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Is a timeshare a good investment? Jon and Casey's story Add to ...

It was the ad that caught Jon and Casey's attention. The timeshare promised: "a world of tropical vacation pleasures...powdery, white-sand beaches...aquamarine waters...tennis courts, gym, swimming pool, and restaurants..." But was it a good investment, or simply too good to be true?

To answer this question, Jon and Casey needed to do the math. They had to compare the cost of having the timeshare unit for two weeks each year with the cost of renting a similar unit on their own. They did it using these four steps:

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1. List all the costs of the timeshare. Jon and Casey went through the timeshare agreement and listed all the costs:

Purchase price$15,000
Yearly maintenance400 (includes utilities, maintenance fees, repairs)
Yearly property taxes250
Yearly cleaning fees50

 

2. Determine the market value of the rental of the timeshare. Here Jon and Casey went online to do some research. They looked up the rent they would have to pay for a similar condo for two weeks. They found this cost would equal $3,400.

3. Calculate what it costs to own the timeshare for two weeks. Here's where Jon and Casey got out their calculators. They needed to figure out what it would cost to enjoy the timeshare for two weeks each year. Then they could compare that number with the cost of the market rental. Here's how they did the math:

  • They assumed they would own the timeshare for 10 years. So they divided the one-time purchase price of $15,000 by 10. ($1,500)
  • They added up all the yearly costs of the two-week share. ($700)

Total yearly costs of the timeshare: $2,200.00

4. Compare the actual costs of owning the timeshare with the market rental rate. For this step, Jon and Casey subtracted the cost of the timeshare for two weeks (Step 3) from the market rental cost (Step 2):

Cost of two-week rentalCost of two-week timeshareSaving with timeshare
$3,400$2,200$1,200

 

What they decided: on paper, the timeshare was clearly a better value. They would save $1,200 each year for a similar accommodation. It is also possible that they could get some money back at the time they sell the timeshare. So this is a conservative estimate of the benefits of the timeshare. The real value would depend on what happens to the real estate and timeshare market in the future. It would also depend on whether any unexpected costs came up over the years.

But Jon and Casey still had more research to do before they made a final decision. They needed to check:

  • Did the company offering the timeshare have a good reputation? Were there any complaints against the company?
  • What was the history of maintenance fees? Had there been any special assessments to cover unexpected expenses?
  • What was the repair history of the timeshare? Were any major repairs coming up?

They also wanted to talk to other timeshare owners and find out how happy they were with their investment. If everything checked out, they would go ahead with the timeshare purchase. They already knew the area and enjoyed returning to the same vacation spot each year. The timeshare would simply make it a lot more affordable for them.

Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca

Follow us on Twitter: @GlobeInvestor

 

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