Timeshares are a form of ownership or right to use a particular property or properties for holidays. It’s important to understand how they work before you sign up. They are a long-term commitment and can be hard to sell.
If you buy a timeshare, you have the right to a 7 day cooling-off period. It's 14 days if the operator is not a member of the Australian Timeshare and Holiday Ownership Council (ATHOC). If you change your mind, tell them in writing before the end of the period.
How Timeshares Work
A timeshare gives you partial ownership in a vacation property. You can even think of it as owning shares of stock in the vacation rental. You pay an upfront price to purchase your unit and then an annual maintenance fee. This gives you access to the property for a certain period of time, which is usually the same time slot each year. When you are not using the timeshare, others with similar interests are.
You generally buy a one-week timeshare for a large up-front cost, in some cases over $20,000 - with an annual maintenance fee for the property, even if you don't use it. You may also have to pay a membership fee each year. Most timeshare agreements are indefinite contracts, meaning that you’re obligated to pay the maintenance fee indefinitely, which is a big financial commitment.
If you want to use your unit during another week, you must “bank” your week and exchange it for another time or location. In the sales pitch (I had the misfortune of attending one), the resort mentioned it's no longer doing week-based timeshares. It’s now a points-based system. You get X number of points per year when you buy a unit and can then use it any way you choose.
The Depreciating Asset Component
Here are the issues with owning a timeshare:
- There is a huge resale market. Often you can pick up units for less than half of what was originally paid.
- Like a car, a timeshare depreciates once you “drive it off the lot”.
- It’s rare that a timeshare increases in value. In fact, expect it to lose value, as the total cost of your ownership was marked up to cover sales presentations, incentives and giveaways.
- Timeshares are usually sold to you when you’re on vacation and your defenses are down.
- Most have high yearly maintenance fees. In my parents' case, their fees are increasing every year, faster than the rate of inflation. For the amount that you pay in maintenance fees alone (forget about the initial “investment”), you could stay at a decent-quality hotel for a week.
Borrowing Money to Buy a Timeshare
Banks don't generally lend money to buy into timeshare schemes. Scheme operators may offer credit to help you buy a timeshare, but interest rates can be high. Be sure to read and understand all the terms of the credit contract. Before you sign a credit contract check the;
- Interest rate
- Cost of repayments and
- Cooling-off period
Check they're licensed to provide credit by searching ASIC Connect's Professional Registers.
In theory, when you buy a timeshare, you have a fractional interest in the property the rental is situated on. But it’s important to understand that this does not give you all the advantages that owning real estate normally has.
For starters, you have an interest in the same unit as other people who participate in the timeshare. Your interest, therefore, is not standalone ownership. You are not free to do with the unit as you please.
For example, there are strict limits on the time during which you have physical occupancy of the unit. Unlike a true vacation home, you’re not able to rent it out during the rest of the year when you’re not occupying it for personal use.
We can think of a timeshare as having a partial ownership interest in a single vacation property or unit. It’s nothing like owning a vacation property outright, with the benefits that come as a result of having it.
It seems to me that the timeshare market targets the financially inexperienced. Sadly, timeshares tend to become vacation properties for people who can’t afford vacation properties. The sales materials are made to appear more about the bling and “living the good life” than about the investment return. Unfortunately, That’s because there is no return.
Getting Out of a Timeshare
The main way to get out of a timeshare is to sell it. To do this you'll have to make sure all fees are paid. However, timeshares can be very hard to sell. Most people make a loss when they sell them.
When you buy a timeshare you sign a contract to pay the costs. So you can't just stop paying for it. If you do, you may be in breach of contract and could face legal action.
If you've already taken the plunge and paid, here's how to get out of it. Call the place you bought it from as a potential customer and find out what a similar unit is selling for. They will probably tell you that they can't give you that information. Just be strong and tell them you want to know what options you have available so that you can either sell it back or sell it to someone else.
Contact the executive director of sales if you are getting trouble from any of the sales managers. Tell the director you'll sell it for half of what the going rate is and pay double the commission.
If you can't sell it back to the company you bought the timeshare from, don't go to a list service that tells you they can sell it for you. You'll have to pay them a fee that's just not worth it.
You're definitely going to lose money on this. Timeshares go down in value worse than a car. But it's better to cut your losses than to continue to lose any more money.
Is it worth it to go to a "great presentation" just to score a free dinner at a nice restaurant? No way! For the money you put into a crummy timeshare, you could go to Bali every summer for the rest of your life and never have a problem.
Tried everything and still stuck with a timeshare? Contact Timeshare Exit Team, a consumer protection firm dedicated to helping timeshare owners dissolve their unwanted timeshare contracts. They are not a listing company. They dissolve your contract, legally, forever.
Problems with Timeshares
Timeshare operators must be members of an external external dispute resolution scheme.
If you have a dispute that involves a timeshare operator, contact the Australian Financial Complaints Authority (AFCA) to make a complaint and get free, independent dispute resolution.