For those who enjoy vacationing in popular destinations, timeshares might seem like a great way to save money on future trips. However, the upfront costs and annual maintenance fees can add up to far more than you might realize. The best thing to do before making a timeshare purchase is to crunch the numbers.
You may find that a timeshare isn’t worth the investment. This is because timeshare companies typically jack up the price to cover expensive presentation costs and resort management fees. When the time comes to sell, you can expect your timeshare to be worth less than what you paid for it.
In fact, financial guru Dave Ramsey recommends avoiding timeshares, and not buying them at all. He calls them “real estate traps,” claiming that you’re paying for something that doesn’t appreciate in value and often comes with expensive annual maintenance costs.
Timeshares work by allowing owners to exchange their allotted week or points for stays at other resorts within a timeshare network. This allows travelers to visit more destinations without the cost of airfare and car rental, among other expenses. Those who choose to rent out their timeshare can also reap tax benefits. These are called rental-use deductions, and you can claim them if you itemize your tax returns.
However, there are many reasons to avoid a timeshare purchase. The upfront costs can be very steep, and you may end up paying more in maintenance fees than you would if you simply bought a hotel room. In addition, timeshares aren’t always easy to sell. This can leave you with a timeshare that isn’t getting used, or one that you’re unable to sell even when you want to.
Another thing to consider is that if you take out a home equity loan, you’ll be staking your home’s value as collateral. This could be a risky move, especially in the event of an economic downturn. A better alternative is to create an emergency savings account or beef up your retirement fund before spending any money on a timeshare.
You should also understand that the annual timeshare maintenance costs can easily exceed $1,000 USD each year, which will not only cut into your travel budget, but will likely increase annually. You might be able to offset this expense by renting out your timeshare, but you’ll probably need to spend a lot of money on marketing and advertising to make it profitable.
While you might be tempted to buy a timeshare because of the upfront costs and potential tax benefits, it’s important to evaluate the investment with the same scrutiny that you would any other major expenditure. Don’t be pressured into a sale by high-pressure salespeople, and remember that you’re not actually buying a piece of property. In fact, you’re just purchasing the right to use it, which can be difficult to sell if you ever decide to stop using it.