Wednesday, March 16, 2011

Should You Buy A Timeshare? Probably not!

Note: This is an update of an earlier posting

A beautiful vacation in a tropical paradise!  Why not "own a slice of paradise"  by purchasing a timeshare?  There are many good reasons not to.

I have written before about Timeshares, which I think are an utter rip-off, or at least a bad bargain.  And the big tip-off as to why they are is in the way they are sold.  The folks who sell timeshares use all sorts of trickery to get you to attend a high-pressure sales pitch, where they put shills in the audience ("Gee, these timeshares are a great bargain!  My wife and I are going to buy one NOW!").

The latest gag is to send you a post card saying "We've been trying to contact you for some time!  Your TWO FREE AIRLINE TICKETS are about to expire!  Please contact us right away to claim your TWO FREE AIRLINE TICKETS!"   The gag is, to get the tickets, you have to attend a sales seminar.  And even after the presentation, you find out that in order to get the "free" tickets, you have to pay for a 7-night stay in a hotel.  Nothing "free"  in life is free, so just stop being a chump.

SEE THIS LINK for more information about the nice tactics the timeshare people use to get you to sign.  Are you sure you want to go to bed with these people?

When someone tries to start a business relationship with you based on a deception - even a small deception - it is not going to go uphill from there.  So when you get a mailing that is faked up to look like a government check, or an offer from an insurance company that says "IMPORTANT!  Insurance Card enclosed!" you know you are in for a bumpy ride.

Timeshare sales places send you postcards, promising a free vacation AND a digital camera or a barbecue grill, if you show up for a 90 minute sales presentation.  And if you go, you'll discover the digital camera is a very cheap piece of junk, hardly worth $20 and same for the "barbecue grill" which is a tabletop model.

A grand deception?  Hardly, but it is a deception nevertheless, and one that should tip you off that this is no bargain.

Secondly, anything that you are "sold" based on a high-pressure sales pitch is going to be a bad bargain, period.  If you really wanted a timeshare, you should go out and shop for different ones, comparing prices and features and then make a logical purchase.  Right?  Because that's how you make a proper purchase - by comparing prices and features and overall costs.

But here's the deal - you can't really do that with Timeshares.  Timeshares are only sold through high-pressure sales pitches - which, like shopping, convince you that something is a bargain, usually by comparing the cost of the item to something specious.

In this case, the salesmen will tell you that a timeshare is cheaper than staying in a hotel, "which can cost hundreds of dollars a day!"  But of course, that is the nightly rack rate at an upper-end hotel, not the weekly rate.  And of course, by the time you pay the weekly maintenance fee on your timeshare ($800) plus the amortized cost of the sales price, well, you've paid as much, if not more than it would cost to stay in a nice Hotel.

And if you stay in a nice Hotel and you don't like it, you can check out and move to another Hotel.  Or you can decide to vacation somewhere else this year.  Or, if you lost your job, you can simply decide not to vacation at all.

A timeshare provides none of this flexibility - you are locked into spending money every year, regardless of whether you want to or not.

Granted, some larger timeshare chains allow you to "swap" weeks within a resort or swap to other resorts, usually for a small additional fee.  However, you are limited to the resorts in their chain, and again, when you add up all the fees, you are paying nearly as much, if not more, than if you simply shopped vacation resorts on your own.

The more complicated you can make any financial transaction, the easier it is to rip off the consumer.

In this instance, you are taking a simple transaction - paying for a hotel room - and making it ungodly complicated.  To begin with, there is the "purchase price" for the timeshare, which usually is financed (at fairly astronomical rates, as no real bank wants to touch these).  Then you have to throw in a maintenance fee - which usually is in the hundreds of dollars a week.  We looked at a Marriott resort in Key West several years ago and their fee was like $800 a week - enough to pay for a week at some other resorts!  Tellingly, Marriott is spinning off its timeshare subdivision.

Then throw in all the rules about swapping weeks, or swapping to another resort, etc. and well, it makes airline miles look simple.

And suppose you decide you really hate it?  Well, here's the deal, you are stuck, basically, for life.  Resale of timeshares basically doesn't exist.  Most "Timeshare Resale" places (and one will SPAM me with a comment here shortly) are utter scams - promising to sell your timeshare if you pay them an up-front fee of $500 to list it.  Hey, you were dumb enough to buy a Timeshare, why not rip you off some more?

Even if you can find a legitimate timeshare for sale on the secondary market, you will see that the prices nearly always are less than what people paid.  Timeshares rarely, if ever, appreciate.

