Investing in Timeshares

Timeshares are supposed to be cost-effective and hassle free. The basic idea is that you don’t want to (or can’t) spend your life at a sea-side condo in Hawaii, but wouldn’t it be nice to know that such a place is sitting there waiting for you when you can get over to use it. You would choose the exact suite you like, have your own kitchen, lots of space to invite friends to join you, and you would have the fun of anticipating a return visit to familiar accommodation.

And since you would only use it for a week or two, an arrangement that shares the costs between you and the folks who want to be there the other 50 weeks of the year, should be just what the doctor - and the accountant - ordered. If you decide that you don’t want to go to Hawaii any one year you could exchange the rights to your place for something in Vail, the Caribbean, the south of France, New York City or thousands of other locations where millions of other people have bought millions of similar timeshare weeks.

Alas, it’s not always that simple. Rosemary Bonta of the Miami Better Business Bureau gets a lot of complaints about timeshares. “Mostly the complaints are about the marketing practices,” says Rosemary. “[I am told that] people are practically held hostage for four or five hours while a salesman almost forces them to sign a contract.”

Her colleague at the Central Florida BBB, Dolores Liberatore says that the complaints she hears are “related to the fact the people have just rushed in and signed.” She offers some good advice: “don’t buy in a rush, a two hour tour won’t do.” And add up some numbers: include airfares (which are generally higher without an accommodation package), add car rentals, and maintenance. “This is something you should plan on having for the rest of your life - and probably of your children’s lives too.” “It’s not for everyone, but several of my friends have timeshares, and some of them really like them.”

Ron Gibbs has a timeshare in Collingwood, Ontario, it’s a situation which has worked well for him . The typical timeshare buyer is over 45, married, has a stable income and is capable of long term forward planning for vacation time. Ron is none of these. He is a performer who bought into Collingwood when he was dancing in the Toronto production of Showboat. Since then, roles in Hello Dolly, Jesus Christ Superstar, and Forever Plaid have taken him around the continent. Ron’s use of his timeshare rights is also somewhat atypical, he has never actually stayed in the unit he “owns”.

He has exchanged his rights to his studio suite for weeks in complexes in San Diego, the Rockies, the Caribbean, the Poconos, the Ozarks, and Coco Beach. Ron’s timeshare week cost him $4,000 (Canadian!) in 1992. Most timeshares do not have studio suites, so Ron routinely gets a larger suite than the one he “owns”. “I usually get the time and location I want, but not always. I’ve always been very pleased with the quality of the units, except in the Poconos where the walls were paper thin - we could hear everything.”

The arrangement Ron has is one technique to control costs that’s recommended by Gloria Collinson, President of the Canadian Resort Development Association. Ron has some uncertainty over his exchange rights, but he pays in Canadian dollars for his international rights of usage. His maintenance fees are on the property he owns, not the ones he uses, and are significantly less than the more expensive locations such as Hawaii and the Bahamas where $US 750 per week for maintenance is quite normal.

Leif Bednar is closer to the typical profile of a timeshare purchaser: he’s over 45, well-educated, married, has a decent income, and is able to plan his vacation time well in advance. He and his wife visited his timeshare unit in Kauai this spring and had a great time discovering the music scene on the island, but Leif would get out of his timeshare in a flash if he could.

“It’s the stupidest damn deal I ever made.” He says, with characteristic lack of ambiguity. “I admit there’s an upside to the downside, but I really got roped into a bad deal.”

It’s not that Leif dislikes Hawaii, or that he hasn’t enjoyed the times he and his wife have spent there, either by themselves or with friends. And he likes the unit “It’s lovely. I could live there.” But for his holidays he does not like being locked into this type of accommodation.

“I bought two weeks for $US10,000 each in 1988, and I pay $C1,700 for maintenance every year, whether I use it or not.” Most timeshares rent suites to non-owners, Leif’s resort is advertising rentals at $110 per night. To add insult to injury, weeks in units comparable to Leif’s are currently offered for sale at $US7,000. For Leif, the figures really do not add up.

Still, Leif gets A for attitude. “You can’t only look at the dollars and cents,” he says. I bought for emotional reasons more than financial ones, and I have a good time when I go.” Leif describes the hustle he got which let to buying the unit, nine years ago.

