What Is A Timeshare And How Does It Work?

Whether you love soaking up the sun on a beach, exploring a vibrant new city, or returning to a favorite spot every year, vacations mean something different to every traveler. A timeshare offers a unique way to make those dream vacations a reality. But what exactly is a timeshare, and is it the right choice for you and your vacation needs?

Understanding how timeshares work, the options available, and their pros and cons can help you decide if this vacation ownership model suits your travel goals.

What Is A Timeshare?

A timeshare is a vacation property arrangement that allows you to share the cost of a property with others, where several unrelated parties own a fractional portion of the property.

Timeshare opportunities are located almost anywhere, including tropical or mountainside destinations. In some cases, you can trade your property for another location, so you're not always "stuck" going to the same place.

Over the years, timeshares have continued to increase in popularity, with about 10 million U.S. households owning a timeshare, according to the American Resort Development Association (ARDA).

How Is A Timeshare Split? 

As a timeshare owner, you split the property with others, each taking turns using it, usually for a week at a time. Because you share the costs with other individuals, purchasing a timeshare is much more affordable than buying a vacation home of your own, which can make it an appealing option.

How Do Timeshares Work?

Let’s take a closer look at how timeshares work. First, there’s the initial cost you’ll need to pay, which you can either purchase during a sales meeting or find through a resale on the secondary market. After that, maintenance fees will be charged to cover things like resort operations throughout your contract. Keep in mind, these fees can vary quite a bit.

Timeshare vacation slots may also vary depending on the property you choose. While some may have fixed-week options, others have point systems that you can build and redeem at different locations.

So, before you make your purchase, it's a good idea to understand the vacation options and all the fees involved. This way, you’ll know if a timeshare investment fits comfortably within your budget and schedule.

Types Of Timeshares

There are several types of timeshares you can look into, including fixed-week, floating-week and points system timeshares.

Fixed-Week Timeshare

With a fixed-week timeshare, each owner receives a specific week to access the property when they purchase it. This means that you'll go on vacation during the same week each year or enjoy predictability when using your timeshare.

If something comes up and you need to reschedule, you must find another owner to switch dates with, which can be tricky if all timeshare owners expect to use a specific date. The management company might not be able to coordinate your newly requested dates.

Floating-Week Timeshare

Floating-week timeshares allow owners to plan their weeks around their schedules. This way, owners can still make regular payments for a week of vacation each year but are not forced to keep to a rigid schedule.

Points System

Hospitality chains like Marriott Vacation Club, Club Wyndham and Hilton Grand Vacation Club offer timeshare options, often through a points system. With this option, owners receive points that can be used at any of the chain’s properties.

Many hospitality chains partner with timeshare developers to create a vast network of locations available to timeshare owners.

Types Of Timeshare Ownership

Among the types of timeshares, there are also different types of timeshare ownership, including shared deeded ownership and shared lease ownership. It's important to read over your contract so you understand exactly how each ownership type works.

Shared Deeded Ownership

Some timeshares are a real estate purchase by the owner, who holds a deed to a fractional piece of the timeshare property. A deeded property means that you own it for life and can pass it on to your children and grandchildren. For example, if you purchase a week’s worth of vacation at a given property, you own 1/52 of the property (since there are 52 weeks in a year).

Owning a deed to the property may offer some tax advantages. For example, you may be able to deduct the financing interest payments and the portion of the monthly fees that go to taxes.

Shared Leased Ownership

A leased timeshare is a method of acquiring a right to stay at a property for either a fixed or floating week over a specified number of years. A leased timeshare is also known as a non-deeded timeshare. In this arrangement, the deed remains with the timeshare developer, not with you, the timeshare owner.

A leased timeshare doesn’t confer any tax benefits to you as the owner. It’s also important to note that the value of the timeshare decreases over time.

A Brief History Of Timeshares

So, where did the idea of a timeshare come from?

It all started in the 1960s in Europe with a fresh way to attract vacationers. Instead of just booking hotel rooms, travelers were encouraged to buy "right-to-use" agreements, which meant they owned the right to use a property for a certain amount of time each year.