On one site I visited, a couple was probating the estate of a deceased parent.  The parent had a timeshare, but didn't use it for the last 10 years of their life - but paid the fees every year.  They called the timeshare and said "We don't want this, either" and the timeshare company said "tough beans, you have to pay the fee!" - which is probably a bit of a stretch, but illustrates how crooked some of these places are.  So they tried to sell the timeshare.  The punchline was, even giving it away, no one wanted it.

While you may not have to pay the timeshare maintenance fees perpetually on your parent's timeshare, on your own, you may have to.  If you don't pay the fees, they can attach a lien to the "property" and eventually foreclose.  Guess what this does to your credit rating?  Not good.

Then there is the issue of what happens 10 or 20 years down the road, when the bright, shiny new resort is looking a little worn around the edges and the roof needs to be replaced, and the pool resurfaced.  Who will pay for all this?  And suppose the management company sort of lets things slide?  You are stuck, period.

Like a Condo - or any form of communal ownership - you will find yourself in protracted arguments and bad feelings.  Suddenly, your dream vacation is a nightmare of litigation and bad karma.

So...... why do people buy timeshares?  High pressure sales tactics.  In the meeting room, the smiling salesmen show you slides or videos about how great the timeshare is - and it may be very nice, when all brand new.  And pretty soon, you are convincing yourself they are right.  And as if on cue, your neighbor sitting next to you says, "Saaay!  This sounds like a great deal!"  But of course, the neighbor might be a shill (employee) of the timeshare company.

These scenarios skew your normative cues.  You are surrounded by people who all think alike, and use self-justification to reinforce bad behavior.  Pretty soon you are "selling" the idea that a Timeshare is a keen idea - not only to yourself, but to others at the conference.  You become a shill without even knowing it.

And yes, people do this - I've seen them do it!  And yes, I've done it myself, although never with a Timeshare.  You talk to like-minded people and pretty soon you are self-justifying bad economic behavior like leasing cars or buying a condo or buying a time-share.  Why?  Because you want to think you are being financially astute, and don't want to think you just made a huge mistake.

And at these high-pressure sales meetings, you won't hear any dissenting views - or if you do, they will be straw man arguments, where the hypothetical person making the argument is ridiculed as an idiot.  Stupid fool!  Paying more for a vacation than he should!  If only he bought a Timeshare like us smart, clever people!

But if you were not in the high-pressure sales meeting, and actually thought about the transaction for a while - and were receptive to other viewpoints, it would dawn upon you that "investing" in a vacation makes no sense at all, particularly when it costs so much and the maintenance fees are open-ended.

And yes, timeshares are scandalously overpriced.  I did the math on one hotel-room type timeshare, and if you added up all the weeks in the year, each hotel room was selling for over 1.5 Million dollars - in Key West.   At the time, that would have bought you a very nice house on the island, not a motel room.

But again, our old nemesis, monthly payment, comes to the fore.  They tell that the monthly payment is "only $150 a month!" so that you don't realize that you just spend nearly $30,000 for one week's use of a motel room.  It is no bargain, but since the monthly payments appear to be "Small" ("Probably less than your cable bill!") you go along with it.

But like with so many other things, the Market speaks loudly.  And when you go to try to sell your timeshare, you may not find buyers at any price - or find them only at drastically reduced prices.  The Market has spoken, and you should listen to it.

But that is the subject for my next posting.

UPDATE:   February 2014

I got a link to a company called "Timeshare Relief" which promises, for a fee, to help people end the "nightmare of timeshare ownership".

I am not sure the company is a good deal, as this discussion forum lists a lot of complaints with them as well.

But the existence of such a company speaks volumes.   You buy a Timeshare and you are OBLIGATED under CONTRACT to pay maintenance fees and special assessments (which can be in the thousands of dollars) in perpetuity (actually, this strikes me as a violation of contract law, the law of perpetuity, but that is another matter).

The problem with a timeshare is that, in many instances:

1.  You can't sell it

2.  You can't even give it away (a charity doesn't want the liability of paying the maintenance fees)

3.  If you stop paying the fees, it goes to collection and ruins your credit rating

4.  If you leave it to your children in your will, they might be on the hook for it (again, the law of perpetuities would seem to apply here, but you'd have to sue to break the contract).

Read that again and again - you can't even GIVE THESE THINGS AWAY.

Why pay tens of thousands of dollars for something that can't even be given away?

Buying a timeshare is like co-signing a loan.   It is the ultimate white trash hillbilly financial move.

Note:  Some people try to sell timeshares on eBay.   The listing prices are usually $1 to $50.   That says it all, doesn't it?