Why Timeshares Aren't Always a Scam

You’ve heard the horror stories, right? Your sibling, cousin, coworker or neighbor went to Cancún for vacation and attended a timeshare presentation. Their hotel was offering a sweet deal in exchange for just a tiny bit of time. When they were finally able to escape, someone was clamoring after them to buy a timeshare as they ran out the door.

Here's the thing: Timeshares, nowadays, are rarely scams. The Points Guy, Brian Kelly, recently sat down with Noah Brodsky from Wyndham Destinations to chat about the shifting timeshare market for the Talking Points podcast. Afterward, Kelly and I discussed some of the common mistakes people make when purchasing timeshares, as well as the pitfalls. Though they may not be outright schemes, there are many pitfalls.

If you’re considering a timeshare purchase, these are the things you absolutely need to know before committing to a timeshare you may be stuck with for the rest of your life.

Timeshares Are Forever

Or, at least, for a really long time. When you purchase a timeshare, know that you're generally buying “deeded real estate." It’s similar to buying a house, except you don’t actually own a freestanding home. Instead, you own a sliver of real estate somewhere. Your actual timeshare might be points that you redeem for vacations. That’s one method timeshare companies have developed to make timeshares more approachable.

Folks who bought timeshares 20 or 30 years ago were much more likely to purchase a specific week at a property. There were generally procedures to "cash in" or "transfer" that week to use it elsewhere. But complicated rules and restrictions mostly just discouraged owners from recommending timeshares to others, or taking full advantage of their timeshare.

Today, timeshare companies typically use points to represent what you buy, with a chart for all the properties they own or manage. While there may be early booking benefits for certain "direct" owners, it's generally first-come, first-served on inventory when you want to redeem your points. But, you're not starting with a "home resort" or a place that most of your vacations are supposed to happen.

At the end of the day, your points will generally translate to a percent ownership of a unit in a property somewhere in the world. That formula is important for the timeshare companies, because they use it to understand how many units or points they have to sell.

There May Be Tax Benefits and Penalties

Because you’re buying real estate, you may encounter tax advantages (or consequences) similar to buying a second home. In certain instances, your financing and maintenance costs may be tax deductible. You should definitely consult a tax advisor prior to making any decisions that involve tax consequences.

In most cases, you can sell your timeshare interest. You can also leave your timeshare to a beneficiary. Whoever inherits your timeshare will be able to use the property, whether that’s for vacation or for renting it out to others. But he or she will also be liable for any associated fees.

Disney Vacation Club Timeshares Don't Last Forever

Unlike, well, most other timeshares, Disney Vacation Clubs do typically have a shelf life. For example, I own a timeshare interest from Disney Vacation Club (DVC), which sells timeshares for a 50-year period from when the project is initially built. We purchased at Bay Lake Tower, next to Disney’s Contemporary Resort, right when it opened in 2009. But if you were able to buy points at Bay Lake Tower now, you’d receive your points for only the next 40 years: the initial contract length of 50 years minus the decade that's passed.

For some folks, that makes the cost of DVC harder to justify. But, DVC timeshare points hold their value much better than other timeshares, which can still make the math work in your favor if you're traveling to Disney with any regularity.

The Points Are Usually Fixed

As a general rule, most timeshare companies determine how many points are required for a certain type of reservation. The amount will vary based on factors like location, dates of travel and size of accommodations. However, once that has been determined, the “price” should stay the same. For example, Wyndham may determine that a one-bedroom deluxe unit at Bonnet Creek Resort in Orlando will cost 126,000 points during the first week of January. That number will generally stay static for that same room type and week in the future.

Disney Vacation Club, again, handles things a bit differently. While the total number of points for all room types at one property stay the same, DVC reserves the right to move points around. For example, they may increase the price of three-bedroom units during Christmas because of demand. To do so, they would need to lower another room and time period (or multiple rooms) the same number of points to “balance the chart."

Maintenance Fees Always Increase

Though points are typically fixed, the price of your vacation will change pretty much every year. That’s because the required maintenance fees will change. Maintenance fees include taxes and assessments, as well as the budget to update and refurbish all of the timeshare properties. You pay your share, based on the size of your timeshare (or, in most cases, the number of points you purchase).

As with most expenses in life, maintenance fees move in exactly one direction. Over the course of time, every example I’ve seen shows maintenance fees moving up over any decade-long period, but nobody can predict the exact amount of the increases. If you’re running math on what a timeshare will cost you over a long period of time, you should assume an average 3% increase in fees each year.

By way of example, Wyndham Destinations says that an average first purchase for a new timeshare owner might be in the neighborhood of $20,000. Over the course of two decades, if your maintenance fees went up 3% a year, you’d pay approximately $20,000 in maintenance fees for your timeshare over that period. That is not small change.

You Can Calculate the Nightly Room Rate

What you get for your timeshare investment varies greatly. As we discussed above, a week at Wyndham Bonnet Creek in Orlando will set you back 126,000 points in early January. But take that same vacation in March, and it may cost 166,000 points.

If we use the example of a one-bedroom unit in early January, and you were to take a week-long vacation there every year for the next 20 years during that same week, you’d spend about $2,000 a year for that room — roughly $286 per night. Budget-wise, you can certainly do better than that by using free award nights, points, or simply hunting around for a cheap cash rate. If a bargain is what you're after, you can quickly do the math to determine if a timeshare will work in your favor.

