The Truth About Time-Shares
A New Kind of "Point" Plan
Nevertheless, time-shares are not necessarily a value for everyone, and vacationers should look closely at all the financial factors before signing on the dotted line. For instance, although it's comforting to have the reputations of recognized brand names such as Disney, Marriott, and Hyatt underwriting your time-share, these institutions operate on point systems, rather than as traditional properties you purchase. Points are vacation currency that can be redeemed at any of a company's resorts, and buying a point does offer vacationers flexibility -- you can frequently stay at a variety of resorts and room types at different times of year. However, point programs often do not protect against inflation, says Lisa Ann Schreier, author of Time-Share Vacations for Dummies. "That means if you buy 100 points a year for the next 40 years based on the current cost of a Hawaiian vacation, and your plan isn't inflation-proof, you may need 110 points the next year, and even more in years to follow, just to afford the same vacation," she says. "And that means spending more money every year." If a point plan you're considering isn't inflation-proof, Schreier advises scrutinizing the plan's cost-increase records for the past few years to gauge what kind of raises you should expect.Facts on Financing
Another potential pitfall is financing. Prospective buyers who attend time-share sales presentations will invariably be offered financing, says Schreier, but beware. These loans are often in the 17 percent interest range. "Before you sign anything, check to make sure there's no penalty for paying off the loan early," Schreier recommends. "That way you can find alternative financing at better rates."The Long Haul
Above all, you need to consider the long term. With a traditional time-share, you're an owner for life and your heirs, and theirs, will inherit the property -- and its liabilities. If you're not sure that you'll want to continue resort vacationing and paying fees for more than 20 years or so, or if you think that your children will see the time-share as a financial burden, you may want to reconsider or look for a right-to-use time-share. Common in Mexico, these allow you to have a reserved week at a resort, but only for a specified number of years.
If you do need to unload a time-share, your choices are limited. You will most likely lose money on a resale. Another option is to donate your time-share to charity, which is possible only as long as it is mortgage-free. "The IRS lets you treat a time-share gift to charity as a real-estate donation," says Lisa Tisdel, donations coordinator of Donate for a Cause, a Bozeman, Montana-based organization that facilitates these transactions. "That means you can take a $5,000 charitable deduction without getting an appraisal. If you think the donation is worth more, you can claim it, but you'll need to have the property appraised." Your final option is simply to return the property to the developer -- for nothing.
Originally published in Ladies' Home Journal magazine, June 2006.