The very first timeshare was created by a developer named Hapimag and his partner Dr. Guido Renggli in Graubünden, Switzerland. They built a 13-unit resort and incorporated right-to-use packages, created the first points program, and even added a cancellation policy.

This creative idea quickly spread to the U.S. By 1965, Americans started their own version of timeshares in Maui, Hawaii. The Hilton Hale Kaanapali began construction in late October and was built on a massive 15,000-acre Pioneer Mill Plantation.

Although timeshares began as a small, specialized market, they really took off in the 1970s when the American Resort Development Association (ARDA) and exchange companies like Resort Condominiums International (RCI) and Interval International (II) were established. By the 1980s and 1990s, big-name brands like Disney, Hilton and Marriott hopped on the bandwagon, which made them even more popular with vacationers.

However, over time, vacation-goers have started questioning whether timeshares are really worth the investment.

How Much Does A Timeshare Cost?

There are a variety of costs involved in purchasing a timeshare, including:

• Direct purchase: The direct purchase is the largest part of the investment. The average price of a timeshare transaction is $23,940, according to the American Resort Development Association (ARDA).
• Resale purchase: Timeshares rarely appreciate in value, so you could spend far less for a resale purchase on the secondary market instead of buying a new one. You could save as much as 70% of the original purchase cost.
• Annual dues: The annual maintenance fees cost $1,170 on average in 2022. However, it could cost you more or less depending on the size of the unit. If you have a deeded timeshare, you'll pay these costs indefinitely. The costs usually increase over time due to inflation.
• Exchange fees: If you'd rather head to Florida instead of Las Vegas during your annual vacation, you may have to pay exchange fees to switch locations.

Pros And Cons Of A Timeshare Purchase

It's important to consider whether a timeshare fits into your overall goals. Ultimately, a timeshare is not considered an investment because you won't see returns from the funds you put into it.

You'll usually face high initial costs and ongoing fees, low resale value and won’t be able to gain equity in the timeshare like you can when you buy a vacation property.

However, if you've always wanted to own a vacation home but can’t fit the high costs into your budget, a timeshare might make sense for your needs. Here are some pros and cons to consider.

Timeshare Pros

The benefits of owning a timeshare include:

• Upscale amenities: Timeshares typically offer spacious accommodations and resort-like amenities.
• Familiarity with the location: You can return to a familiar destination each year, which can be beneficial if you really enjoy the perks of that particular area.
• Points could be bankable: Some timeshares allow you to take advantage of points that you can use at other properties in the resort chain. You may be able to tap into a vast network of locations and also save up points to use later in case you want to skip a year.

Timeshare Cons

There are downsides to owning a timeshare, including:  

• High upfront costs: Timeshares usually come with a large upfront price tag. That said, make sure to think about whether you’re ready to handle not just the initial costs but also the ongoing expenses.
• Fees: You'll also have to pay annual dues and maintenance fees, which you’ll pay on an ongoing basis as long as you own the timeshare.
• Inflexibility: Changing your vacation week may not be possible unless your timeshare offers a floating schedule. This lack of flexibility in booking and cancellations can be challenging if unexpected events, like an illness, arise.
• Tough to get out of: If you decide to cancel your timeshare, you may need to work with a lawyer or a timeshare exit company. Reselling can also be difficult, as you’ll be competing with others trying to offload their timeshares.
• Will likely lose money: Timeshares typically depreciate in value because they are illiquid assets. Unlike purchasing a vacation home, where you own the property and it may appreciate over time, a timeshare does not provide true ownership and often decreases in value.

How To Get A Timeshare

You can typically access timeshares through a timeshare presentation or the timeshare secondary market.

Timeshare Presentation

A timeshare presentation, also sometimes called a discovery tour, allows you to learn about timeshare opportunities with a representative.

Timeshare presentations often reward your commitment with a perk, such as a free gift or a discounted hotel stay. If you don't fulfill all the requirements to get the deal, such as meeting specific age requirements or bringing your spouse, you could forfeit the timeshare or have to pay full price instead of getting the deal being offered.

Timeshare Secondary Market

You can also get a timeshare through what's known as the timeshare secondary market. This is a place where timeshares are sold by owners who no longer want them or use them. You can find them on the resale markets online, such as through the Timeshare Users Group (TUG). You can also search for them by destination or vacation club.

