Timeshare: Is it right for you?
Many people buy timeshares after a lot of research and analysis. But same is not true with some people who simply buy timeshares hearing the buzz surrounding it with poor perception and ignorance about timeshares. Buying a timeshare is a huge investment and thus should be dealt with utmost importance. Before buying a timeshare you have to first question yourself whether is it really for you? How often do you go for vacation? Is that place right for you to go year after year? Do you want to buy a timeshare just for vacation purpose or you are buying it as an investment?
Even if you decide to buy a timeshare property you should start your research at least nine months before you buy a timeshare. But let us weigh in various factors to know whether timeshare is really for you or not. A vacation home might be a minor financial investment for few rich and wealthy but to many middle class people it is possible only in dreams. Middle class people badly needed an alternative to this costly investment. The search for an alternative resulted in the discovery of timeshare in Europe in 1970’s. This was a welcome relief to many people who could not afford to buy an expensive vacation home. This concept gained huge popularity with every passing year and today over two million Americans own timeshare properties which is a big number.
A timeshare is nothing but a real estate property split into many ownerships. The cost is shared among the owners. Timeshares are basically classified into two types of plans, deeded and non-deeded. In a deeded plan the owner buys the timeshare unit and the unit for 30-40 years. It can again be classified into fixed use and flexible use. A fixed use allows only a specific time and specific number of years where as a flexible use timeshare allows you to choose vacation at any time of the year but only on first come first serve basis as many people would like to go for that option. The other types of plan called non-deeded plan is also called right to use plan which is like a lease, you have the same facilities but only for specific period and you lose all the rights after the lease expires.
Having understood what a timeshare is and different types it is also important to dig into the facts of timeshare. Timeshares are usually common in a tourist place. The cost depends on the location and season of the year. Apart from cost of timeshare you have to pay the maintenance and various other fees also. This also may vary depending on the location. But one good thing about timeshare is that you don’t have to worry about the upkeep and maintenance of your timeshare unit. But you have to think is it really worth to pay hundreds of dollars every year in addition to the thousands you have already paid to buy the timeshare and that too to spend only one or two weeks in a year. This may be reasonable only if the maintenance fee is low which is generally not.
But if you see the other side of the coin, in long term a timeshare will be cheaper than a hotel or vacation home. If you add up the cost of hotel for thirty years and compare it with timeshare it will be way higher. But then again, if you decide to go to a different vacation spot every year hotel may be ideal for you. Although timeshare offer exchange of properties with other owners across the states and countries it may not be that easy to do it. Also one should compare the other alternatives to a timeshare available in that place. In some seasons timeshares could really be expensive due to their close proximity to beach fronts etc. So a quick market survey to find cheap alternative should never be ruled out.
Timeshare FAQs
Although the concept of timeshares is not new to the public still people have many questions about timeshares. Few of the most important frequently asked questions that people enquire about are discussed as follows:
Is renting a timeshare better than buying it?
Buying a timeshare gives you much bigger choices. As an owner of the timeshare you get the amenities are better and cost much less. Owners can get discounts on lodging, entertainment, food, travel and many other resort facilities. The average rental fee is way higher than the average maintenance fee and is also increasing every year. In addition to all the above benefits a timeshare owner has equity in the property which can come to the advantage of the owner when he wants to sell it.
Is buying a timeshare good investment?
Many people get this question in their minds whether to buy timeshares as an investment. The answer can be disappointing to you because it has been seen that the value of the timeshare depreciates with time and they can go do as much as 30%-50% depending on the location and season. A timeshare should be thought as an investment in life, for guaranteed vacations and better facilities. Also if you compare the cost of owning a timeshare with a hotel in long term period, a timeshare would save you a lot of money.
Can you rent your timeshare to somebody else?
Sure you can as long as you are the legal owner of that timeshare meaning you cannot rent out a timeshare that is received in exchange.
What is the procedure of making an exchange?
Most timeshare companies have business network with timeshare companies and you are automatically enrolled into exchange program and also the fee for the first year is paid by the timeshare developer in most cases. You can also go to the timeshare exchange company and put your timeshare for exchange. But keep in mind few things like you will get similar kind of unit meaning you can’t expect to get a two bedroom timeshare in exchange of a one bedroom. Also plan in advance if you plan to exchange timeshare as it may take a while depending on the availability. Also remember there is a fee for exchanging timeshares.
What are fixed week and floating week?
In a fixed week plan you are entitled to use your timeshare only at a specific week each year and specific unit. But in a floating week you have the option of choosing a range of week but only on first come first serve basis as many owners would like to do the same thing. The advantage of a fixed week is that your timeshare week is assured and also the unit you want. While floating week is advantageous to people who have schedule conflicts with fixed unit timeshare.
Are there any other additional fees when you buy a timeshare?
The answer is yes. Typically there is a maintenance fee and other fee like transfer fee if you are transferring a timeshare. There may be property tax also.
Should I have to pay any upfront fee while buying/selling a timeshare through a broker?
