Timeshares: Definition & Considerations

Instructor: Shawn Grimsley
Perhaps one of the most exotic and controversial property ownership structures is the timeshare. In this lesson, you'll learn about what a timeshare is and its key characteristics. You'll also have a chance to take a short quiz after the lesson.

Timeshare Defined

A timeshare is a way for people to purchase a legal interest in vacation property they could not otherwise afford. It's a form of fractional property ownership where you and other people have a legal right to occupy and use the same real estate based on time.

For example, let's say you are a skier and are interested in a two-bedroom condo with a great view of the slopes on the top floor at a swanky ski resort. You can buy the right to possess and use the condo for a specific period of time each year, such as the first seven days in the month of February. Of course there are 52 weeks in a year and you will be probably be sharing the condo with 51 other people who will have a right to occupy and use the condo the other 51 weeks. Keep in mind that timeshares are not restricted to condos and may involve detached homes, duplexes, and townhomes. Moreover, you can buy more than one week.

Types: Deeded vs. Right-to-Use Contract

If you purchase a timeshare, what will you get? One common form of timeshare is a deeded fee simple interest. A fee simple is the least restrictive type of ownership interest in land. If you have a fee simple, you can occupy, use and transfer your interest during life or after death by will. Of course there's a catch: you will actually own a percentage of the real estate that is equal to the time you bought to occupy and use the unit. So you'll have to try to sell a 1/52 interest in the condo in our example above. Not easy to do.

A Right-To-Use Contract (RTU) is another form of holding a timeshare. If you have a RTU, you'll have a contractual right to use the property for a specific period of time each year during the contract period. RTUs are often used in foreign countries where foreign ownership of property is severely limited or prohibited by law. Some RTUs are pretty much lease agreements for a term of years usually ranging anywhere from 20 to 30 years but as long as 99 or even until your dead. Other types of RTU contacts give you few, if any real property rights. In fact some are merely a club membership and if the company that operates the club fails, you may be pretty much out of luck because you own a membership, not a piece of real estate.

Fixed vs. Floating

A timeshare may be fixed or may float. If a timeshare unit is fixed, you have a right to use the property on the same calendar days each year, such as January 1 through January 7. If the timeshare unit floats, you may be able to use the property at different times within a certain range. This is important because if you want to ski, for example, you'll not want a fixed timeshare during the offseason.

Costs & Income

Costs don't stop after the purchase. You'll be responsible for your percentage share of maintenance, taxes and insurance for the unit and any common areas. These costs are not set in stone and usually go up overtime.

Sometimes timeshare owners can rent out their time if they are not planning on using their unit. However, this is not a given and will depend upon any restrictions placed on doing so. It's generally recognized that timeshares are not a great investment opportunity. They tend to depreciate in value and are difficult to resell.

Exchanges

Sometimes owning a timeshare will entitle you to participate in a timeshare exchange program. In a nutshell, an exchange is a program involving different timeshare developments where timeshare owners can swap the time at their property with others who have properties at different locations. For example, you may decide that this winter you'd rather hit the beach than the slopes so you'll try to trade your week at your condo with someone with a unit on a beach in Florida.

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