What Is a Timeshare? Here’s How It Works

May 9, 2023

356

As the prospect of travel continues to pique the interest of many, a popular alternative to traditional hotel stays has re-emerged: timeshares.

These unique vacation options have experienced significant growth and development, becoming popular for many seeking memorable and affordable vacation experiences. They are not without their drawbacks, so be sure to read through to get a full understanding of what timeshares entail.

To provide a comprehensive understanding of timeshares, delving into various types of timeshare ownership, their costs, benefits and factors to consider are crucial before purchasing.

The concept of timeshares originated in the 1960s in Europe and has since evolved into a thriving industry, with the American Resort Development Association (ARDA) overseeing its growth and regulation in the United States.

Below you’ll find information that provides an overview of the timeshare landscape.

What are the types of timeshare ownership?

1. Deeded ownership

Deeded ownership is a popular form of timeshare ownership with unique characteristics and benefits.

Deeded Timeshare: A deeded timeshare is a form of timeshare ownership in which the buyer owns a portion of the property, similar to owning real estate. In this arrangement, the buyer receives a deed for the timeshare property, granting them the right to use it for a specific duration each year.
Real Estate: Deeded timeshares are considered real estate, allowing owners to sell, rent or even bequeath their Timeshare to heirs. This form of ownership provides the buyer with a tangible asset, often backed by a legal title.
Property Taxes: As with any real estate purchase, deeded timeshare owners are responsible for paying property taxes on their Timeshare. These taxes are generally included in the annual maintenance fees.

2. Right-to-use ownership

Another form of timeshare ownership is right-to-use, which offers a more flexible approach for vacationers.

Timeshare Contract: Under a right-to-use ownership arrangement, the buyer enters into a timeshare contract that grants them the right to use a specific property for a predetermined period each year, typically ranging from a few years to several decades.
Period of Time: The time granted by a right-to-use contract can vary, with shorter-term contracts offering more flexibility for those who may not want to commit to long-term vacation plans.

3. Fractional ownership

Fractional ownership is a more upscale approach to timeshare ownership for those seeking luxurious vacation experiences.

Vacation Property: In a fractional ownership arrangement, the buyer owns a portion of a high-end vacation property, such as a luxury condominium or vacation home, usually in a desirable location.
Condominium: Fractional ownership often involves condominiums, where multiple owners share the property and its amenities, each enjoying their allocated time at the vacation home.
Vacation Home: Fractional ownership can also extend to vacation homes, providing the buyer with a more spacious and private accommodation option.

4. Points-based ownership

Points-based ownership is a versatile and modern approach to timeshare ownership that offers even greater flexibility for vacation planning.

Points System: Under a points-based ownership system, the buyer purchases a certain number of points, which can be used to book accommodations at various resorts and locations within a vacation club network.
Vacation Club: Vacation clubs operate within the points-based ownership system, allowing members to exchange their points for stays at various properties within the club’s network.
Number of Points: The number of points a buyer purchases determines the length and quality of their vacation accommodations, the time of year and the location of the stay. This flexibility allows points-based timeshare owners to tailor their vacation experiences to suit their preferences and needs.

What are the timeshare programs and systems?

Each program offers unique features and benefits tailored to various vacation preferences.

Below, you’ll find an explanation of fixed-week, floating-week, points-based timeshares and exchange programs, discussing their distinct characteristics and advantages.

Fixed-week timeshare

Fixed week: A fixed-week timeshare program assigns a specific week to the owner each year, during which they can enjoy their vacation at their designated property. This arrangement offers predictability and consistency for those who prefer to vacation simultaneously each year.
Specific week: The specific week assigned to the timeshare owner is typically based on a numbered system, with each week of the year assigned a number. Owners can usually choose their desired week at the time of purchase.

Floating week timeshare

Floating week: Unlike fixed-week timeshares, a floating week timeshare program allows owners to choose their vacation week within a designated range of weeks each year. This flexibility is ideal for those who prefer variety in their vacation planning or have fluctuating schedules.
Timeshare resort: Floating week timeshares are usually associated with a specific resort, requiring the owner to use their allotted week at that particular location.
Booking challenges and competition: Despite the flexibility of floating week timeshares, owners may face challenges in securing their preferred vacation week. High demand during peak seasons or popular weeks can lead to increased competition among timeshare owners, making it more difficult to book the desired week. Advance planning and proactive communication with the resort or timeshare management are essential for maximizing the chances of securing the preferred vacation week.
Exchange programs: To address the limitations of being tied to a specific resort, many floating week timeshare owners participate in exchange programs. These programs allow timeshare owners to trade their weeks for stays at different resorts within the same network or affiliated networks, offering a broader range of vacation options. However, it is important to note that exchange programs often entail additional fees and may have limited availability, particularly during peak travel seasons.

