What is an Investment?

An investment is a product or vehicle whereby you deposit (in this case your taxed money) into something on the understanding that you have a chance of increasing your investment/deposit equity. The investment can go up or down: the return, benefits and expectations will vary and dependant on the risk applied. Large risky investments will attract higher rewards, whilst low risk investments will attract lower rewards. In short the yield on the investment is based upon the risk the investor takes.

In respect to timeshare you are (if presented that way) investing into a product that is not easily liquidated, attracts long term maintenance costs (which are variable) and upon acquisition attacks an extensive devaluation of the investment with regards to resale is real.

If a consumer/investor intends to or is persuade to can enter a timeshare product for the long term and with the hope that at some future date they will reap a reward they are in short are deluded or deluding themselves. Harsh but true.

If you consider timeshare as an investment then that investment can only be considered as very long term investment. Consumers therefore have to consider the events which might occur in the future which will affect their investment and when addressing these issues investors are reminded of the events which took place in 2014.

With regards to two resorts manager at Palm Beach Resorts and MacDonalds Resorts they changed the constitutions of the clubs which maintain their timeshare resorts. In these two situations and after the consumers and investors have held there timeshare for many years and at significant cost, both resorts managers proposed (and had passed by the clubs) new constitutional rules whereby the investments/timeshares have been taken off the investor/consumers and for no enrichment. In short they have lost everything. In truth and in opposition to the changes in the constitution the resorts actually charged the investors for having their investments/timeshare removed and against their will.

Is this what you would determine as an investment whereby you the investor have a realistic prospect generating extra income or value?

Other Considerations

There are a vast number of owners trying to rid themselves of their timeshares ownership especially during this time of financial crisis.

They want relief from the ever escalating fees associated with timeshare and some are having a hard time in doing so.

Timeshare packages remain in the market and the liabilities associated with their timeshare properties continue to tie people down. Selling the timeshare ownership is doubly difficult these days, because of the financial downturn that the economy is experiencing as you cannot simply just run away from your contractual responsibility you have with the products you purchased. So, regardless of your circumstance, you are forced to keep your timeshares and discharge the corresponding maintenance and other associated fees.

Rationalisation for Buying a Timeshare. Is it some form of Investment?

Most people who purchased timeshares were enticed and sometimes induced into the acquisition, indeed with the idea that owning one is an investment. They were persuaded to believe that owning a timeshare can greatly benefit a person, especially in the long run. The said this initiative is usually employed by timeshare selling agents or companies who are trying to dispose of these packages to people for a profit which is a self serving interest.

Challenging the Concept that, Timeshare is a Financial Investment

People may be and sometime are unaware that timeshares may be considered as investments but not a financial one.  Investment is the action or process of investing money for profit. Timeshares cannot be considered as financial investments because their worth decreases in time and become a liability. This is because timeshares simply mean long term holiday packages that anyone can avail of for a more worry-free vacationing. As homes/houses (by some) are not to be considered to be financial investments, it is even more impossible to consider timeshares, which are only holiday packages, as opposed to economic investments.

Stretching the Concept Timeshare could only be considered an Investment for Good Health

Timeshare can only be considered as an investment if it is related to the health benefits that a person can get from having time for a regular holiday (ignoring the worry of how to dispose of it). As it is already a holiday package, timeshare owners find it more advantageous to have timeshares because planning, scheduling and having a regular holiday is made easier with timeshares.

These are the real benefits that timeshares offers, easy and yearly vacationing.

Get Relief from the Timeshare Myth

Having laid down all facts and possibilities, timeshare owners and even those who are still looking at acquire the similar package should keep in mind that timeshares are not financial investments.

It is for all intent and purposes a holiday package and should never be considered as an asset. It is more of a liability because of the maintenance and other associated fees being regularly collected by timeshare resort clubs. So, when the time comes and you consider selling your timeshare property you are already aware that you cannot obtain a gain from a future sales transaction because it is not an investment and never will be.

Time Value of Money

Investors in timeshare should always be mindful of the time value of money.

This is the fundamental assumption that money in hand today is better than the same amount tomorrow (a bird in the hand) or at any other time in the future.

This hypothesis continues to be proven true thanks to inflation and opportunity cost (opportunity cost reflects the inability to pursue other opportunities because the funds are tied up).

With timeshares, you are charged a large chunk of money up front for something you are planning to use in the future. Those of you who think financing will solve this may not be familiar with the rates being offered, which fluctuate in the range of unsecured credit card rates (but without the discount for those with high scores). That leaves one of two choices: pay high interest rates or pay a significant opportunity cost (since you are essentially pre-paying for vacations). Pre-paying for your vacation accommodations is the antithesis of leveraging cash flow producing investments.

Maintenance Fees

All timeshares have maintenance fees. This means that every year, regardless of whether or not you actually use your week, you have to pay a fee. This maintenance fee goes up every year. The timeshare clubs who run the sites of have to charge enough in maintenance fees to not only cover the costs of running the resort, but also to cover the profit that the company doing the property management needs to make. In reality the fees also include every legal cost the club incurs and the exit expenses which are paid to the outgoing consumers who were mis-sold their timeshare.

A Depreciating Asset

Timeshares are like new cars: the second you drive them off the lot, they lose value. Timeshares loses between 40 to 85 percent of their value once you buy them. If cars depreciated that quickly, I doubt anyone would buy a new one without being subjected to timeshare-like sales tactics.

If you don’t believe me, do a quick test. Look for units for sale on Ebay. You will find that the online listing amounts are typically 75 percent below the retail prices at the resorts. Most of those aren’t even selling. Unfortunately, most people put so much money into timeshares and are so unrealistic about their actual value that they have a difficult time pricing them at a market rate (the rate at which the unit would actually sell).

Timeshares, like new cars, are depreciating assets but worse.

Rental rates are lower than you think

You can often rent someone else’s timeshare week for less than you are being asked to pay in maintenance fees. There are many timeshare owners out there who are unable to use their weeks for the present or coming years and will rent them out to other people. In fact, there are so many that they generally end up going for much less than the original asking prices. This is not something you will find out from the dubious salespeople at the resorts.

Exchanges

Holiday time is supposed to be your time and your time away from the stress and the rat race which modern day living attracts. Do you really want to feel tied down to a specific property each and every year?

Timeshare salespeople know that many people don’t want this, so they fervently push the values of exchanging your units in order to travel to other places in the world.

That said it is going to cost you some money to use the service.

Despite the efforts, your exchange value diminishes over time. Most people want to travel and stay in newer resorts. That works great when your resort is new and in a great location, but what happens in 10, 15 or 20 years? What you are able to exchange into is based on what you are trading in respect to some companies.

If you think the resort will remodel it once it gets outdated, it’s time to get your head out of the clouds. Resorts management companies and developers make their money up front. Remodelling, just like increased expenses for repairing roofs, grounds, etc., come from the owners, which means you could end up paying even more money. Let’s just hope you don’t buy a timeshare in hurricane country or a timeshare in a weather blighted area.

Timeshares can be a lifestyle expense (we didn’t say investment) if they are purchased in the right manner and for the right reasons.

It may make sense if you and your family know that you love a particular resort and would like to vacation there each and every year. However, timeshares are not an investment, and timeshare salespeople in most countries are prohibited from even using that word.

Your best bet, if you really want to buy a timeshare, is to purchase a resale. Don’t get caught up in the idea that owning a ‘fee-simple’ timeshare is the same thing as owning an investment in property. It’s not.

 


Last modified: March 11, 2016