“Like everybody else, I got pulled in by someone on the street in Waikiki offering discounts for just listening to a presentation. I’ve got to say I was interested, but there was no way I was going any farther without seeing the damn thing. They said ‘no problem, we can fly you there this afternoon.’ When we got there I was really impressed by the place. They said you can start staying here right away, just sign this. The wife liked it, I liked it, so I signed. After a few days I kind of had the idea that I might have done the wrong thing, but we were having a great time, and the week went by …”

Leif admits that he did not read the fine print. If he had, he would have noticed that he had 7 days to back out of the deal - a Right or Rescission which applies in most US states to businesses which typically sell their product with high-pressure sales techniques: health clubs, dating services, and timeshares are among them.

Steve Syms, an Investment Advisor with Great Western Financial had a timeshare experience which had a similar beginning to Leif’s. He too attended an information session in Honolulu on the promises of discounts on tourist goods and services. While on the way to the presentation he actually told his skeptical girlfriend “Don’t worry about it, I’m not going to sign anything.”

“I thought it was going to low-key,” said Steve. Instead he was caught in a carefully orchestrated crescendo which erupted in triumph when another couple at the presentation bought a unit. “The music stops, the sales guy jumps up and says ‘Everybody, we’d like to introduce you to Mr. & Mrs. Soandso, they’ve just bought their first timeshare.’”

“After that, I got caught up in the whole current of the thing, it was my first visit and I loved the beauty of the place, the pace of things, and we had come from Canada in April and this was Hawaii. You’re not going to believe it, but I started signing things.”

“At then end, another guy comes over and makes you declare that you’ve read and understood everything, then they give you a box of chocolate coated Macadamia nuts, and Connie just loves Macadamias, so it was a big finale.”

The next day Steve was not so happy. He noticed the Right of Rescission papers in his package and was determined to look into the deal further by “asking the questions I should have asked in the first place.” Who are these people? How can I sell this unit? Is there an aftermarket? How do I trade my space? Etc. Etc. A phone called to Maui indicated that comparable units would rent for up to $200 per night, the sales company cited a $400 per night rate. A call to the Better Business Bureau indicated 90 complaints in the past three months. So Steve went back and said that he did not wish to proceed with the deal. The sales company was ready for him.

“They had a piece of paper called Buyer Depression which basically said Don’t Worry, Be Happy and listed ways to fight my second thoughts. In my business, I’ve seen very few people phone back to say cancel the deal with these feelings, but then what I’m really selling is a long-term relationship and Mutual Funds are so well regulated in Canada.”

Steve and Connie ended up going to Maui to inspect the property. “We were disappointed. It was definitely not a 5 star property. It was a makeover of a not very new building, somewhat updated, OK, but not what I was paying for. My mind was then made up.”

Back in Honolulu, Steve photocopied everything, returned to the sales office and insisted. “I started apologizing, and then stopped myself.” I asked for a signature on the Right of Rescission form, and got it. I even gave back the Macadamia nuts and Connie was in tears over the whole thing.

Steve should count his blessings that he didn’t sign a contract in Mexico. Rosemary Bonta of the Miami BBB notes that in Mexico there is no right of rescission. You may sign a Mexican contract, but management companies have offices in the US and Canada which use “very aggressive collection tactics”.

Steve doesn’t feel badly about the experience except that three days of his holiday were soured and his girlfriend was ready to get on a plane back to Canada. Steve is much the wiser for his brush with timeshares. “The whole thing cost me about $300 - I had to repay the discounts they gave me for listening to their spiel, but I learned more about sales than any seminar could have taught me.”

“I’m an expert in my field: mutual funds and retirement planning, but even there I rely on other professionals.” And recognizing that the benefits of holiday properties are not all dollars and cents, Steve says it’s still no time to turn off your professional skills. “I did talk to my lawyer and accountant, and I did run some numbers independently. In the end, I did eventually ask all the right questions - just not in the right order.”

“And I do understand how people get sucked in. In my business we really do everything to come up with the best arrangement for the interests of the client - those guys in Hawaii were not thinking along those lines.”

A quick check on the Internet shows that a year after Steve’s brush with timeshares, the unit he almost owned is offered at $12,000 rather than the $20,000 he almost put into it. A year after his first visit to Hawaii, Steve is planning to return. This time he’ll stay in a friend’s condo. He’s going with the same girlfriend. Get that woman some Macadamia nuts, Steve. Pay cash for them.