Points-based timeshare

Timeshare unit: Points-based timeshare programs differ from fixed and floating week systems as they involve purchasing and using points to secure accommodations. Depending on their points balance, owners can use their points to reserve various types of timeshare units, such as hotel rooms, suites or villas.
Types of vacation: The versatility of points-based timeshares allows owners to choose from various vacation types, including beach getaways, ski trips and city breaks, all within the network of related properties.

Exchange programs

Timeshare exchange: Timeshare exchange programs add another layer of flexibility to timeshare ownership, enabling owners to trade their week or points with other owners and granting access to new destinations and resort properties.
Exchange company: Various exchange companies have been established to facilitate timeshare exchanges, connecting timeshare owners and enabling the trading process.
RCI: One of the most prominent exchange companies in the industry is RCI (Resort Condominiums International), which offers its members a vast network of resort properties worldwide, further expanding the vacation possibilities for timeshare owners.

What are the biggest timeshare companies?

Recognizing some of the leading timeshare companies is crucial to understand the timeshare industry fully.

Here are the three most prominent timeshare providers:

1. Wyndham

Wyndham Destinations is one of the largest timeshare companies worldwide, boasting an extensive portfolio of resorts and vacation properties.

Known for its Club Wyndham program, the company offers fixed and floating week timeshares and a points-based system. Wyndham’s vast network of resorts provides timeshare owners with many vacation options, catering to various tastes and budgets.

2. Hilton

Hilton Grand Vacations is the timeshare branch of the renowned Hilton Hotels and Resorts brand. With a reputation for luxury and excellent service, Hilton Grand Vacations offers timeshare ownership through a points-based system called Hilton Grand Vacations Club.

Owners can use their points to book stays at various Hilton resorts and properties, enjoying the high-quality accommodations and amenities for which the brand is known.

3. Disney

Disney Vacation Club is the timeshare division of the Walt Disney Company, offering a unique, family-friendly vacation experience.

Disney Vacation Club members can enjoy stays at various Disney resorts and properties, including theme park accommodations and other exclusive destinations, through a points-based system.

With a focus on providing magical experiences for the whole family, Disney Vacation Club has become a popular choice for those seeking unforgettable vacations in a world-class setting.

What are the fees associated with timeshare?

A comprehensive evaluation of timeshare ownership necessitates a thorough understanding of the associated costs and fees.

Below, you’ll find various expenses, including upfront costs, annual fees, property taxes, exchange fees and interest rates — all factors that are essential to consider before purchasing a timeshare.

Upfront cost

Purchase price: The initial purchase price of a timeshare varies depending on factors such as the location, resort quality and size of the unit. This one-time payment secures the buyer’s ownership or membership in the timeshare program. For instance, a one-week timeshare at a luxury resort in Florida could cost around $20,000, while a similar property in a less desirable location might be priced at $10,000. This one-time payment secures the buyer’s ownership or membership in the timeshare program.
Timeshare cost: Apart from the purchase price, additional upfront costs may include closing fees and other miscellaneous charges. Prospective buyers should consider these expenses when calculating the total initial investment. Closing fees can range from $500 to $2,000, depending on the property and state regulations. Prospective buyers should consider these expenses when calculating the total initial investment.

Annual maintenance fees

Annual timeshare maintenance fees may vary depending on the resort, location and size of the timeshare unit. It is essential to consider these when assessing the affordability of timeshare ownership. For example, a two-bedroom timeshare in Hawaii might have an annual maintenance fee of $1,200, while a one-bedroom unit in a less popular destination may charge $800 per year. It is essential to consider these fees when assessing the affordability of timeshare ownership.

Property taxes

For deeded timeshare owners, property taxes are an additional expense. However, these taxes are generally incorporated into the annual maintenance fees, ensuring the property complies with local tax regulations. For example, if the annual maintenance fee is $1,200 and the property tax rate is 1%, the owner would pay $12 in property taxes.

Exchange fees

Timeshare owners participating in exchange programs may be subject to exchange fees. These fees cover the administrative costs of trading weeks or points with other owners to access different resorts and properties. For instance, RCI, a popular timeshare exchange company, charges $289 and above for domestic exchanges.

Interest rates

If a timeshare purchase is financed, interest rates will affect the overall cost of ownership. The timeshare company or a third-party lender often provides financing options and interest rates may vary depending on creditworthiness and market conditions. A buyer with a good credit score may qualify for an interest rate of 6.99%, while someone with poor credit may face a rate of 12.99% or higher.

