We get a wide variety of interesting questions from members of Pat McKeough’s Inner Circle. Most often, members ask us about specific investments, such as stocks, income trusts or exchange-traded funds, that they’re considering investing money in. However, they send us other types of financial questions, as well.
To give you a sense of how the service works, I’d like to share a recent question from an Inner Circle member on investing money in time-shares. I hope you enjoy and profit from it.
Q: Pat: What is your take on time-shares? They seem like a deal for a cheaper vacation. Thanks.
A: If you visit a resort this winter, you may receive an invitation to a party or other event whose object is to try to sell you and other guests time-shares. It could be worthwhile to attend, depending on what else you have to do. But our view is that investing money in a time-share rarely provides you with any real advantage.
Before investing money in any time-share, you should check the Internet for resales of comparable time-shares. You’ll find they often sell way below the initial time-share sales price.
Lack of flexibility limits appeal of investing money in time-shares
Even if you find what looks like a great deal on a time-share resale, we see no point in committing yourself to any one resort operator, much less one resort. You won’t be there often enough to develop any rapport with your neighbours or the staff. New resorts open up all the time. Management can get sloppy at existing resorts, especially after the time-shares are sold out. For that matter, your interests or tastes may change, or you may be unable to travel for health or other reasons.
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You can always resell your time-share — many buyers do. But transaction costs are high and resale prices are likely to be below your cost.
Time-shares are marketed as something of a cross between a real estate investment and a hedge against inflation. But generally speaking, only the land portion of any real-estate investment provides a hedge against inflation. The buildings and equipment that you pay for in a real-estate investment are going to depreciate, just like your car, though maybe not as quickly.
If there is any profit to be squeezed out of the grounds of a time-share property — for instance, by building additional units on unneeded parking space — it will generally go to the management of the facility, not to holders of individual time-shares. But it may inconvenience time-share holders, or cost them money.
Consider renting instead of investing money in time-shares
We strongly doubt that buying a time-share will significantly cut your vacation costs, much less produce anything resembling a profit. But buying a time-share is a fair-sized financial commitment that could turn out to be a costly disappointment. The property, the location or the operator could run into all sorts of problems, and you’re stuck with it.
You can always rent one week at a time in the resort where the time-shares are on sale, or someplace comparable. It’s a big world out there, with lots of resorts to choose from. As economic liberalization spreads around the world, new resorts open up all the time.
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Comments
Peter
Your view of timeshares to too narrow,one sided.We have benefited financially and with great vacations in many parts of the world by our purchase of timeshare units on both the primary and secondary markets.It is true that most(but not all)timeshare resorts engage in high pressure sales tactics that the industry should alter and cleanup its image.Timeshare units have a number of advantages.If you decide that a timeshare resort is a place you would like to vacation every year(like your cottage) or frequently, do a financial analysis based on the maintenance fee and amortize the capital cost over 7-10 years and compare to the annual cost of renting a unit at the resort.We go to a resort in Barbados and our annual cost using this analysis is less than half of the current annual unit/week rental.Because you are occupying the unit you own for the designated week(s)you do not pay sales,hotel or destination taxes which can be 15-18% of a hotel bill.There are nonfinancial benefits to repeat vacations at the same resort like getting to know people from other countries and the comfort of knowing the resort and staff.Also,most timeshare units have kitchens and additional beds that add to your comfort and reduce travel costs.We have also purchased units on the secondary or aftermarket to advantage.The unit/week cost is much less and it is true to say that many timeshare units do not hold or increase in value.So,you don’t buy a timeshare with the prospect of capital appreciation(although occasionally it will happen).Putting your timeshare unit in the network spacebank like RCI or II enables you to travel to different places throughout the world and obtain units for the cost of your home resort maintenance fee plus a transaction fee,thus getting very good accommodation and facilities at financial advantage.As a woman I met at a timeshare resort in France said to me at the weekly timeshare reception “…My husband and I have been trading timeshares since 1982 and we have travelled to parts of the world we otherwise wouldn’t have gotten to”.That has been our experience as well and we have successfully used our timeshares and consider our capital and annual costs to have provided excellent value.Remember as well,most timeshare ownership is condominium ownership,increasingly covered by local condo laws and owned in perpetuity,thus can be passed to family.In closing,be careful in approaching a timeshare purchase and do it perhaps after more than one vacation at the resort,but properly done timeshare ownership and travel can be enjoyable and financially beneficial….Peter Green
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Your view of timeshares to too narrow,one sided.We have benefited financially and with great vacations in many parts of the world by our purchase of timeshare units on both the primary and secondary markets.It is true that most(but not all)timeshare resorts engage in high pressure sales tactics that the industry should alter and cleanup its image.Timeshare units have a number of advantages.If you decide that a timeshare resort is a place you would like to vacation every year(like your cottage) or frequently, do a financial analysis based on the maintenance fee and amortize the capital cost over 7-10 years and compare to the annual cost of renting a unit at the resort.We go to a resort in Barbados and our annual cost using this analysis is less than half of the current annual unit/week rental.Because you are occupying the unit you own for the designated week(s)you do not pay sales,hotel or destination taxes which can be 15-18% of a hotel bill.There are nonfinancial benefits to repeat vacations at the same resort like getting to know people from other countries and the comfort of knowing the resort and staff.Also,most timeshare units have kitchens and additional beds that add to your comfort and reduce travel costs.We have also purchased units on the secondary or aftermarket to advantage.The unit/week cost is much less and it is true to say that many timeshare units do not hold or increase in value.So,you don’t buy a timeshare with the prospect of capital appreciation(although occasionally it will happen).Putting your timeshare unit in the network spacebank like RCI or II enables you to travel to different places throughout the world and obtain units for the cost of your home resort maintenance fee plus a transaction fee,thus getting very good accommodation and facilities at financial advantage.As a woman I met at a timeshare resort in France said to me at the weekly timeshare reception “…My husband and I have been trading timeshares since 1982 and we have travelled to parts of the world we otherwise wouldn’t have gotten to”.That has been our experience as well and we have successfully used our timeshares and consider our capital and annual costs to have provided excellent value.Remember as well,most timeshare ownership is condominium ownership,increasingly covered by local condo laws and owned in perpetuity,thus can be passed to family.In closing,be careful in approaching a timeshare purchase and do it perhaps after more than one vacation at the resort,but properly done timeshare ownership and travel can be enjoyable and financially beneficial….Peter Green