TIMBER!!! The timeshare market has really had a falling out – the resale value on a typical timeshare is falling faster than the value of a new car.
Thousands of timeshares are for sale at $1 or less! This isn’t Detroit, either; we’re talking about timeshares in some of the most popular tourist destinations in the country. So what’s going on in the timeshare market?
The True Cost of Sharing
In a perfect world, a timeshare would be the best of bargains. You’d own part of a luxury resort, have special claim to some of the nicest beaches in Florida, the best views in Hawaii, or the finest mountains in Colorado. And you’d be able to use it whenever you wanted, so long as you keep under your contracted use each year. If you couldn’t use your timeshare, you’d be able to rent it to someone else, pocketing the difference between rentals fees and annual maintenance.
Wait – maintenance?
And this is where the idea of sharing something all falls flat on its face. Whereas an owner of vacation property pays only for the maintenance on his or her individual unit, maintenance fees in a timeshare are effectively “socialized” and spread among every owner.
The problem is, though, that there are fewer timeshare owners today, and far more in delinquency. So while the true maintenance cost to maintain the property rises at the cost of inflation, the cost passed on to owners rises at inflation plus default rates. Someone has to pay the price, and it isn’t the people who refuse to pay – it’s the people who do pay. Each time one timeshare owner pays a maintenance charge, he or she pays for all the people who have no intention to mail in a check.
In just one year, from 2007 to 2008 (the very start of the global financial crisis) the average timeshare maintenance fee soared 12.3% to $646, according to the ARDA. This 12.3% industry-wide explosion in costs appears to have compounded for the last several years as more owners default on annual dues.
Don’t Fight the Fed?
Timeshares might be yet another example of fighting the Federal Reserve. In 2008 the average timeshare owner was 54 years old. The skew is naturally toward aging Americans (who are REALLY Screwed), as in 2000, the median owner was 54 years old.
Now, 12 years later and interest rates depressed, it’s only logical that the most important demographic for timeshare purchases, rentals, and resales faces crippling investment income.
Consider that in 2007 $1 million of risk-free assets (a popular asset class with retirees) would yield as much as $50,000 per year. Today, that same $1 million generates only $16,800 in income in the best 5-year CD on the market (see this CD Table for comprehensive quotes near you). As more assets are rolled over from higher fixed-rates from the housing boom years, disposable income available for vacations (and naturally timeshare maintenance fees) plummets.
Timeshares Really Are Worthless
I researched quite a few timeshares after hearing about the number of timeshares being sold for $1, or given away for free. There are literally hundreds of timeshares available for free – the current owners simply want a way out of their contracts.
- One listing offered a Florida timeshare for $1. The annual maintenance fees were $800, and the timeshare entitled the owner to a week-long stay, once per year. Interestingly, I found a timeshare available for rent in the same resort for $750 per week. To pay $1 for this timeshare would mean you would pay MORE for vacation, to vacation at the exact same spot year after year.
- Another listing offered a timeshare for $0. The same price discrepancy between rent and maintenance fees came in play here – $1500 in maintenance fees per year vs. $1200 to rent a similar unit for one week. Why would anyone want to lock in for life at $1500 per year when the same timeshare, rented with 100% flexibility and zero ownership, costs $300 less?
This problem appears to be industry-wide. Not to mention, timeshare owners are required to pay annual maintenance whether or not it is used from year to year.
It seems fairly obvious now why timeshares are never a good investment. The price of maintaining a timeshare can (apparently quite easily when others default) rise well in excess of expected rental costs. Over the long haul, the price of your timeshare is likely to decline in value, while the maintenance costs push higher and higher year after year.
Have you ever been suckered into the timeshare sales pitch?
Do you know anyone with a timeshare? Do you own one yourself?