What are the advantages of timeshare ownership?

Contemplating timeshare ownership warrants the exploration of the myriad advantages and exclusive privileges that contribute to a sophisticated and enriching vacation experience.

Below are the most privileged benefits:

1. Annual vacation

Owning a timeshare fosters a commitment to annual vacations, enabling individuals and families to consistently rejuvenate, forge cherished memories and bolster their overall well-being.

2. Resort property

Timeshare ownership unlocks access to premier resort properties replete with amenities and services that surpass the standards of conventional hotel accommodations, elevating the vacation experience.

3. Vacation destinations

Timeshare programs, particularly those offering exchange options, facilitate the discovery of an extensive selection of vacation destinations tailored to diverse preferences and aspirations, broadening the travel experience.

4. Home resort

For those who seek a sense of continuity, timeshare ownership fosters the development of a home resort, nurturing a sense of belonging and fostering enduring connections to a treasured destination.

5. Upgrades and perks

Timeshare ownership often encompasses exclusive upgrades and perks, encompassing priority booking, superior accommodations and access to additional amenities or services to refine the vacation experience further.

What are the disadvantages of owning a timeshare?

While owning a timeshare may seem like an attractive option for vacationers, it’s important to consider the downsides before diving in:

1. Timeshare availability and flexibility

One major disadvantage of timeshare ownership is the limited availability of dates. Owners may find securing their preferred vacation times challenging, especially during peak travel seasons. This lack of flexibility can frustrate those who want to plan their vacations around their schedules.

2. Costliness and financial commitments

Timeshares often come with high upfront costs, annual maintenance fees and other financial commitments. It’s crucial for potential owners to carefully evaluate these expenses and consider whether a timeshare is indeed a good value for their vacation preferences.

3. High-pressure sales tactics

Timeshare presentations are known for their high-pressure sales tactics. Potential buyers should remain vigilant and avoid being swayed by time-sensitive offers or aggressive persuasion techniques. It’s essential to remember that purchasing a timeshare is a significant financial decision that should not be made under pressure.

4. Difficulty in exiting a timeshare

Getting out of a timeshare can be challenging and costly. Many owners find themselves trapped in contracts that are difficult to exit or sell. Before signing a legally binding timeshare contract, it’s essential for prospective buyers to thoroughly review and understand the terms and conditions of ownership, including their rights, obligations and utilization guidelines.

While timeshare ownership may seem like a convenient way to vacation, weighing the disadvantages, such as limited availability, high costs, high-pressure sales tactics and difficulty getting out of the contract, before committing is crucial.

Understanding the timeshare resale market

Discussing timeshares would only be complete by considering the dynamic resale market. This market provides alternative channels for buyers and sellers to engage in transactions beyond the scope of traditional timeshare companies, presenting a diverse array of options.

Timeshare resale encompasses purchasing or selling a timeshare ownership interest on the secondary market, frequently facilitating more flexible and negotiable terms than those offered by timeshare companies.

How do you cancel or exit a timeshare agreement?

Sometimes, timeshares don’t work out, and it becomes necessary to exit or cancel them. What critical areas should you consider to ensure a smooth and successful timeshare exit or cancellation in such situations?

Timeshare exit

Timeshare exit refers to relinquishing one’s ownership interest in a timeshare, which may involve negotiating with the timeshare company, selling the ownership interest on the resale market or seeking the assistance of specialized exit companies.

Timeshare scams

Unfortunately, the timeshare industry is not immune to fraudulent activities; in fact, the timeshare industry is rife with predatory contracts. Timeshare scams may involve unscrupulous entities offering exit or resale services that ultimately fail to deliver on their promises or extract exorbitant fees without providing any tangible results.

Perpetuity clause

When exploring timeshare exit options, the perpetuity clause often found in timeshare contracts is a critical element.

This clause signifies that the ownership interest and associated obligations, such as maintenance fees, may extend indefinitely or be passed on to the owner’s heirs, potentially complicating the exit process.

The bottom line on timeshares

Timeshares are a complex investment and may not be suitable for you. A recent study by the University of Central Florida study found that 85% of timeshare owners regretted their purchase.

However, considering the potential upsides, you may decide that timeshare ownership is right for you. Knowing the ins and outs of timeshares before making any purchases is essential.

With comprehensive knowledge, individuals can confidently assess whether timeshare ownership aligns with their vacation aspirations and long-term financial goals.

If you’re interested in learning more about timeshares or other financial topics, check out Entrepreneur’s other articles.

This story originally appeared on Entrepreneur