Investing In Your Vacation

Q: I've heard a lot about timeshares. Should I invest in one?

A: Images of timeshares run the gamut from idyllic evenings on pristine beaches to smarmy salespeople talking the unsuspecting traveler into a vacation that only Norman Bates could love. But timeshares can make good financial sense if you know what you want when you start looking. More than 2 million American households own timeshares, and sales have risen by 14 percent annually. With vacation-property heavyweights Marriott and Ritz Carlton now offering timeshares, it's no wonder vacation timeshares are fast becoming a $6 billion industry.

Timeshares allow consumers to divide ownership of a property with others. Each owner has the right to use the property for a particular period of time for 20 years or more. As long as taxes and annual fees are paid on time, you're guaranteed access to the timeshare every year at the same time.

Consider these points before you commit:

1. Before you get too excited, do some basic figuring. Figure out how much you spend each year on your vacation accommodations and compare that to what a timeshare would cost, including the purchase price, annual fees, maintenance and other expenses.

2. The happiest timeshare owners are those who look forward to going to the same location every year. If you don't want to spend the rest of your vacation days in Xanadu, check the timeshare's exchange policy. Many companies help holders arrange a trade, so owners can swap weeks at various locations. Usually there's a fee for the switch. If you can't switch, you'll still have to pay for your week at your regular property, whether you use it or not. If you're thinking about trading, timeshare owners rate their offerings on a timeshare user's group Web site, http://www.tug2.com.

3. Initial costs can be high. Upfront costs generally run $10,000 to $25,000. Financing is usually done over a five- to 10-year period with percentage rates usually much higher than standard home loan financing. Fees and taxes can add $500 or more annually and are subject to an increase.

4. See a potential property in person-never make a commitment based on photographs, brochures or Web sites alone. While you have a better chance when buying through a well-known company, such as Disney or Marriott, seeing is still believing. Most timeshare companies provide a free weekend for potential buyers, so take advantage of their largess. This way, you'll be sure what you're getting is the Ritz-not a roach motel.

5. Don't plan to trade and get rich. Resale prices are typically very low. Most properties go for less than half their purchase price.

6. That being the case, when buying a timeshare, consider buying on the secondary market.

While timeshare vacations aren't for everyone, if you find a spot that's your Shangri-La, check it out personally, read the fine print (or better yet, hire a lawyer to do so), and talk to other owners. If you're still thrilled, it may be the right investment for you.

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Lorayne Fiorillo is a financial advisor and senior vice president at a major brokerage firm. She spent six years as the on-air financial commentator for EyeWitness News and 11 years as a market commentator for National Public Radio. She is the author of the new book, Financial Fitness in 45 Days: The Complete Guide to Shaping Up Your Personal Finances(Entrepreneur). She specializes in retirement and business planning for small businesses.

The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.