Have you ever wished that you could own a vacation home? Research shows that sales of these properties rose by 20% in 2020, and they continue to trend upward.
While you’re browsing possible locations, you may also want to consider a timeshare. These units come with many of the same perks you’ll find in a personal home, but with a few valuable tradeoffs for savvy vacationers.
How do timeshares work and what can you expect when you invest in one? Today, we’re answering all of the big questions so you can make an informed decision.
The Basics of Timeshares
Before we dive into the nitty-gritty details, let’s address a basic point. What is a timeshare and how does it work?
Put simply, a timeshare is a vacation property that operates under a shared ownership model. When you invest in one, you essentially share the cost of the property with other buyers who have made the same decision. In return for your investment, you are guaranteed a set number of vacation days at that property every year.
While you can find some timeshares designed as standalone vacation homes, this isn’t usually the case. Most of the time, a timeshare will be an individual unit (such as a condo), within a larger building. Today, you can find timeshares offered under large resort corporations, such as Marriott and Disney.
You will split the cost of the timeshare with others as laid out in your contract agreement. In some setups, each owner will purchase their own part of the property. This is known as fractional ownership or a deeded timeshare.
In other setups, each owner will lease or rent their timeshare unit for a given period of time. This is known as a non-deeded timeshare. They will retain the right to use the property for that time period, which usually spans a few years.
How Do Timeshares Work? Different Operating Models
Not every timeshare operates the same way. In fact, there are a few different operating models you need to know.
Let’s go over the most common types.
1. Fixed Week Timeshares
Fixed week timeshares are some of the most common on the market. With these, you will purchase the unit for a set number of weeks, at the same time each year.
Most resorts will number their weeks, starting the first week in January and ending the last week in December. You will purchase a certain week “number” of the timeshare calendar that is yours for the life of the timeshare.
If you prefer to stay at the same place at the same time every year, this setup can be perfect. You don’t have to worry about making reservations and you know that spot will always be waiting for you. However, it can be a little stifling if you prefer to have more flexibility in terms of date and location.
2. Floating Week Timeshares
Floating week timeshares give you that desired flexibility. With these setups, you can choose from any week in the year, usually on a first-come, first-serve basis.
Keep in mind that some weeks may be restricted by season, meaning you can only vacation during certain parts of the year. Plus, popular weeks around holidays may be more difficult to secure. Most timeshare companies will designate those weeks using color-coding language.
For instance, “gold” weeks are usually considered the most popular. There are also “red” and “silver” seasons that are in peak demand. If you want to vacation during one of those seasons, you’ll need to reserve your floating week far in advance.
3. Fractional Timeshares
Fractional timeshares give owners the opportunity to stay at their location for a longer period of time. For instance, you may be able to book your spot for a few weeks or even a few months out of the year.
If you work from home or have a flexible schedule, this can allow you to see the world while you work, homeschool your children, or simply enjoy life.
4. Points-Based Timeshares
Finally, let’s talk about points-based timeshares. These offer the most flexibility of any operating model and are some of the most popular systems today.
Vacation clubs will establish points-based systems to reward frequent travelers and provide them with perks. You simply purchase a set number of points at the beginning of your timeshare, and then you can spend those points throughout the club as you desire.
This usually means that you can vacation at any resort within the vacation club’s greater network of locations. Some clubs also offer you the opportunity to convert your standard fixed week timeshare into points for more flexibility and convenience. In this case, the number of points you will receive for your week depends on how popular the resort, season, and location is.
Different Timeshare Ownership Models
Just as there are different operating models, there are also different timeshare ownership models. Let’s take a look at the two most common ones.
1. Deeded Timeshares
Investing in a deeded timeshare is similar to buying a house. You own the unit and can use it as you wish. This means you can resell it, rent it out, or vacation there yourself.
You can also add it to your will and pass it on to your children as part of their inheritance.
2. Non-Deeded Timeshares
Investing in a non-deeded timeshare is similar to renting a condo or apartment. You have the right to use it for a set period of time. Then, you turn it back over to the owner, who retains the rights to the property throughout the life of the contract (and beyond).
While this can give you a little more flexibility in terms of rental times, there may be rules that restrict how you can use the timeshare. For instance, because you don’t technically own it, you can’t sell it or bequeath it to your heirs.
Non-deeded timeshares are also called Right to Use (RTU) timeshares. They are most common in international resorts, and will usually come at a lower price point than their deeded counterparts.
What About Costs?
We can’t deliver a comprehensive timeshare guide without talking about the most important part of the decision: timeshare costs!
It’s important to know what you’re getting into and how much you can expect to spend over the life of the contract.
In addition to your annual vacation costs, there are also other expenses to consider, such as annual maintenance fees. While these costs can seem like a lot up-front, think about how much your family likes to vacation.
If you are jet-setting a few times a year, you have many different expenses to budget for, including:
- Car rental
- Food and entertainment
- Resort lodging
A timeshare takes care of the “resort lodging” part of that puzzle. Keep in mind that you will still be responsible for paying your own airfare, car rental, gas, and food/entertainment.
Not sure if it’s worth it? Gather your receipts and estimate how much you’ve spent on vacations over the past five years. Then, take the total cost of your timeshare and divide it by the number of years in your contract.
If the per-year timeshare price is less than what you tend to spend annually on vacations, then you can actually save money by investing in one. If it’s more than what you typically spend, then it might not be financially feasible.
What About a Hotel or Vacation Home?
When weighing your timeshare options, you might wonder: What is the point of buying a timeshare if I can just rent a hotel or vacation home wherever I stay?
First, let’s discuss the pros and cons of timeshares compared to hotel rooms. Usually, these units will be equipped with many more amenities and perks than a standard room. For instance, they are usually larger and most come with fully-equipped kitchens, bathrooms, and laundry facilities so families have everything they need during their stay.
Compared to vacation homes, timeshares have the advantage of on-site community resources. For example, most units also allow you to enjoy access to areas such as:
- Golf courses
- Water parks
- Gym facilities
While a vacation home might give you the same amount of space as a timeshare, few can offer these perks. You also won’t have access to the same customer service amenities that you’ll find at a resort, such as on-site security or a concierge.
Is a Timeshare Right For You?
A timeshare can be ideal for individuals or families who love to vacation frequently and want the peace of mind that a pre-planned getaway can offer. However, they aren’t for everyone.
Now that you know the answer to “How do timeshares work?” you can understand what to look for and ask about as you read the fine print of your contract. Then, you can make a decision that benefits you and your loved ones both now and far into the future.
Looking for more travel tips and ideas? Check out the other informative guides on our site!