Timeshare - An investment?
Published December 5, 2020
Traveling is fun but expensive
Some folks do not like to travel. But enough do enjoy traveling to warrant the existence of entire industries around it. From hotels to airlines, there are businesses ready to provide that "getaway experience" to their customers...at a cost. According to AARP data collected for 2019, the range of expected annual travel spending for Americans is between $4000 and $6000. There may be outliers at both extremes, but needless to say, traveling costs can accumulate into large numbers quickly.
It is important to budget for travel. It is even more important to tackle that budget with cost-advantaged or other savvy strategies, so hard-working folks can still enjoy that fun vacation. One of these "strategies" is the time-share, but is it a savvy approach to travel or a pitfall to avoid? It is important to look beyond the lavish marketing and take stock of what the timeshare entails.
Make the lifestyle happen (and save money doing it?)
The timeshare experience varies among providers. But essentially, individuals purchase a "share" of a hotel or condo that a hotel owns, and they are able to stay in it within a limited time period. The initial sales pitch is refined to perfection, focusing on the merits of travel lifestyle and the ease of booking certainty. Those attending the timeshare are each assigned a sharp sales representative to butter them up. The sales pitches may even include points about how travel vacations improve a marriage, enable a lavish and adventurous lifestyle, and even help travelers save money as they "invest" in the timeshare.
The goal of the timeshare pitch is no different from any other marketing session. The marketing and selling emphasize how timeshares make the travel lifestyle happen. Stay at fancy hotels or condos at dream destinations. Instead of budgeting for costly hotel rooms, spend that extra money on fine dining or exquisite experiences abroad. Rent a fast, sleek car instead of the cheap, tiny sedan.
Fatal logical flaw
Pay close attention to the timeshare marketing. Timeshares are sold as investments. But are they?
Simply put, an investment, or asset, generates cash value. An effective mutual fund grows in cash value as its shares increase in market value. A rental property generates cash whenever the tenants pays up at the beginning or end of the month. Even a savings account earns its account owner a miniscule 0.04% return that grows the cash value.
A timeshare is a liability, not an investment or asset. A liability drains cash away from its owner. Instead of generating cash value, a liability steadily reduces cash. Examples of liabilities include jewelry, clothing, and cars. Timeshares have an upfront cost of ownership in tens of thousands of dollars, and of course, a financing option is always available. And when financial hardship happens, such as following a job layoff, a timeshare is not going to help its owner pay for the mortgage or the groceries.
Who wins?
Timeshares are only assets to the hotel or travel company. They generate cash value for them as "owners" give them money for it. Timeshare owners even cover the HOA fees on the timeshares. They are a genius revenue tool and cash cow for the hotel industry by moving the liabilities off their books and onto the travelers'.
At first glance, timeshares seem synonymous with rental properties. But rentals tend to appreciate in value, not depreciate. Try getting out of a timeshare. They are easy to buy up on Ebay for as low as a dollar. Meanwhile, a rental property can almost always be sold for a profit; if tenants pay to live there, they would pay to keep staying there.
Travel Workarounds
A great many timeshare owners have trouble getting out of their ordeals. Others may not have the money or free time to enjoy extended vacations.
Instead of becoming a timeshare owner, an avid traveler can rent from an existing timeshare owner, often at a heavily discounted price. With the rise of travel listing sites such as AirBnb, timeshare owners have found ways to redeem their costly liabilities.
Another alternative to timeshare ownership is to simply generate wealth the right way. The rich do not need timeshares. Not everyone may become as wealthy as Warren Buffet or Elon Musk, but it is entirely possible in America to become an everyday millionaire. Moreover, having an asset growing in cash value can be used towards anything, not just a timeshare. Instead of lavish vacations, perhaps that hard-earned wealth can fund a child's college tuition or a charity. Getting a fun car is not a bad alternative either.
To existing timeshare owners looking for a way out, there is an escape hatch.
Travel can be a good experience. Other places and cultures open our eyes to new ideas and memories. Just do it in a financially savvy way with priorities set correctly.