Should You Buy a Timeshare?

(MoneyWatch)  The timeshare business is getting kicked in the head, according to reporter Kris Hudson of The Wall Street Journal. He writes that Starwood Hotels and Resorts Worldwide is pulling back on development, which is reflected in a $362 million fourth-quarter writedown. This after Marriott International Inc. wrote down $165 million last fall, covering the cost of pulling the plug on seven timeshares.

From the company perspective, this makes sense; the timeshare business echoes the hotel business, and in this recession, consumers are travelling less and spending less. But if you're a contrarian consumer, does that mean that now is the time to buy a timeshare?

Generally, the answer is still "No" for three reasons. The first is what I call the "Miami condo problem": resort property obsolesces pretty quickly. Even if the roof is still holding up after ten years, chances are that the property has older technology and/or functionality. For example, just think how much better windows have become over the past ten years, or how a decade ago, home office nooks weren't prevalent in small apartment layouts and now they're everywhere.

The second drawback of timeshares is that they're fairly illiquid. The pool of shoppers for any particular resort community is small, and with timeshares there's also the potential for scammers to call you and tell you that they'd like to buy your week -- if you'd pay in just a few dollars up front. While not everyone who wants money up front is a scammer, the Federal Trade Commission, in its timeshare report "Time and Time Again" advises that "It's preferable to do business with a reseller that takes its fee after the timeshare is sold."

The third problem is that you're locked in to your vacation even more tightly than you are with a hotel arrangement. A typical timeshare, for example, might be "Week 2" -- January 8-14. But what if you have a big presentation due at work on the 15th? There are ways to swap timeshare weeks around, but none of them are as easy as cancelling and rebooking hotel rooms.

Before I get letters from everyone in the travel industry, let me say that the one case where I think buying a timeshare makes sense is where you are consistently vacationing with a lot of other people -- if your share can sleep six, it might start to be cost-competitive with renting multiple hotel rooms or even a villa. However, realize that, just with a vacation house, you still have to maintain the property. What those future costs in terms of repairs and utilities are going to be is always uncertain, but we do have a saying in our real estate office: "Maintenance never goes down."

If you do decide to buy, one last consumer tip: Make sure you're buying what you think you're buying by purchasing title insurance from a reliable company, just as you would if you were buying a house.