You may find a better deal going this route, but if you do, it’s important to make sure you work with a timeshare broker or a licensed timeshare resale agent. They can help you identify who is responsible for paying for final fees and who can help you navigate legal documents, such as the accompanying deeds.

How To Get Rid Of A Timeshare

Many timeshare owners report eventually regretting their purchase and feeling like it wasn’t worth the investment. According to timeshare exit company Lonestar Transfer, about 87% of owners feel this way, usually because of high maintenance fees, the hassle of reselling and the financial burden it creates.

If you’re feeling stuck in your timeshare and facing similar frustrations, you’re not alone. The good news is that there are ways to exit your timeshare agreement. Here are a few strategies to consider.

Rescission Laws

If you just purchased a timeshare and have second thoughts, you can use rescission laws to your advantage. These laws give you a short period, usually 3 – 15 days depending on the state, to cancel the contract.

Timeshare companies are required to include this "cool-down" period in their contracts, and they must explain your cancellation rights clearly. Many states also make sure buyers get all the details about how to cancel when they buy the timeshare or shortly after. This way if you change your mind, you don’t have to jump through hoops to get your investment back.

Negotiate Directly With The Timeshare Developer

If the cool-down period has already passed, don’t worry — there are still options available to help you get out of your timeshare. One option is to contact the timeshare company yourself.

Make sure to explain that you’d like to exit your contract and ask about the process. Some timeshare developers offer deed-back programs, also known as buyback programs, that let the developer buy the property back from you.

For example, Wyndham Destinations, one of the largest vacation ownership companies in the U.S., has a Certified Exit program. This program lets owners explore options like returning ownership if their loan is paid off or if they qualify for a hardship exception.

Keep in mind that in some cases, you may have to pay a fee to cancel your timeshare agreement.

Hire A Lawyer

Another option is to hire a lawyer to negotiate on your behalf. These legal experts can guide you through the steps to exit a timeshare and review your agreement to find solutions, such as canceling during the rescission period or using deed-back programs.

While this option may cost more, it can help you avoid common pitfalls. For example, if you try to negotiate with the timeshare developer yourself, they may try to persuade you to stay with offers like “free” upgrades.

However, these upgrades often come with new contracts, making it even harder to get out later. A lawyer can review these agreements, simplify the process, and help minimize the costs of ending your timeshare contract.

Resell Your Timeshare

If your rescission period has passed and the developer doesn't offer buyback programs, you can also consider reselling your timeshare by connecting with a timeshare company or agent familiar with the secondary market.

It's important to point out that this option typically applies only to timeshares that are fully paid off. If your timeshare still has an outstanding loan, it could be considered "encumbered." This essentially means the property has financial obligations attached to it, which can limit your ability to resell the timeshare.

Here are a few steps to follow to resell your paid-off timeshare:

• Review your purchase agreement: Check to see if your contract allows you to sell directly to a new owner or if your timeshare developer has the right to buy it back first through a "right of first refusal" (ROFR) clause.
• Determine its value: Take time to research the market by comparing prices of similar timeshares for sale. Make sure to look at factors like location, square footage, and amenities to estimate how much your timeshare is worth.
• List your timeshare for sale: It's best to use reputable online resale platforms such as RedWeek to advertise your timeshare. However, proceed with caution when you hear companies promote "exclusive" listings but charge high fees to post your property.

Keep in mind that timeshares usually lose value over time. While you probably won’t get back the full amount you paid, selling can still free you from the ongoing stress of maintenance fees and other costs.

Use A Timeshare Exit Company

If other methods don’t work, a timeshare exit company might be your last option. Since there are many scams in this industry, it’s important to choose a reputable company. Therefore, make sure to look for one with a solid track record by checking how long they’ve been in business and reading reviews on their website or trusted platforms like Yelp. Upfront payment requests should raise concern, as they’re commonly associated with scams.

Foreclosure As A Final Option

If you stop paying your timeshare mortgage or maintenance fees, the timeshare company may foreclose on the property, similar to a traditional mortgage.

