Why are timeshares generally considered a “scam” or “rip-off”?
Do any legitimate timeshares exist where the deal works as advertised?
Generally, Timeshares are talked about in the context of a joke and are rarely taken seriously, but they must have been, or at least to appear to have been, viewed and taken more seriously at some point.
In: Economics
IMO: sometimes deceptive marketing practices aside, the concept of shared ownership for vacation rental is a pretty huge commitment. You’re signing up to the idea of vacationing in the same spot (or at least, properties with the same chain/ownership) roughly the same amount of time per year, which doesn’t offer too much flexibility.
It’s also a binding financial obligation that’s really hard to back down from without taking a massive financial penalty. I’ve personally seen cases where friends have signed such an arrangement and later realized they took on way more than they were expecting.
The idea behind a timeshare is that, for most people, owning a second home in a vacation destination is financially unattainable for most people, but because people only go on vacation a handful of times a year at most, so instead of owning the unit outright you would be one of many owners of that condo that would be entitled to use it for so many days a year. Timeshares were sold as being more accessible than a vacation home and cheaper in the long run than hotels, but in practice it didn’t work out that way.
The practical issue with timeshares is that people often want to travel during national holidays, so you would be in constant competition with the other owners for prime weekends like Labor Day or the Fourth of July, and many owners often didn’t take their full allotment of time because they simply couldn’t get the vacation time to travel during some random weekend in May. So just in practical terms timeshares just aren’t a good idea.
The scam comes in with the management companies. Because you’re an owner, that makes you responsible for the maintenance fees like when you own a condo with an HOA. These companies would often charge exorbitant fees for “maintenance” and “property management” that was way beyond what was actually needed. On top of that, getting out of a timeshare is incredibly difficult, as the only real out is finding someone to buy your timeshare with no way to cancel your contract, so often times people who hardly ever used their units would be stuck paying hundreds of dollars every month in fees.
scam is a bit extreme and in most cases untrue……unwise investment with more fees and rules for use than advertised is more accurate (ripoff).
“owning” a room at a resort sounds great, and can be sold to people with a little work……but people dont look at the details.
inconvenient dates for use; paying even when you dont use; increasing management fees; contracts that are extremely hard to exit. for most people finding a hotel when they need one is much better than paying for one every year wether it gets used or not
There are “timeshares” that do work as advertised… my parents had one that was technically a “fractional ownership” condo — we had set 2 weeks in same condo every year over Christmas & New Year. Original contracts were for 30 years, they bought it second-hand with 25 years left. They paid a one-time up-front fee to the original buyer (something like $20k) and then paid a weekly maintenance fee of a few hundred dollars when we used it. So it ended up costing about $2000-2500 for the 2 weeks each year between the maintenance fee + amortized purchase, for a 4BR/3BA condo with full kitchen overlooking the beach in Mexico (for comparison, the hotel next door was $400/night for standard hotel room).
The reason some are considered scams is that they often change the rules to extract more money — eg. you buy “points” you can use toward specific accommodations, but then they change the point needed so you either pay more or get less prime weeks, less prime units. And the trade possibilities are often over promoted vs. reality of being able to use. And contracts are often hard to end/cancel, and you have to pay the maintenance fees whether you can use or not.
Like many things, there are pitfalls if one doesn’t read all the terms of the contract, and many do get screwed as a result. The timeshares are often sold in dreamy vacation spots after ploying people with drinks and food, with high pressure sales, and may not follow US legal norms if not in US. So a lot of people commit tens of thousands of dollars without adequate vetting.
*If* you really intend to use the same vacation property (or to play the game within the ownership group), during your allotted time, every year, and *if* you would otherwise actually pay for a hotel to accomplish that, then the upfront payment for a timeshare can *sometimes* be worth it — ultimately, you get an annual payment that is significantly cheaper than a comparable hotel stay that *might* break even or land up with less total expenditure over time.
The main reason that they’re simply not worth it is that it only *possibly* makes sense if you can make the commitments I described above. And who really knows whether you’ll want to spend a week in a condo in Aruba in October, 17 years from now?
The main reason they are sometimes viewed as scams is that they are often sold to people as having investment/resales/rental value — that is, instead of simply agreeing to pay upfront for all of your future vacations, you’re making a wise financial investment that could make you money in the future. But, 99% of the time, this isn’t true. Maybe you can cover your annual payment by renting it out, but you’ll never make a profit, and you’ll never sell it for anywhere near what you paid. Many, many people who bought timeshares literally land up just abandoning them after a few years.
Lets say that you want to go to Disneyworld® once a year for the next 30 years. You also want to stay in one of the top tier hotels each time you do this. You have two choices for how you can accomplish your goal:
1) You can spend >$5,000 per room, increasing for inflation, each year.
2) You can take out a loan to buy a Disney Vacation Club® timeshare for a tiny fraction of the yearly cost.
