Buying a beach front property or a vacation villa may be easy for the rich and wealthy but not for common middle class people. The introduction of the timeshare concept gave hope to those people who could not afford to buy a brand new vacation home. That is one of the reasons why the timeshare industry has grown by leaps and bounds ever since its inception in the United States. One of the aspects of a timeshare property that attracts most people is that they can have a wonderful vacation home without having to worry about its upkeep and maintenance. But at the same time people have many misconceptions about timeshares. One of the biggest misconceptions is that they compare timeshares to regular real estate property and consider it as an investment option. In fact it should be thought as an investment in your dreams i.e. vacationing at a place where you want to go every year. Investing in real estate could reap profitable returns but if you invest in a timeshare it may not be guaranteed – in fact you may end up losing money.
But what if you still want to buy a timeshare and although you expect no profit from it neither do want to make a loss. There is always one question in the minds of those people who are planning to buy timeshares. Is it really worth buying a timeshare? To answer this question you have to go through the analysis of various factors. This analysis should consider factors like the comparable rent of alternative accommodation, appreciation of the timeshare property and your finance rate. How do you do it? Here is a simple calculation.
Consider the value of your investment in terms of profitability. Profitability should be a measure of the comparable rental rate, rate of appreciation and your finance rate. If the sum of all these is a negative number then, assume that you are losing money in your investment. The rental rate is the ratio of the rent of that vacation property to the buying price of that timeshare. Suppose if corresponding rent of that vacation timeshare is $1,000 and the buying price is $10,000 then the rental rate is 10%. Now if we include the annual maintenance cost, membership and all other miscellaneous expenses – let’s say it comes to around $500 – the actual saving in rent will be $500 now and the rental rate will be the ratio of $500 to $10,000 which gives us 5%.
Now if we assume the annual appreciation of that property is 10% and the rate of our finances is 16%. If we add the rental rate and appreciation and subtract the finance rate you will end up with a negative percentage which means you are losing 1% every year compared to rent. But this formula is only a rough calculation of the profitability of your investment and may not be accurate. This is just to give you an idea. The depreciation rate may vary as much as the finance rates. The maintenance fees and other fees may also vary with different locations. Some resorts charge reasonable maintenance fee and other fees but others exorbitantly high fees. So, this should also be a factor in deciding which resort to choose; it is not a smart idea to pay unusually high fees when you don’t know whether you can utilize the property year after year and you may think of renting out the unit which is not a profitable proposition either.
Another good idea is to add up the cost of your timeshare for the entire year i.e. all fifty-two weeks. For the above investment it would be around 520,000. But, does the timeshare property cost that much if somebody wants to buy it as a real estate property. The extra money goes into the pockets of real estate developers who are selling the timeshare. So carefully weigh up all the factors discussed above before buying a timeshare property.