While allowing foreclosure can be a way out, it comes with significant risks, including potential damage to your credit score. So, before considering foreclosure, take the time to explore all other options. Even if you’re in a tough financial spot, finding a safer solution can help you avoid long-term consequences.

Alternatives To A Timeshare

While timeshares offer vacation accommodations, there are plenty of other options to consider, such as:

• Purchasing a vacation home
• Staying in a hotel
• Staying in a home rental service such as Airbnb or VRBO
• Enjoying a bed and breakfast
• Staying in a cabin

It’s best to take the time to explore these alternatives to find what best suits your lifestyle and vacation preferences. Keep in mind that the cost of a timeshare in the first year alone could be higher than 10 years of weeklong hotel stays.

Home Rental Services (VRBO & Airbnb) Vs. Timeshares

Home rental services like VRBO and Airbnb give travelers the option to stay in places that feel more like home. From renting an entire home to just using one room within a property, travelers can benefit from a cozier and more personal experience than staying in a hotel. Plus, you can pick your location, dates, and type of place that makes sense for your travel needs and budget without a long-term commitment.

On the other hand, timeshares come with large upfront costs and ongoing fees. In addition, you typically only have access to one property or a small group of properties, which limits your travel flexibility. While timeshares guarantee you a vacation spot, home rentals give you more freedom to visit different places and change plans as you like. If you love exploring new destinations, home rentals can be a budget-friendly and more flexible choice.

The Prevalence Of Timeshare Scams

According to the Federal Trade Commission (FTC), timeshare resale and exit scams are a common issue. Many fraudulent companies promote their services online and create a sense of urgency to convince you to sell your timeshare.

A good rule of thumb is that if it seems too good to be true, it likely is. So, make sure to keep your eyes peeled for these types of scams.

How To Avoid Timeshare Scams

The Federal Trade Commission recommends the following to avoid timeshare resale scams:

• Research the seller by contacting the state attorney general and local consumer protection agencies to see if there are any related complaints. Make certain their agents are licensed where the timeshare is located.
• Use a timeshare appraisal service to assess the timeshare’s value.
• Ask about any upfront fees, cancellation terms and refund policy. Get everything in writing.
• Ask for references from previous clients.
• Ask if the reseller will promote your timeshare and how to gauge their marketing practices.

What To Do If You’re A Victim Of A Timeshare Scam

If you think you’ve been scammed, stop making any payments immediately and contact your bank or financial institution for help. After that, consult with a lawyer to get guidance on your next steps.

It’s also a good idea to report the scam to the FBI’s Internet Crime Complaint Center at ic3.gov and the Federal Trade Commission (FTC) at ReportFraud.ftc.gov. Even if you just spot a scam, make sure to report it to the FTC, the state attorney general, and the Better Business Bureau (BBB).

The FTC also has plenty of helpful resources if you’ve fallen victim to a timeshare scheme. You can check them out here.

Timeshare FAQs

Here are some frequently asked questions about timeshares.

What is the point of a timeshare?

Timeshares allow you to split the cost of ownership of staying in a vacation property with many other individuals who are also chipping in to pay for a particular property.

How many years do I have to pay for a timeshare?

You pay for the timeshare indefinitely when you own a deeded timeshare. However, they are transferable, which means you can sell them, include them in your will or give them away. It's important to understand that the person who gets them after you must pay the fees associated with the timeshare.

In a leased timeshare, the number of years you can use the timeshare is outlined in your contract and may range from 20 – 99 years.

Can I ever pay off a timeshare?

No, you never pay off a timeshare. Unlike purchasing a vacation home with a mortgage, you're not set up to own the property.

What happens if I walk away from a timeshare?

If you walk away from a timeshare, you can expect to get calls from a collection agency and take a hit on your credit score. That's why it's important to carefully read through a timeshare contract before you sign up for one.

Is there a way to save money on a timeshare?

The Bottom Line: Should You Get A Timeshare?

While some might enjoy the perks of timeshare ownership, it isn't for everyone. That’s why it's important to learn more about the pros and cons of purchasing a timeshare before making this type of real estate purchase.

If you decide to go in a different direction after researching your options – like purchasing a second home or vacation home – you can start your mortgage application with Rocket Mortgage^® today.