By Ryan C. Wood
One of the common denominators I find with our clients is that a lot of them have invested in a timeshares. I say investment loosely because if you ask most bankruptcy lawyers if a timeshare is a good investment I believe most of us would say no. I have not had a single client yet that owned a timeshare that actually increased in value and it turned out to be a good investment. There are probably timeshares out there that have made the owner money; I just have not run across one yet. So let’s breakdown discuss the numbers behind a timeshare.
A timeshare is a fractional ownership interest in a condo or apartment style home located in a desirable vacation spot. We see many of them in Florida or Las Vegas. In most situations you will actually receive a deed of trust that is recorded as evidence of your fractional ownership interest. There is a purchase price and a monthly maintenance amount you must pay to maintain the property.
For example: A developer will build a 100 unit project. There are 52 weeks in a year. Each timeshare owner will get 2 weeks of the year in the unit. So that makes 26 possible timeshare owners for each unit. Let us say the timeshares are just off the strip in Las Vegas and we are in year 2005. The sale price is $18,000 and the monthly maintenance fee is $50 a month. Sounds reasonable right? You can put $5,000 down and finance the remaining $13,000. The monthly payment could be as low as $370 a month for three years. Then you will only have to pay the $50 maintenance fee.
Okay fine. But how does this investment increase in value? You and the other 25 people of purchased this one unit just paid $468,000 for a condo in year 2005. That condo is now probably only worth $90,000 in the real world today. The developer in theory just received a cool $130,000 in down payments from all 26 of you owners and they get $1,300 in maintenance fees a month from all of you too. That is a cool $130,000 a month in maintenance fees from all 100 units. Do they need $130,000 a month to maintain a 100 units? The developer is definitely putting money in their pocket from the maintenance fees each month. They also have sold out the other 99 units for a total take of a cool $13 million dollars. What a great deal for the developer. What happens when one of the owners stops making the maintenance payments or loan payments on their fractional interest? The developer forecloses on the fractional interest and sells it to someone else and makes more money.
So what if you had purchased the condo in a market when home values are actually increasing in value? Let us say you purchase the timeshare today. Given the market has decreased so much the developer is only asking for $10,000 for the same timeshare. That still values the condo at $260,000. In theory the value goes up by $50,000 over the next ten years, but you only own a 1/26th interest right. So $50,000 divided by 26 is $1,923. So I ask you, “How can a timeshare be a good investment under any circumstance?” So take it from this bankruptcy lawyer and do your homework before being sold a timeshare.