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Timeshare Math

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I Want to Purchase a Timeshare…

As you may have concluded from reading above, it may not be the best idea to purchase a timeshare directly from the developer as it rarely will become the investment vehicle it is often times touted. However, purchasing a time share on the secondary market may be ideal depending on your travel preferences over a long period of time moving forward. It is best to do independent research concerning timeshares to educate yourself on the ins and outs before considering it as an option. This will allow you to contour a more concrete definition of what would be ideal in your case and build expectations vs being informed of your preferences in the midst of a high pressure sales environment.

The Math Behind Timeshares…

The cost of most timeshare packages ultimately total between $12,000 & $20,000. There are a few budget conscious options that will come in below this range and certainly there are luxurious properties that can carry a sticker price of $40,000 or more. The common logic behind any timeshare sale is that if your family takes a vacation each year for one week and spends $150 each night on a hotel room, after a period of time the Timeshare will pay for itself and you will begin to save considerable amounts by having a “free” place to vacation. Furthermore, the Timeshare philosophy embodies an upgrade in style of lodging from the typical hotel room, cites the ability to pass down generationally and lastly, to realize investment potential by appreciating similar to conventional real estate.

Calculating the 30 Year Example
A Method Used In Many Timeshare Presentations

$150 Hotel Room
x 7 Days Per Stay
= $1050 Total Hotel Cost Per Year
$16,000 Median Retail Cost of Timeshare
÷ $1050
= 15 Years & 3 Months To Achieve Equilibrium

$1050 Total Hotel Cost Per Year
x 15 Years After Equilibrium
= $15750 Money Saved on Future Hotel Stays

But What About Annual Maintenance Dues? We should also factor in the $300 to $600 current average annual supplemental cost for “maintenance” in any Timeshare agreement. These fees are subject to progressive increases and each “owner” will be responsible for as long as they own their interest and will result in forfeiture of the “property” if not paid.

$450 Average Annual Maintenance Fee’s Without Factoring Increases
x 30 Years
= $13500 Total Fee’s To Accompany Time Line.
$15750 Money Saved In Prior Example
– $13500 Maintenance Fee’s
= $2250 Actually Saved on Future Hotel Stays Over a 30 Year Period*

* Factoring you never once in 30 years decide not to use your Timeshare.

But What About Inflation? One of the most consistent selling points consumers are presented with is that by “locking in” and paying for a Timeshare now, you will save money on the increased cost of hotel stays due to currency inflation in the future. There is no factoring for future inflation costs for the following reason: The cost of inflation in comparative hotel costs should naturally be absorbed by the offset of interest gained by instead storing the money used to purchase the Timeshare in a money market or other high yield investment vehicle. Secondly, the periodic increases in maintenance fees have in many instances come under scrutiny for raising faster than standard currency inflation increases have affected the median hotel rates in recent years. These two items combined would more than cancel any logic that the average Timeshare will realize an increase in “value” over a lengthy period of time by paying now for what you get later.

What About The Cost to Finance Future Vacation Rights? Most Timeshares are purchased through onsite financing plans that will typically range from 9.5% to 17%. The further addition of money paid on finance charges will inevitably push the period of time it takes to recoup the overall cost past what may be consider a reasonable period of use.

It is also convenient to insert that it is rarely a smart idea to pay interest in order to accumulate an asset. An auto loan is most often considered an acceptable instance seeing as though most people need a vehicle to get to work and such. The defining elements in what makes it smart to finance the investment of an asset is the occurrence in which the asset itself will appreciate at a rate that is consistent with conventional savings plans and also deflects a cost associated with the investors budget. An owner occupied home is the best example of this. By purchasing a home under normal circumstances, the value of the property will generally increase from its value reflected in the purchase price at a rate of appreciation similar to a high yield savings account and also absorbs the cost the homeowner would pay to obtain housing in a rental situation.

It is important to also understand that a typical real estate concession (the cost to market and broker a standard property transaction) is 3% to 5% and is usually paid for by the seller of the home. Timeshare developers routinely budget as much towards marketing, commissions & hospitality perks as the actual internally expected value of the Timeshare itself. These costs are instead passed onto to the consumer. This means if you have to at any point sell the share, because it is unlikely to advertise to the same extent and hold regular high pressure seminars with steak and lobster to attract new blood, you will be greeted with an approximate depreciation of 50% or more depending on the desirability of the complex and the amount of other “owners” who are looking to bail out as well.

What About Taxes? Timeshare divisions are not typically able to qualify for actual “mortgage” loans and are instead termed “consumer” loans. Unless the timeshare is financed as a standard real estate mortgage and you are not deducting any other mortgage besides your primary home, it is usually exempt from tax deductibility for the interest paid. You may however get to write off the amount you pay each year for property taxes on the Timeshare. This would be only if your were individually billed for the tax liability (such as in California) where as most Timeshares will charge you for this cost as part of your maintenance fee which is usually not tax deductible.

In any case, if the property is actually sold after one year of ownership for a profit, it would generally be classified as capital gains and susceptible to taxability. If you use the Timeshare primarily for your own personal use, you would usually not be allowed to deduct a loss in the transaction. If you are primarily using your Timeshare for rental purposes, there is a limited extent of tax breaks you may qualify for based on operational losses. Like any information on taxes, please don’t take our advice but seek the professional opinion of a Certified Accountant your trust.

Part One: What Should I Expect If I Sell My Timeshare Now?

Part Three: Renting My Timeshare For A Profit or Trading My Stays

Part Four: If Timeshares Are Bad, Why Do Some People Enjoy Theirs?

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