for a certain number of years. In this structure, the timeshare developer retains the deed to the property, unlike the shared-deeded model, where the buyer gets the deed for a fraction of the property. Property transfers or resales are also more restrictive than with a deeded timeshare. As a result, leased timeshares typically have a lower value than a deeded timeshare.
Holding a leased timeshare does not afford fractional ownership of the underlying property. According to the ARDA, fractional ownership is more typical in the luxury segment of vacation properties, offering more services and amenities.
Industry Metrics
According to the ARDA, there were 252,470 timeshare units (including lock-offs, which are multiroom units that can be separated into two discrete units) in the United States in 2022. The industry generated $10.5 billion in revenue from 1,541 U.S. resorts, with 11.6 million total nights rented during the year.
Timeshares vs. Airbnb
Are timeshares even relevant in a sharing economy where Airbnb is such a prominent company? While Airbnb has changed how people rent vacation spaces, it has not stopped the growth in the timeshare sector. Before the COVID-19 pandemic, annual timeshare revenue growth increased for 10 consecutive years, picking right back up again in 2022.
Timeshares and Airbnb have specific attributes that appeal to two divergent demographics. The main appeal of Airbnb and other home-sharing sites is their flexibility and ability to offer unique experiences—attributes said to be more cherished by millennials.
The downside, as regular Airbnb renters attest, is that the quality of accommodation is not always guaranteed, and there's a possibility that the haven you thought you were booking is actually a hotel. In addition, because most Airbnb rentals are residential, the amenities and services found in timeshares may be unavailable.
Conversely, timeshares typically offer predictability, comfort, and many amenities and activities—but almost always at a premium.
Many timeshare companies allow owners to “exchange” their timeshare location with another one to provide more flexibility for owners among several destinations.
Advantages and Disadvantages of Timeshares
- Familiar location every year without any unpleasant surprises
Familiar location every year without any unpleasant surprises
- Resort-like amenities and services
Resort-like amenities and services
- Avoids the hassle of booking a new vacation each year
Avoids the hassle of booking a new vacation each year
- Timeshares are difficult to resell
Timeshares are difficult to resell
- Aggressive marketing practices
Aggressive marketing practices
Advantages Explained
Most timeshares are owned by large corporations in desirable vacation locations. Timeshare buyers have the peace of mind of knowing that they can vacation in a familiar location every year without any unpleasant surprises.
Timeshare properties usually have resort-like amenities and services and are professionally managed. Compared with a typical hotel room, a timeshare property is likely to be significantly larger and have more features, enabling a more comfortable stay.
Timeshares may thus be suitable for people who prefer vacationing in a predictable setting every year, without the hassle of venturing into the unknown regarding their next vacation.
Disadvantages Explained
The ongoing costs can be significant after factoring in the substantial upfront payment and annual maintenance fees, with the latter generally trending higher on a percentage basis year after year. For a deeded timeshare, the owner also has to pay a proportionate share of the monthly mortgage. As a result, the all-in costs of owning a timeshare may be pretty high compared with staying for a week in a comparable resort or hotel in the same location without owning a timeshare.
There is little flexibility to change a fixed week timeshare; a floating week has to be reserved well in advance as confirmation is generally on a first-come-first-served basis, and even so, it might be unavailable during the busiest times of the year. In addition, a timeshare contract is binding; the owner cannot simply walk away from a timeshare contract because there is a change in their financial or personal circumstances.
It is notoriously difficult to resell a timeshare—assuming the contract allows for resale in the first place—and this lack of liquidity may deter a prospective investor. A timeshare resale may fetch a much lower price than the initial cost for two reasons: timeshares tend to depreciate quickly, and there is a mismatch in supply and demand due to the number of timeshare owners looking to exit their contracts.
Timeshare sales representatives also generally employ aggressive marketing tactics to coerce prospective buyers into making a purchase. These tactics can sometimes be difficult to defend against because they are rooted in human behavioral studies and use techniques designed to almost trap a person into a purchase.
Other Considerations
The timeshare industry is infamous for its aggressive marketing practices. Many timeshare purchases are impulsive, made by consumers swayed by slick marketing and tall promises.
For example, Las Vegas has many timeshare marketers tempting the city's visitors to listen to an off-site timeshare presentation. In exchange for listening to their pitch, they offer incentives, such as free event tickets and complimentary hotel accommodations. The salespeople work for property developers and frequently employ high-pressure sales approaches designed to turn "nays" into "yeas."
