Have you ever thought it would be a great idea to gather some friends and purchase a vacation home together? There could be times when everyone goes on a group trip and shares the place. Or, it may be split up so everyone has designated weeks to use the property as they wish. Do either of these options sound appealing to you? Well as it turns out, the latter option is very similar to how timeshare properties are handled.
What is a timeshare property?
First, you should understand what a time-share property is and what it’s typically used for. A timeshare property is generally a shared property that you own a portion of. In exchange, each of the multiple owners are allotted a particular week. Depending on the number of people who split the property, you may even have access for more than just one week each year.
The different types of timeshares.
Here are the different types of time-share deals you may encounter.
Fixed Week: When purchasing, the buyer is allotted a particular week of the year for the life of the contract. This way, you know exactly which week every year that you have access to the property. The predictability makes up for the lack of flexibility. However, you can trade with others or rent this week out every year.
Floating: Each year, there will typically be a selection period where the owners can select the week they’d like to reserve. Despite the added flexibility, it may be tough to reserve the exact weeks you want depending on the popularity of the season or week.
Right to use: In this case, there is no purchasing of the timeshare. Instead, the developer of the property retains ownership and leases specific time periods for a select number of years.
Points club: In this case, you collect points that can be used to reserve certain time periods. It is similar to the floating timeshare deals. With Points Club timeshares, sometimes they will apply to multiple timeshare properties so you can switch your destination up.
Benefits of a timeshare property.
Some offer predictability: In the case of a fixed week timeshare, you are offered a sense of predictability since you are allotted the same week every year.
Pay for what you use: Unlike other vacation units, when purchasing a timeshare, you are only buying the time that you are actually using the place.
May be able to rent it out: So long as your contract allows for it, this typically works best with fixed week timeshares.
Ability to trade timeslots with others: If you feel like switching up your vacation time, then you can trade with others. Whether it be weeks, or locations all together, no one ever said it had to be with people at the same property.
Downsides of a timeshare.
Known to be a hard sell: It is said that timeshares are known to be hard to sell since there are simply so many of them on the market.
Annual fees: You will also be responsible for paying your annual fees. Keep in mind that you really have no control over these and any subsequent increases in these fees.
Unable to write-off as loss: The Internal Revenue Service (IRS) doesn’t allow for you to write any losses off as capital losses. This is unlike typical real estate properties.
Best practices for buying a timeshare.
Don’t pay full price: As we just mentioned, there are tons of timeshares available on the market. Knowing that, you should never be paying full price for one.
Keep it a personal choice: Timeshares really aren’t recommended as investment properties, unless you are developing the property yourself – then it may be more worthwhile.
Ensure it’s a frequent travel spot of yours: If you’re going to purchase a timeshare, it should at least fit with your typical vacation patterns. After all, you don’t want to feel bored of going to the same place every year.
Ensure you have the capital: When it comes to purchasing a timeshare, you shouldn’t be borrowing to afford one. If you are, then maybe you should wait.
When it comes down to it, we typically suggest that you keep timeshare properties as personal investments. Despite the lower capital requirement, timeshares won’t generate the returns you are looking for. Today's market is filled with many opportunities for the savvy investor. Our Elite Legacy Education trainers will introduce you to proven strategies that can help you launch your career as a successful real estate investor.
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