In Defense of Timeshare

Sort of

One of my first memories after relocating full-time to Los Cabos in the ‘aughts’, was seeing a t-shirt in a now defunct shop with the logo – “My parents think I’m a crack addicted prostitute…..Please don’t tell them I sell Timeshare!”

Over the years, I’ve generally had a conflicted opinion of Timeshare. On the one hand, there’s no doubt that much of the growth of Los Cabos, including many of the amenities I enjoy such as big box retailers, wouldn’t exist without the Timeshare industry, which brought more people to town.

On the other hand, the stories of exaggerated program benefits, high pressure sales tactics (If they ain’t cryin’, you ain’t tryin’) and outright fraud (Pssst….wanna sell your Timeshare?) are legion. Coupled with the general derision of the Timeshare industry by any financial planner, and indeed, the general public, and it seemed like a purchase was a non-starter for anyone of sound financial mind.

Muddying the waters further have been folks I’ve met who are in the industry. With some, you need to count your fingers after you shake hands, and with others, I’d happily pay a dowry to have my daughter marry into their family.

Therefore, I was filled with generally negative emotions when my daughter announced she was planning to spend the summer in Cabo working as a ‘Liner’. As I discovered, a Liner is the tour guide who shares a meal with the customer, shows them the property, and then hands the customer, and a completed information card, over to the sales team.

Before giving my stamp of approval (and alternatively encouraging my daughter to find more honorable work as an escort), I determined that I would invest a few hours trying to understand the industry.

To begin with, I talked to a few acquaintances that actually owned a Timeshare. Shockingly, some had bought into multiple programs. (Fool me once, shame on you…..Twice?). Then, I actually asked a ‘Closer’ (the actual salesperson) to explain what they sold and why people would buy it.

Following the corroboration of the information I was provided via online sources, and much to my surprise, I concluded my investigation with the view that a Timeshare purchase actually makes sense – but only to a select demographic. Let me explain.

First off, here is what I would consider as the proper demographic for a Timeshare Purchaser:

Established in life complete with disposable income. High end vacations are a luxury. If one needs to finance a vacation at a high-end resort, especially at the obscene 12% interest rate often quoted, one shouldn’t be vacationing at a high-end resort. There is nothing wrong with staying at the local off-beach Holiday Inn.

Large Family or Extended Family. The program I looked at was good for 30 years. Others are good for 50 years. If one is going to get value from the initial payment, one needs to use the Timeshare every single year. Obviously, over 30-50 years, life is going to get in the way and a vacation might be impossible for a year or two. That’s where extended family who can use it come into play. Without regular usage, the benefit of paying upfront gets diminished.

Requirement for high end accommodation and at least in your mid-30’s. If you’re in your early 20’s and your idea of a vacation is spending thousands of dollars to lounge by a pool – shame on you. You should be backpacking across the world and staying in youth hostels. In you’re in your late 20’s to early 30’s – save your money and stay in a nice but cheap hotel and walk to the beach. Put that extra money in your kids’ college fund. As well, if you’re perfectly content to spend $100/night at a Holiday Inn (as I am), Timeshare is not for you. However, if you’ve already seen the world on the cheap, if you don’t balk at spending $300+ a night for a hotel room and if you’ve got a member of your family that needs to be somewhat pampered, then perhaps a Timeshare might be appropriate.

So, why might a Timeshare make sense?

In a nutshell, including the initial payment plus the annual ‘maintenance fees’, when one buys a Timeshare, they are actually pre-purchasing high-end hotel accommodation for 25-30% of the retail price.

However, just like when flying Spirit Airlines, if you know what you’re doing, you will save handsomely. On the flip side, if you’re uninformed or unprepared, it can be an expensive nightmare.

Here are the things to look for when assessing if a Timeshare deal might work for you:

Maintenance Fees. Two key points: A) Make sure that if no one can use your Timeshare in a given year, that you can skip your annual ‘Maintenance Fee’ payments for that year, and B) Make sure that there is maximum cap on the annual fee that is roughly tied to inflation. Without a cap, an unscrupulous program can jack the rates so high, that it would make more sense to abandon your Timeshare and book normally on Expedia, and most local Timeshares do jack it up to the point of pain.

Location. Is your ‘home resort’ a desirable location that someone would want to trade for? Most Los Cabos resorts are in the high-demand category, compared to, say, Las Vegas. Beach front never gets old. Many programs have an exchange component where you can trade your annual week with a similar in-demand resort.

Availability. Are there guarantees on availability? Some resorts have been around for decades, and by selling ‘points’ instead of 1/52 of a room, there is no limit to how many times they can sell the same room. After all, that’s why they changed to selling points. Simple math dictates that sooner or later, a program should sell out, but that doesn’t necessarily stop some companies from still selling. The result? Extreme difficulty in booking the time that you want, even when trying years in advance. Have them demonstrate, in real time, a live online booking for numerous different weeks of the year.

Retail price vs. Timeshare price comparison. As an exercise, pick a typical week that would represent when you would like to stay at your Timeshare. Get a quote from Expedia for that week. Make sure it’s an apple to apples comparison (the package you want to buy is exactly the same room offered by Expedia). Multiply the Expedia price by 30 (to simulate the 30-year life of the program). Then, take the initial Timeshare purchase price and add the annual maintenance fee (times thirty). If the total price of the Timeshare (initial price + 30 years of annual fees) does not exceed 30% of the Expedia price (times thirty), then you might have a Timeshare price that makes sense (Remember, to ensure your annual fees do not exceed the price of inflation).

As with every major financial decision in life, due diligence is critical. However, if luxury vacations are your thing, and with the correct program with the appropriate safeguards, a time share purchase just might add to your enjoyment of life.

In the end, I decided not to disown my daughter.