The prices developers charge are significantly more than a buyer could realize in the secondary market, with the developer surplus paying commissions and marketing costs. Timeshare marketers may also frequently conceal the actual cost of timeshare ownership and exaggerate its potential benefits. Because the timeshare market is rife with gray areas and questionable business practices, it is vital that prospective timeshare buyers conduct due diligence before executing any contract.
Renting a Timeshare
Timeshares typically become available for rent when the owner does not need the unit during a specific period of time. Owners list their timeshares for rent on sites like Trip Advisor, Timeshare Users Group, and Redweek. On these sites, you can search for your rental by location, size, dates, and price. There are also specialized timeshare rental sites for Disney, Hilton, and Hyatt. Renting a timeshare is a good way to try one out before you make a long-term purchase.
Timeshare Scams
Another downside of timeshares, beyond the experience of marketers' intense sales pitches, is that scams have been found across the U.S., and indeed internationally, as state attorneys general, the Federal Trade Commission (FTC), and several American consulates abroad have issued warnings about the particular timeshare scams endemic to their areas. As part of their cons, scammers have even represented themselves as from the industry's main trade group, the ARDA.
Timeshare frauds typically revolve around the sale, resale, or exit strategies for timeshare agreements—the difficulty of selling timeshares you own is the opening scammers need. Here are some of the methods con artists have employed (“owner” is used loosely below for both those involved in leases and in shared-deed timeshares to avoid confusion with fraudulent "buyers"):
- High-pressure sales tactics: It's typical during an initial timeshare presentation for potential owners to face high-pressure sales tactics, but overblown and misleading promises and misrepresentation of the contract terms are another matter and are illegal forms of fraud.
- Resale scams: This is the most commonly cited fraud by attorneys general: scammers target timeshare owners wanting to sell. The scammers promise to find buyers quickly, often asking for upfront fees, but never sell anything.
- Rental scams: As in the resale scams, fraudsters claim they can rent out the owner's timeshare for a lucrative price, requiring an upfront fee for this service, but renters for the timeshare never appear.
- Exit or cancellation scams: Another fraud targeting owners who want out of their timeshares involves offering legal services to cancel the timeshare contract for an upfront fee. The fee is collected, but the contract remains.
- Phony buyers: The owner is contacted by someone claiming to want to buy the timeshare for themselves or another very interested buyer. They mention an attractive price, but the owner will have to pay some fees upfront, after which the supposed “buyer” disappears.
- Maintenance fee or assessment scams: Owners are again contacted and told that a special assessment or an increased maintenance fee is due and requires immediate payment. The fraudster, however, does not represent the timeshare firm involved in the original sale.
- Upgrade or trade-in scams: Timeshare owners are offered an opportunity to exit their current timeshare for a better unit or location. These, of course, require upfront fees and other unnecessary expenses.
A criminal case prosecuted in Georgia shows how these scams usually take shape. In October 2023, partners in a decade-old timeshare scam were sentenced in a scheme that went back more than a decade. From 2012 to 2016, Jess Kinmont and John P. Wenz, Jr. ran Pro Timeshare Resales, where they employed telemarketers using scripted dialogues to defraud timeshare owners. The scripts falsely claimed the company had immediate buyers or renters for the timeshare owner's property. Despite their promises of quick sales while giving specific dates for closing deals, Kinmont and Wenz never sold or rented any timeshare interests during the five years the business ran.
The duo charged owners up to $2,500 upfront and then persuaded many to pay extra for supposed closing costs or other fees related to these nonexistent transactions. Requests for refunds from consumers were denied or ignored. Ultimately, Kinmont and Wenz swindled over 8,000 people across the U.S.
How Big Is the Timeshare Market?
In its latest report (from 2023 reflecting 2022 data, the latest available), ARDA stated the timeshare market generated $10.5 billion in revenue from 1,551 resorts, which accounted for 201,600 non-lock-up units.
How Many People In the U.S. Have Timeshares?
According the the ARDA, more than 9.9 million people own one or more timeshare.
What Percent of People Actually Buy Timeshares?
If U.S. Census and ARDA information (in its 2023 report reflecting 2022 data, the latest available) is accurate, there were about 127 million households in the U.S. in 2020, and 9.9 million households owned timeshares—about 7.8% of U.S. households own timeshares.
The Bottom Line
Timeshares allow individuals and families to buy the right to use a property for a specific time each year. While they appeal to many regular vacationers, timeshares also have notable downsides, including ongoing maintenance fees, inflexibility with dates and locations, and potential difficulties in resale or cancellation. The timeshare market is rife with scam artists, particularly in the resale and exit sectors—so it's best to exercise caution and thoroughly research any timeshare opportunity.