Timeshares
Timeshares are a special form of real estate ownership for vacation homes.
Timeshares are a special form of real estate ownership for vacation homes.
For the most part, there are two types of timeshare ownership: a deeded plan and a non-deeded plan.
In a deeded timeshare plan, you purchase a fractional ownership interest in a specific unit. You can rent, sell, donate, or bequeath your ownership interest just as you would any other real estate that you own. Ownership of a deeded timeshare can be structured in one of two ways: a fixed week or a floating week arrangement. In a fixed week arrangement, each owner receives a deed to the timeshare for a specific week(s). In a floating week arrangement, each owner receives a deed to use the timeshare for a week during a particular time period. However, the owner must then call the resort each year to make a reservation for the specific week that he or she wants to use the timeshare.
In a non-deeded timeshare plan (also known as right-to-use ownership), ownership remains with the original property owner/developer. You purchase a lease, license, or club membership that gives you the right to use the property for a specific time each year for a limited number of years. Once the lease expires, the right to use reverts to the property owner/developer.
As with any real estate purchase, you should seek legal advice before signing a timeshare contract.
Many timeshare developments belong to timeshare exchange programs. These programs give you the ability to trade your timeshare week(s) with another timeshare owner. Most timeshare companies offer in-house exchange programs, as well as the ability to exchange your timeshare for another anywhere in the world at the same, one-time fixed price.
Many exchange programs charge some type of fee to list your timeshare for exchange. The first year of membership is generally included in the purchase price. After that, there is an annual fee, as well as fees for each exchange.
Some timeshare companies place a point value on each timeshare unit. Under the point system, you receive vacation credits that are redeemable for a varying number of accommodations, depending on the season, day of the week, size of the unit, and resort location. You may also be able to use your points toward the purchase of another timeshare.
Vacation clubs own multiple timeshare properties in different locations. After paying a fee and annual club dues, members can reserve timeshares at the various properties owned by the club.
The cost of purchasing a traditional second or vacation home is out of reach for many consumers. Timeshares can give you the ability to have such a home, since you are only purchasing a fractional interest. Prices depend on many factors, such as the season and the timeshare's location.
In addition to the cost of purchasing the timeshare, you must pay an annual maintenance/management fee. This fee must be paid every year, regardless of whether you use your timeshare, exchange it for another, or don't use it at all in a given year.
Timeshare prices in the resale market tend to be lower than the price charged by developers for new units. You may benefit greatly by shopping in the resale market before you buy.
Generally, the interest that you pay on a deeded timeshare loan is tax deductible on your income tax return as interest on a second home. Your share of property taxes is also deductible. However, if you rent out your timeshare, you'll need to follow special tax rules for second/vacation homes.
The interest that you pay on a non-deeded (or right-to-use) timeshare loan is not deductible. However, if you used a home equity loan to finance the purchase, the interest may be deductible.
You can usually find timeshare sales representatives in most vacation destinations with a high tourist population. Or you may be contacted by a timeshare development through direct mail. After listening to a sales presentation and taking a tour of the facility, you'll be asked if you're interested in purchasing a timeshare. Most timeshare developers will finance the purchase of their timeshare units. However, these loans often have higher interest rates and shorter terms than conventional mortgages. Some lenders will also finance the purchase of a timeshare unit.
Before you sign on the dotted line, consider the following:
If you need more information on purchasing a timeshare, contact the real estate commission or office of consumer protection in the state where the timeshare is located.
Keep in mind that if you purchase a timeshare in a foreign country, U.S. federal or state property laws generally won't protect you.
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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2023
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