What is Time-sharing
Time-sharing illustrates a concept known as fractional ownership, where buyers purchase the right to occupy a unit of real estate over specified periods. For example, purchasing one week at a timeshare means the buyer owns 1/52nd of the unit. Buying one month would mean 1/12 ownership. Time-sharing is popular within vacation locales. Property types can include homes, condominiums and resorts. The model can also apply to recreational vehicles as well as private jets.
BREAKING DOWN Time-sharing
Time-sharing can be broken down into two main types of ownership: deeded and non-deeded. Deeded ownership is when a buyer purchases interest in the property. Non-deeded ownership functions more as a lease that gives the buyer the rights of use.
More complex ownership structures exist as well. For example, fixed-week ownership gives buyers the right to own a unit during the same week each year. The opposite would be floating-week ownership, where buyers have the right to use the property during a range of available time slots. Point-system ownership is common as well. Often referred to as vacation clubs, buyers purchase a specific number of points that can be redeemed at various locations. In some instances, buyers can save their points to purchase more expensive time. In such scenarios, costs can vary by unit size, location, time of year and brand, among other factors.
Buying into a timeshare is not an investment. Whereas investments like an exchange-traded fund or a mutual fund intend to create value and income, the Federal Trade Commission (FTC) makes it clear that “the value of these options is in their use as vacation destinations, not as investments.”
Prospective buyers should do the due diligence prior to making a commitment, as a timeshare is a significant purchase. Timesharing often requires a significant payment upfront for property that tends to depreciate quickly. Typically, it also comes with a number of recurring payments and fees. Monthly loan payments often come with high interest rates and annual maintenance fees can escalate. As with ownership in any type of property, one-off expenses can add up and become more frequent over time.
Time-sharing has its advantages, including what can be access to large and luxurious accommodations, as well as the comfort and familiarity of vacationing in the same location time and again. However, it is important that prospective buyers understand the market they are buying into comes with certain risks that they should account for.