Tom Kelly: Timeshare seekers should do homework
School is out. Families are dreaming of time in the sun. Couples are running off to remote getaways seeking relaxation, enjoyment and adventure.
Few can afford a vacation home yet many people are intrigued about the possibilities of timesharing. When did the concept take root?
Time-sharing plans began in the 1960s in the French Alps, where vacationers, usually winter skiers, would buy an annual stay at a resort condominium. The concept had a troubled beginning in the United States because many ventures went bankrupt and consumers, who were not yet protected by industry regulations and state laws, often paid the price.
Reputable developers have polished the industry, but some fast-buck pitches still are being made with misleading vacation incentives. Several states cleaned up timeshare laws, which now typically cover the rights to any real or personal property such as boats, motor homes and airplanes.
Timesharing is often appealing because the average family cannot afford a vacation home and only gets so much leisure time each year. The one-twelfth ownership became the first popular timeframe for a reason. Early research revealed that owners use a home or unit about 31 days a year after the first year. Weekly timeshares, today’s most popular segment, were a result of cost. As resorts became more expensive to build, developers were able to net more dollars by selling 52 shares rather than 12.
There are two types of ownership – equity and right-to-use. Equity ownership provides an equity interest in the resort, or unit, similar to the purchase of any real estate except owners buy only one fifty-second (one week per year) or some other fraction instead of the whole thing. Owners can take out a mortgage (or pay cash) and get a deed to a share of the property. Owners have the right to sell, trade or refinance the share. Generally, when the project is sold out, decisions on management and maintenance are turned over to an elected board of directors.
Right-to-use timeshares are usually membership programs that simply give the right to use the property. Right-to-use may be for a limited period of time, say 30 years, or it may be unlimited. However, a purchaser will never be a deeded owner. (Some right-to-use plans misleadingly refer to members as owners, but what is owned is a membership.)
Potential tax advantages generally come only with equity ownership. The developer retains most tax breaks on right-to-use plans.
If the equity owner uses the unit solely as a rental, the owner could deduct repairs, maintenance, depreciation, taxes, interest and insurance.
There are two basic types of occupancy: fixed and floating. Fixed allows an owner to go to a specific resort for a specific length of time each year. Floating permits a specific amount of time each year, but at either a predefined time that changes each year or at a time arranged through an exchange.
Most timeshares are promoted through an exchange program that offers to trade your unit and time period for one elsewhere. Exchanges typically are made through services that charge a yearly and per-exchange fee.
If you are thinking of buying a timeshare, the national Council of Better Business Bureaus and the Federal Trade Commission offer the following tips:
• Do not buy timeshare units from salesmen who use pressure tactics and promises of free merchandise. Review all documents before signing, and make sure the contract contains a “cooling-off period” during which you can change your mind and still get a refund.
• Make sure you know if you are buying a time-share unit under a fee-simple plan, which gives the buyer title to a fraction of the unit, or under a right-to-use plan, which entitles the buyer to use the unit for a specified period of time but does not give any ownership rights.
• Keep in mind additional costs such as maintenance fees, which can range from $500 to $700 a year.
• Remember the exchange programs usually cannot be guaranteed. There may be time limits on exchange opportunities, and sometimes you must request a trade far in advance.
• Thoroughly research the track record of the seller, developer and the time-share community’s management company. Learn who takes care of the property and performs services such as replacing furniture or fixing damage from leaky faucets.
• Find out what your rights are if the builder or management company has financial problems or defaults on the project. Make sure the contract includes provisions that protect you from claims filed by a third party against the developer or manager.
Tom Kelly has been a professional journalist for 36 years. Heworked at the Seattle Times for 20 years, many as real estate editor.