Read this before you go to a timeshare sales presentation

Sitting through a hard-sell timeshare presentation can be emotionally draining and hazardous to your checkbook. If you’re not careful, you can find yourself spending a lot of money and locked into a long-term financial obligation that can be very hard or even impossible to get out of.

There are many problems to be aware of before buying a timeshare. The Federal Trade Commission has a web page of timeshare warnings. You also can read discussions of those problems in the timeshare section of our forum.

While those and other sources describe the problems, let me share with you what helped my wife and me resist the hard sell and get away without buying.

We recently attended a sales presentation at a timeshare resort in Hawaii. While the salesman went through his pitch, a large, high-definition display behind his desk continuously showed all of the wonderful resorts and hotels we could stay at if we just said yes. He caught me looking at the screen and asked me if those locations were on our vacation bucket list.

There’s an old marketing saying that you don’t sell the steak, you sell the sizzle. Timeshare salespeople are selling the sizzling dream of a lifetime of annual vacations on tropical beaches, or lounging around infinity pools or soaking in hot tubs after a day of skiing. They are trained to understand that our emotions and wishes are powerful buying motivators. Emotional and irrational responses are exactly what they prey on.

In case you’re wondering, we went to the presentation because we were curious about that resort and were considering staying there. They also offered us attractive incentives to attend. Depending on the resort and the developer, the inducements can range from a modest gift card or free meals to lodging discounts or piles of loyalty points you can use at their other properties. In our case, the incentives they offered for attending made us feel it would be worth not only our time but also the energy it would take to resist.

What helped us the most was knowing that you don’t have to be a timeshare owner to stay at those resorts. When you realize that very important point, it frees your mind to think rationally about the critical element of cost.

So let’s look at the numbers and then at how to stay there without buying.

First, consider the buy-in price – what you have to pay up front to become an owner. For the property we toured, they wanted $50,000 for the rights to one week in a two-bedroom unit with a partial ocean view. It started out at $56,000 but was reduced by special discounts that the salesman and his manager claimed would only apply if we committed that day.

If you’ve read anything at all about timeshares, you know that the cost doesn’t end with the upfront payment. You also sign a contract to pay an annual maintenance fee. In this case it would be about $5,000 a year, every year. If we wanted a one-bedroom unit, it would cost $32,000 up front with a $2,800 annual maintenance fee.

That maintenance fee can go up each year and have add-ons such as your share of property taxes or special assessments. The contract saddles you with a liability – money that you owe and will owe every year even if you can’t take a vacation.

The salesperson will tell you the timeshare is an investment. But it is not. Most dictionaries define an investment as money that you put to work with the intent of earning a profit or generating additional wealth. Buying a timeshare won’t do either.

Since they try to call it an investment, think about how you could actually invest the money instead of using it for the buy-in.

As I write this, a number of banks are offering insured, one-year certificates of deposit paying 1.62 percent interest. That’s not much, but it’s absolutely safe. If you put that $50,000 in such a CD, after one year, your vacation fund would have another $810 in interest to add to the $5,000 you did not have to pay as a maintenance fee and you would still have your original $50,000. You can do the same year after year, spend $5,000 on vacation lodging, and be far better off financially than if you gave the money to the developer.

What if you invested it in a no-load, low-cost, mutual fund that tracks the S&P 500 Index? Depending on which metric is used, the long-term annualized return on the stock market is about nine percent. I used a financial calculator to compute what that $50,000 might be worth in the future if invested.

Since the salesman suggested we think about that payment as amortized over 20 or 30 years of vacations, I used those as the time periods in the calculations. Instead of the market’s historic return, I used a more conservative figure of seven percent. The calculator says that after 20 years, the initial $50,000 would grow to more than $193,000.

So, would I rather have $193,000 or nothing but an annual obligation for $5,000? Would that really be a hard decision for you?

Those investment calculations assume that you actually have the cash for the buy-in. However, if you have to borrow that money, you definitely should not do it. It will cost you a lot more because of the interest you’ll have to pay and in almost all cases you will owe more than it’s worth.

The fellow trying to sell us offered financing with $6,000 down and monthly payments of $784 for 10 years, making the real purchase price about $100,000 plus the annual maintenance fee.

Don’t let the salesperson arrange financing and don’t put it on your credit card. If you have to borrow money to buy in, you will have two expensive, ongoing financial obligations. What if your circumstances change, say because of a job loss or major unexpected expenses?

If you voice that concern, the salesperson may tell you that you can just sell your interest. But the reality is that your timeshare ownership is unlikely to ever be worth as much as you initially paid. Owners who try to sell have a hard time doing so, generally taking a steep discount if they can sell at all. You can verify this for yourself by looking at the websites where owners go to try to unload their timeshares.

Here is something to think about: If they are such good investments, why are so many timeshare owners trying to sell and willing to take a loss?

And why are so many willing to rent you their units, sometimes for less than the annual maintenance fee?

As I mentioned above, and what the salespeople won’t tell you, is that you don’t have to be an owner to stay at many of the nicest timeshare properties. There are websites where you can find timeshare owners trying to rent out their weeks. I know because we have utilized those several times.

And the property we toured? As I write this, travel websites are showing units there for a week priced at not much more than the maintenance fees we were quoted. If you or I can stay there anyway, why pay the buy-in?

Vacationing at a beachfront timeshare resort can be wonderful. But it’s even better when you do it without giving the developer a big upfront payment. As you wouldn’t buy a restaurant just to have a great steak, don’t fall for the pitch that you must buy a timeshare to have a great vacation or that it’s a good deal if you do.

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