The answer is strict no. Experts say never every pay an upfront fee to buy or sell or rent timeshare. Like any other industry timeshare industry is also prone to many scammers and frauds. There have been instances where people paid huge upfront fee and they got nothing in return.
Timeshare Exchange
Timeshare exchange is one of the primary reasons of buying a timeshare for many people because this gives them the flexibility of exchanging their timeshares with other owners principally to visit a different tourist destination each year. Earlier timeshares were not exchangeable. Slowly and steadily things started changing. With the advent of technology and better management tools available today more and more timeshares have the inbuilt feature of timeshare exchange. Though not all timeshares may be exchangeable, it is better to enquire this before buying a timeshare. Most timeshare developers have tie-ups with timeshare exchange companies, so when you buy a timeshare you are automatically enrolled into timeshare exchange program. The fee for the first year is usually free but you may have to pay the fee from the second year.
A timeshare exchange gives the owner freedom to vacation at any time of the year unlike only at a specific time. Also it gives the freedom from going to the same unit every year. The way it works is the owner trades his/her unit with owners of different timeshare and different resort. But most of the times there is a requirement that the units should be similar means you can’t trade one bedroom with a two bedroom unit and vice-versa.
A timeshare can not only avail the exchange service through the timeshare developer but can also go directly to a timeshare exchange company. But care should be taken to select a right exchange broker. Do your homework first by researching well about the background of the broker. The timeshare industry is not fully protected against non-scrupulous acts by scammers and frauds. Do not pay huge fees or sign any document unless making sure you are doing the right thing.
A timeshare exchange member usually deposits his/her timeshare unit into the inventory of the timeshare company’s available weeks. It is not a simple transaction. If the week requested by an owner is in the inventory and the week offered by the owner is a good exchangeable week then the exchange takes place. It does not mean that the owner has to wait until the time the exchange company finds an exchange offer for your timeshare. They already decide it after reviewing the timeshare like what season timeshare it is? What location? Those who have timeshares in peak season have more chances of finding a timeshare and they can request exchange both in peak time and off peak time periods. The owners who have off peak timeshares usually get off timeshares, their chances of getting a peak season timeshare are almost zero. But this may vary from resort to resort. Some resorts may be busy all round the year. The owners in these kinds of resorts generally have no problems exchanging timeshares.
If a person cannot find an exchange the exchange company puts you in the waiting list and contacts you whenever an exchange is available and gives you the exchange unit. The owner can also chose in the beginning of the exchange request whether to approve the exchange confirmation at the approval of the owner at least a week before the confirmation or to go ahead and confirm the exchange without the approval. Again keep in mind good planning is necessary to initiate an exchange. If you decide to exchange a timeshare in the last minute, it may not be possible.
Tax Information about Timeshares
Some people have a misconception that timeshare sales are not subjected to income tax. But in reality timeshares sales are subjected to income tax. It is treated similar to any other kind of real estate property. As a timeshare property is a capital asset so when you sell a timeshare and make profit on it, it is considered as a capital gain. But you have to own the property for more than one year for it to be eligible for income tax. You can include all the costs associated with buying a timeshare like closing costs you had to pay when buying your timeshare, the annual maintenance fee for all the years that you owned the property and special assessments if any.
But Like any other real estate property if you sell your timeshare and if you incur loss which is called capital loss, you many not be able to deduct the losses in your tax returns. But situation might differ if you regularly rent the unit; any loss on sale would be termed as allowable business loss and would thus be deductible as an allowable ordinary loss in tax returns. Loss on sale would not be allowed by IRS if the unit had been converted back to personal use before selling.
There are no other deductibles allowed against timeshares. The exception is the property tax only if it is billed separately. They are also deductible if the resort differentiates it as a different item on your maintenance fee bill. You may also be able to deduct the interest on a timeshare loan, but, only if the loan is taken as a mortgage and there should be no other deductible mortgages except your primary home mortgage. But sad thing is not all timeshare loans qualify as mortgage loans as they are primarily termed as consumer loans. Also you have to keep in mind that you cannot deduct interest on multiple timeshare loans at a time if you also have a primary home mortgage. But you might be able to deduct interests on multiple timeshares if they are at same resort, as they can be viewed as one timeshare.
The timeshares can also be used for donating to a charity. But there are some restrictions. If you want to donate a deeded timeshare, the allowable deduction is normally equal to the fair market value of the timeshare on the date of donation. If the fair market value exceeds five thousand dollars you will have to get a written appraisal that should meet IRS guidelines. In case of non-deeded and right to use timeshares which are considered as tangible assets, additional rules apply. The fair market value of the timeshare must be reduced by the amount equal to any gain that would have been made had the property been sold by the owner.
When it comes to renting your timeshare you can claim deductions on all expenses including depreciation cost, cost of advertising, rental commissions and maintenance fees. Certain kind of special assessments may be deductible like repairs and unexpected expenses. Expenses like remodeling may not be deductible, so are the travel expenses
Also one has to remember that vacation home rules apply if you use it for at least fifteen days each year for personal use. The timeshares can also qualify however you should use it at least 15 days.