What is timeshare?

What exactly is timeshare? How does it work?

Hi there,

A timeshare is an entitlement to use a property (typically a holiday home or resort accomodation) for a specific amount of time every year. When you buy a timeshare, you are effectively buying a share of a resort or holiday home, and you become a co-owner.

Some timeshares have fixed dates, guaranteeing that the accomodation is yours to use during specific periods at specific intervals (the third week of August every year, for example). Other timeshares are flexible (one-week per year, for example), and require you to book in advance to claim your entitlement.

Timeshare entitlements can normally be swapped through timeshare agencies or marketplaces. For example, if you prefer to vacation in Bali instead of Valais one year, you can swap your Valais resort entitlement for a Bali resort entitlement if you find a willing trade partner.

Typically, a timeshare is purchased for a lump sum. For example, you may pay 20,000 Swiss francs to secure the right to use a holiday apartment one week per year indefinitley. It is usually possible to sell your timeshare if you choose to.

Things to watch out for

Timeshares in themselves provide a relatively cheap option for people who visit the same destinations on a regular basis. Unfortunately, there are numerous irreputable operators and even outright scams in the timeshare business.

Semi-legitimate timeshare agencies may sell timeshare agreements that include clauses which make it impossible for you to actually claim your entitlement. For example, agreements may include clauses which only let you claim entitlements when accomodation is not booked by other customers - which may never happen.

The high profits and relatively poor regulation of timshare sales have also drawn con-artists which promote and sell fraudulent timeshares.

Because of these risks, it is crucial that you only buy timeshares through reputable timeshare agencies.

Things you should know

1. Fees. In addition to the intiital amount you spend to purchase a timeshare, you must also pay a number of other fees. The most basic of these is the maintenance fee which covers the cost of maintaining the property. This fee is divided among all shareholders based on the share they hold (share of accomodation x share of time). You may also be required to pay service fees which help cover the cost of resort amenities, salaries, food and beverages, utilities, etc. Another fee known as a special assessment fee may also be charged. This fee is usually variable and covers unexpected costs which are not covered by maintenance fees. So owning a timeshare is an ongoing financial responsibility.

Always ask the agency, resort or real estate manager for a full budget breakdown for the timeshare in question and study it carefully before buying in. Add up the total possible costs - including the purchase price and ongoing fees - to determine whether you will really save money by buying instead of renting.

2. Defaults. It is also important to note that if you do not claim a timeshare entitlement (for a certain year, for example), you normally lose it. Some timeshares require you to claim your timeshare in advance of your stay, and default if you do not.

3. Exchange risks. If you plan to swap timeshare entitlements, be aware that when you list a timeshare entitlement to swap for another resort entitlement, your entitlement may be forefeited if a match cannot be found. Each agency has its own rules regarding exchanges, and you should understand these before trading timeshare entitlements.

4. Inflexibility. Timeshares are a long-term commitment, and while you can usually sell timeshares, finding willing buyers can be difficult. Additionally, timeshares generally require a large expenditure of money for the initial purchase. You lose the interest or returns you could earn by investing the money (though an online broker, for example) or placing it in an interest-bearing savings account.

5. No insurance. If you cannot claim entitlements (due to illness or accidents, for example) you generally cannot claim compensation from either the resort or from your travel insurance provider. Trip cancellation insurance does not normally cover timeshare assessments and service fees. If the resort goes bankrupt at some point, your investment will normally be lost. The same holds true if you were to pass away or become disabled.

Verdict:

Genuine timeshares purchased through a reputable agency can be a cheap option for people who like to stay at a specific resort regularly (every year, for example). However, they also bear a fair amount of repsonsibility and a certain amount of risk. Risk-averse individuals would normally do better to avoid timeshares.

Best regards from Moneyguru

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