As long as you use the timeshare every year, the Disney Vacation Club® saves you a lot of money in the long run (you typically break even after about 10ish years of use on a 30 year timeshare).
You can also factor in that the Disney Vacation Club® doesn’t just let you stay at Disneyworld, it lets you stay at any Disney® property in the entire world – and there are a several Disney® properties that aren’t located at a theme park. So even if you get bored of Disneyworld® you can still use your timeshare to take a vacation to places like Hawaii or to go on a cruise.
That’s basically the argument for a timeshare – if you go on a vacation once a year, every year, and you stay in the timeshare then you end up saving a lot of money. Assuming that the timeshare has a good network then you also have a lot of options for where you can go or stay.
The argument against the timeshare is that if you decide you no longer like the timeshare network, you’re basically stuck with it – potentially for several decades. During that time you need to pay maintenance fees and potentially make loan payments on the timeshare. If you’re not using it, then you’re basically paying money for nothing since timeshares don’t build equity – you lose 100% of your “investment” into them at the end of the timeshare, which is typically 30 years. The only way out of that is to find someone to buy the remaining time on the timeshare from you, which is often hard to do.
So that cool timeshare you bought into in Mexico 15 years was new and hip at the time. But now its old and dated, it has a shitty network of similarly old and run down hotels in places you never want to go. And its also costing you $500 a year in maintenance fees. You probably want to spend that $500 on something else, but you can’t because the only way out of that is to find someone else who wants to get the dubious honor of paying $500 a year to stay in a run down hotel in a bad part of Cancun.
That’s the timeshare nightmare and a not insignificant amount of timeshares fall into that category.
One of the problems is that for a timeshare to be really and truly worth it a lot of rare things need to line up between the seller and the buyer. A house is expensive to buy, expensive to maintain. The demand for vacation time clusters tightly around some limited time ranges. If you own a house or condo or apartment- there are a ton of ways to profit off that ownership. It’s going up in value every year, you can charge a lot just to normally rent it out or use AirBnB or VRBO.
To make it more profitable to sell it as a timeshare, you’re giving up on future sale or rental prices as those go up, and you still have to keep maintaining the place. So the sales price needs to be pretty high, and/or the maintenance prices need to keep going up and up just to make sure you’re not losing money over a simple rental. A long or short term rentals opens it up to a wide market and people could be paying to use it a lot of the year. Timeshare locks it into only the people who buy in and it may be empty a lot of the year. Those few people need to be paying in more than other rental options to make it worth it.
From the buyer’s perspective You need to be really and truly committed to going to the same place every year for a very longtime. You need to be flexible enough with dates that you can work with what’s available. You need to have the up-front capital and patience to break even with what a hotel would have cost many years down the line at best.
So because the numbers and reality won’t work out for most people, timeshare sellers who are scrupulously honest and transparent would have a hard time making money and getting people signed up. And buyers who are thoughtful, logical and realistic are much less likely to want to buy in. And so you get a client base of less logical people, and a seller pool of less scrupulous people and it sort of compounds on itself.
The biggest problem is that you can buy them directly from another timeshare owner at a small fraction of the price you pay to a high pressure salesman.
If you look around the internet, you can buy a timeshare directly from another timeshare owner. You can easily get one for a small fraction of the lowest price quoted by the high pressure salesman, or less. Sometimes, you can even get them for free. Yes, free (by agreeing to pay yearly maintenance fees forever). Timeshares have terrible resale value and are not an investment.
If you buy one cheaply, there still are drawbacks with being locked in. Selecting weeks, difficulty getting out of the yearly maintenance fee agreement when you no longer want to vacation there etc.
But I wouldn’t call getting a cheap timeshare a scam or rip-off. You get a number of weeks at the location(s) for the yearly maintenance fee.
I would only say that paying the lowest price quoted by the high pressure time share salesman is a scam/ripoff.
The whole idea of timeshares made sense before Airbnb existed. But today who wants to be tied to one location or a small number of locations? It makes no sense now. Even if you really want to stay at the timeshares of a specific resort for several years in a row, you’re better off just going to a website such as Redweek and renting from some sap who fell for the high pressure sales pitch years ago and no longer wants to use their weeks. You can rent for less than than the price of a yearly maintenance fee, with no long term commitment.
Whether it’s a “scam” depends entirely on the price. If you can get a timeshare for a high quality location and you’re paying seventeen cents a month, obviously it’s not a scam, you are getting a lot of value per dollar. It’s a hell of a lot cheaper than renting a hotel or an Airbnb or whatever.
The issue is that in reality, the prices are *usually* high enough that you’re not actually saving money compared to alternatives, and often losing money, especially when you consider the indirect costs like schedule limitations.
Nobody here has mentioned perpetual timeshare. Look it up. Someone passes away and wills you a timeshare, and guess what, it’s yooooours now, and forever. There’s a legal process to make it *not* happen, but you have to actually do it manually.
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