Vacation Clubs: Are They A Good Deal?
Buying a Timeshare
3 min read
Most people think of real estate as a good investment. So, it follows that a timeshare investment might also be a good idea. It’s real estate, after all, right? Well, not exactly. Let’s look at what constitutes a good real estate investment and see if a timeshare investment fits the bill.
Real estate is generally considered a safe investment for many reasons. One key reason is that real estate properties have inherent value. The land you purchase and any structures on it are worth something. That’s why it’s relatively easy to get loans for real estate. Lenders view real estate as a secured loan. According to Experian, a secured loan is backed by a financial asset—such as the home or property—that the lender can take if you are unable to pay back the loan.
So, do timeshares have inherent value? In a word, no. Unfortunately, the timeshare itself does not have value. It may have a market price, meaning someone might be willing to buy it, but the value itself is based on other factors. Furthermore, some types of timeshares aren’t even backed by anything. In a right to use contract, you don’t purchase an actual item. Rather, you pay for the right to use one or a variety of properties. And in the case of vacation clubs, you don’t even have the right to use a property. Rather you have the right to try to use a property.
When you invest in stocks or a company, there is no guarantee that the stocks or the company will retain that value. And there is no guarantee that you’ll see a profit due to increasing value. However, real estate almost always increases in value over time. So, if you can wait, even if you do nothing, the chances of making a profit are high.
We just discussed that timeshares don’t have an inherent value, but they do cost money. Will the cost of your timeshare increase over time such that you could make a profit when you sell it? Again, the answer is no. Much like the value of a new car drops as soon as you drive it off the lot, the value of a timeshare also plummets as soon as you sign the contract. Many timeshare owners find it difficult if not impossible to break even when they try to sell. And most sell at a significant loss.
A traditional real estate investment comes with tax benefits. For starters, you can get deductions for mortgage interest, depreciation, property taxes and more, even on your primary residence. As a landlord, you’ll earn money with your investment. You can also use a real estate investment as collateral for other investments.
Is the same true of a timeshare investment? Once again, the answer is no. There are no tax benefits for timeshare ownership. In fact, if you financed your purchase, you can’t even deduct the interest. Which is too bad since those interest rates are likely to be on the high side. And although some people do choose to rent out unused timeshare weeks, profit is unlikely. You’ll be lucky to recoup the cost of your maintenance fees. And you may find yourself paying fees to your HOA for the right to rent at all. Finally, you can’t use your timeshare as collateral for anything.
So, is a timeshare investment a good idea? Unfortunately, no. Timeshares don’t meet any of the criteria for financial investments. In fact, a timeshare is actually a financial obligation. If you got stuck in a timeshare investment that wasn’t and are looking to get out, we can help. Contact us for a free consultation today.
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