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 one-fifty-second of the unit. Buying one month would mean one-twelfth 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.
The timeshare industry is mainly concentrated within the United States. According to the American Resort Development Association (ARDA), the U.S. timeshare industry was worth $10.2 billion in 2019 and 9.6 million households in the country owned one or more products associated with the industry. It contributed $80.7 billion to the U.S. economy.
- Time-sharing is fractional ownership of real estate that entitles individuals or families to own or lease units of the property.
- In a deeded ownership, a buyer purchases interest in a property while non-deeded ownerships entail leases that give buyers the rights of use for a property.
- Time-sharing benefits include the comfort and luxury of vacationing in large professionally-managed resorts at a fraction of the cost. The disadvantage is that it may be a money-sink because it does not guarantee ownership.
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.
History of Time-Sharing
It is difficult to assign a sequence to the evolution of time-sharing. This is primarily because time-sharing evolved through a series of overlapping events in different parts of the world. In Switzerland, a developer and his partner built a resort in 1963 and subsequently sold packages that allowed users to use rooms on a time-share basis. Their properties were situated in Spain, Switzerland, and Italy. Led by Paul Doumier, the Societe des Grands Travaux de Marseille developed a ski resort in the 1960s and coined the first memorable slogan for time-sharing that is still used as a selling pitch for timeshares. "No need to rent the room; buy the hotel, it's cheaper!" they exhorted to customers.
In America, Hawaii became the site of the first timeshare when the Hilton Hale Kaanapali was inaugurated in Oct. 1965. The hotel-condominium property was owned by Amfac and the purchasers were a party of six, which included famous hotelier Conrad Hilton. The first non-hotel timeshare was also located in Hawaii at Kaua`i Kailani. The owners sold weekly timeshares in the property and subsequently rebranded themselves as Vacation Internationale.
The 1970s was a time for innovations in the timeshare industry. "Deeded ownership" became a popular form of timeshare after it was introduced by the Hyatt company and Innisfree companies in 1973 at Lake Tahoe in California. RCI introduced the concept of vacation exchange in which timeshare resorts combined to form an affiliate network where points could be accumulated and exchanged between various locations.
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 for prospective buyers to understand that the market they are buying into comes with certain risks which they should account for.