You Do Have Rights

In some states, there are limits on timeshare presentations. (Companies may only be allowed to “pitch” you for 90 minutes.) We asked members of our TPG Facebook Lounge about their experiences with timeshare pitches, and plenty reported perfectly normal conversations with timeshare companies. But others did report being hassled during the process — and after. If you’re ever hassled in a presentation, the best advice is to firmly state you’re not interested, get up and leave.

As a general rule, state law will also protect your purchase. That means you’ll have some time afterwards (typically seven days) to change your mind. One TPG reader, Andrew, purchased an allotment of points from Wyndham during a timeshare presentation. When he got home and dug into the math a bit more, he found that the best value for his points was taking a week-long vacation each year. That’s not generally the way he travels, preferring more frequent but shorter trips. He decided to cancel and got a full refund. He even got to keep the Kindle he was given as an incentive to sit through the presentation.

When a Timeshare Makes Sense

Back when our daughter was nearly 4 years old, I started to remember how much I loved visiting Disney World as a child. My wife had fond memories of Disney, too. As we started to plan our first trip I stumbled across Disney Vacation Club. At first, I was very skeptical. When I thought about timeshares, I pictured shady salespeople and rundown condos.

We worked out a deal to take a DVC vacation without a commitment. If we didn't like our first trip, we could pay for our room and walk away. Of course, my daughter had a blast. In fact, we were all smitten and knew we'd want to return to Disney World on an annual basis. When we crunched the numbers, we found we could save 30 to 40% off the cost of a Disney World hotel room and get better accommodations. (DVC rooms generally come with kitchens, washers and dryers.)

Those savings were appealing enough for us to purchase. And, we enjoyed our first two trips so much, we decided to buy more points. At first, I didn't understand that there was a resale market, but that ultimately worked to our advantage since Disney has now restricted some benefits only to folks who buy DVC direct.

A decade of timeshare ownership has passed for our family and we use our DVC timeshare in different ways than originally intended. We've moved around a bit to different DVC properties and even found ourselves renting out DVC points. (As a side note, renting DVC points from someone you trust can be a great way to save money on a Disney World trip.)

We have 40 years to go with our DVC timeshare, and the points are selling on the resale market for approximately what we paid 10 years ago, so we feel like we have a safety net if we ever decide to sell. For now, our plan is to enjoy watching our children take their children to Disney World using our timeshare.

When You Should Buy Direct

There are two primary paths to timeshare ownership (assuming you didn't inherit a timeshare in Maui you never knew about from your folks). You can either buy directly from a timeshare company such as Wyndham Destinations, or you can purchase one on the resale market.

If you're the sort of person who likes to vacation at the same place every year, and it's a location in high demand, you might be a good candidate for purchasing a timeshare directly, because in most instances, you get booking priority. If you don't want to stress about planning an annual vacation every year, and you'd prefer an experience more akin to a "vacation home," purchasing directly may also be a fit.

Disney Vacation Club is unique in that they restrict some of the key benefits of DVC membership only to those that buy directly. There are also rumors that DVC won't allow folks who purchase from the resale market to book some of their newest resorts.

When You Should Purchase on the Resale Market

For most people, buying on the resale market is going to represent a much better value than purchasing directly. There’s a robust market for timeshare resales and the prices vary greatly. In the case of Disney Vacation Club, the points hold their value remarkably well. Wyndham’s timeshare points, on the other hand, don’t generally hold the same value on the resale market. Recent listings on popular resale sites show points valued anywhere from 1.7 cents per point to 12 cents per point. That’s a big spread!

The example we used above, where you’d spend $20,000 with Wyndham, would net you somewhere around 140,000 points (or about 14 cents per point). A recent listing on a popular timeshare site shows a price of just over 1 cent per point. That's a huge difference. And a member of the TPG Lounge, Benjamin, reported buying points on the resale market for just under a penny per point. He got a phenomenal deal that allows him to have his family vacation in a two-bedroom condo when they travel for about $150 per night. (A way better return than the aforementioned $285 room when buying direct.)

The resale market does have some risks, but there’s also oversight and regulation on the resale market to protect you. Our best advice is to work with the most reputable companies in the resale space, such as Fidelity Resales and The Timeshare Store.

When You Should Walk Away

Timeshare ownership isn't for everyone. In fact, timeshares are probably not right for most travelers. If you collect a lot of points through frequent travel and credit card sign-up bonuses, paying for a timeshare probably doesn't make much sense. And, if traditional hotel benefits like housekeeping and room service are important to you, the timeshare life won't cater to those needs. (Though DVC does offer more of this than most other timeshare companies.)

You should also walk away if you're the type of traveler who likes to make spontaneous travel plans, if you're banking on being able to rent out your timeshare, or if you're interested in an investment property. These are the things timeshare salespeople tend to misrepresent in pitches.

To take full advantage of the most desirable timeshare locations you'll need to plan in advance, and the ease of rental depends entirely on what type of property you've booked, and where (Wyndham has way more inventory than DVC, making their timeshares much more difficult to rent). If you want an investment property, look at traditional real estate — not a timeshare.

The Bottom Line

The most important thing to remember about timeshares is that they are a commitment. There are ways to get out of them once you buy them (and your right to cancel expires). But, those paths are rarely pretty. Though renting out your timeshare is one option (more on that soon) the best thing you can do is extensive research before you buy. Make absolutely sure you know what you’re purchasing, and that a timeshare vacation fits your travel style.

All photos courtesy of the author.