The Wall Street Journal recently published an article titled “How to Buy a Week in Paradise for $1”. For the team here at TCA the article contained no real surprises. For a very long time now we have been saying that from a financial point of view, a timeshare purchase in monetary value terms drops to nearly zero before the buyer has even left the sales presentation.
The same points we have covered with our numerous articles regards eBay listings having timeshare for sale at a single Dollar, still with no takers. One particular listing, as quoted in the article, we show below:
“The luxurious Four Seasons Residence Club Aviara in southern California has nine weeks being offered on RedWeek for $10 or less”
One can only imagine how much the owner of these weeks paid over the years to buy in and maintain, and is now struggling to find a buyer for just $10.
Real or perceived value?
Phantom wealth is an interesting definition introduced in the article. In basic terms what the article is saying is that the timeshare buyer who has spent a substantial sum on acquiring the timeshare, associates that with an asset. The reality is, as we stated above, there really is no asset value.
The American Resort Development Association (ARDA) is well aware of the real financial position of owners in relation to asset value. It’s interesting that the response to the Wall Street Journal from ARDA stated the following:
“It isn’t worthless—it has a value for you to take vacations,” says Jason Gamel, president and chief executive of ARDA, the trade group.”
This is something TCA have been saying for years; the only way to associate timeshare with investment is that it is purely an investment in future holidays. This being the case, why don’t ARDA take action with developers to stop sales teams giving false hope of either developers buying back timeshare, or that sales on the open market may yield a profit. The EU timeshare directive of 2008 specifically outlaws timeshare developers within the EU from making any form of statement that implies that timeshare is an investment. Perhaps the USA should follow suit.
Cost and expenditure
Another area TCA has covered on many occasions appears in the article. Initial costs and ongoing costs all feature. With entry level timeshare now well over $20,000, the need and requirement to purchase via expensive finance is now commonplace. A quote from the article is shown below:
“Marriott Vacations Worldwide said that in 2022 54% of its timeshare buyers used financing with an average loan of $28,400, an average term of 12 years and an average interest rate of 13.4%.”
The figures above are not unique to Marriott; we are in no doubt that most developers can provide similar statistics. Using a loan calculator we crunched the numbers:
From this we can see that the total repaid is $57,232 so over twice the cost of the book price of the timeshare. The interest alone is greater than the principle borrowed. In any one year, the repayments amount to $4,769, we are pretty sure that you can get well over a one week holiday in any Marriott resort for that kind of expenditure.
Given that it’s likely that there will be no residual asset value after 12 years, whoever takes this kind of finance liability will have spent nearly $60,000 on holidays with nothing left other than a few memories and a bunch of photos. But it doesn’t stop there.
Ongoing costs
The article also makes reference to the perennial problem of maintenance fees. All timeshare come with a contractual liability to pay maintenance fees, whether the owner chooses to use the timeshare or not. The really unfortunate facet of maintenance fees is they almost always rise. Once again, ARDA assist by publishing a graph of the average maintenance fee and the rises from 2014 to 2022:
As we can see, the fee in 2014 was about $875. In 2022 this had risen to slightly over $1,150 so in an 8 year period the maintenance fee, in this example, has risen by 31.5%. Whatever the maintenance fee figure, this would need to be added to the amortised purchase cost to ascertain the true cost of the holiday.
Greater problems with selling
TCA are well aware of the plethora of timeshare for sale on the various platforms that simply aren’t moving. Further problems encountered with selling come down to the resort, developer, and season of use. It may be argued that seasons of use may now be adjusted by the introduction of points based ownership but this still brings problems.
A spokesman for one of the sales brokerages mentioned in the article had this to say:
“We have to turn away hopeful owners at tired resorts or of off-season weeks. November in South Carolina, for example.
“We tell them it has no value,” he says. “The next piece of information is that it’s going to cost you to get rid of it.”
Legacy resorts in the USA cause a particular problem. Legacy Resorts are small owner run venues that are suffering even worse than those of the large developers in the resale market. These tend to still be operating on a fixed week deeded basis and as per the comment above, if the resort is old and tired and the fixed week is off season then hopes of a sale rapidly diminish. Given these facts, if owners with large all singing all dancing developers struggle to find buyers, what chance those with legacy ownership?
The article cites an example of an owner who certainly appears to have a desirable timeshare which he purchased for a single Dollar, yes $1. Between the transfer fees on his purchase and yearly maintenance, the owner estimates he has spent about $10,000 on his timeshare, yet never used it, not because he didn’t want to but bumped into the old chestnut of availability issues. He once refused to pay the fees and soon got a call from a collection agency, damaging his credit score.
His timeshare is back on sale for $1. The two-bedroom unit in a “West Indies-styled resort” with seven pools and “lush landscaping” near Orlando’s theme parks sounds lovely but, despite his willingness to pay a buyer’s costs as well, he hasn’t found any takers.
TCA comment
Timeshare ownership as an investment is hard to define as Jason Gamel of ARDA stated “It isn’t worthless—it has a value for you to take vacations,” For sure, you can take holidays but if our costing above is anything like accurate, then it’s a dammed expensive way to holiday. Financially speaking it’s definitely worthless, where selling on the resale market is concerned. More and more the American media are exposing the pitfalls of timeshare ownership. The glossy resorts and slick sales teams are being found out and in reality, not before time. Given the massive choices available today for those who wish to take holidays, Expensive, outdated products such as timeshare have no real place in the holiday market but strangely buyers are still present, for how much longer, who knows?
For more information regarding this article or assistance in any other timeshare related issues please contact the TCA on 01908 881058 or email: info@TimeshareConsumerAssociation.org.uk