This is how I calculate the true cost/savings to own a timeshare, is this right?

[michael13]

Assumptions Scenario 1 - Owning a timeshare:

1. I purchase a quality week from a quality resort on the resale for $15,000.00, hold it for 15 years and sell it for the same price that I purchased.
2. I use my timeshare week for vacation every year.

Assumptions Scenario 2 - Not owning a timeshare:

1. I deposit my upfront cost for timeshare purchase into an investment account with ROI at 8% YOY.
2. I take vacations every year and stay in the same resort that I plan to make timeshare purchase, I pay retail price or rent from another timeshare owner.
3. The cost of my vacation without timeshare is MF of the timeshare + $2000.00. For example if the typical MF for a 2BR at resort A is 1800/Year, I will pay 3800 to rent a week in that resort.

Cost of Vacations with Timeshare:
investment account value at year 15 = 15000 * (1.08^15) = 47852.54,
net profit = 47852.54 - 15000 = 32582.54,
cost of vacation = $32,582.54 + MF over 15 years.

Cost of Vacations without Timeshare:
2000 * ((1.08^15) -1) / 0.08 = 54304.23 = $54304.23 + MF over 15 years.

Net Savings with Timeshare over 15 years: $21721.69

Disclaimer: This is only true when you have to vacation on a resort week that MF is significantly lower than rental or retail. This is also true if you can lock off your room and multiply the value with exchanges.

Explanation:
Q. Why you included MF for vacation option without timeshare?
A. It's based on the assumption that the cost of vacation without timeshare is equal to MF plus extra $2000. If the MF for that resort on year one is 1500, then my cost of vacation will be 3500 without timeshare. If, for example year ten the maintenance fee becomes 2500, then my cost of vacation to rent or buy from retail will be $4500.

Q: What is the formula you used to calculate cost of vacation without timeshare?
A: That is to assume if you have timeshare, you can deposit the yearly savings of vacation into the same investment account, so it's equivalent to making an investment with yearly contribution of $2000. There are different version of formulas to calculate this number and it depends on the contribution is made at the beginning or at the end of the year.


Now I feel like I am a timeshare sales guy

 

[bnoble]

hold it for 15 years and sell it for the same price that I purchased

I would not assume that you will definitely recoup your entire purchase price. I usually like to know what it would be if it were worth zero.

I also think 8% after taxes might be a little aggressive for a revolving fund.

 

[vacationtime1]

Your investment return would be taxable. 8% after taxes is high given current interest rates. Or not without risk if you are buying securities.

 

[icydog]

I think the odds of recouping your initial costs are slim the longer you own the timeshare. What I do is rent my timeshares out and use the money I get to pay for my maintenance fees. Then vacations are closer to being “free” than in your assumptive scenario.

 

[cp73]

I looked at it slightly different than the way you laid it out but the end result is the same. With no timeshare your $15,000 investment is worth $32,582.54 at end of 15 years. Your rental cost is $54,304.23 for 15 years giving a difference of $21,721.68 plus the maintenance fees. The difference is basically the change between your investment value and the additional $2000 over maintenance fees that you pay. In addition you factored in the same maintenance fees to both sides.

As others have said I think your residule of $15,000 at end is high. I purchased resale about 12 years ago at $8000, today at DSV 1 a red week sells for $3000. Also I think your rental value of $2000 over maintenance fees is too high. Depends on resort but I would say an average is closer to $1000. Hawaii maybe closer to $1500. Also you didn't factor in any upfront closing fees on your purchase. And as others had mentioned you assumed no taxes.

You also assumed no trading fees but staying in the same resort each year.

The big advantage of renting is flexibility to go only when you want to (dont go, short notice, and 12 months planned ahead) and where you want to go anywhere in the world. This may make it financially less costly.

The advantage of purchasing is you will go on more vacations and feel like an owner.

 

[CO skier]

Do you mean "timeshare" in general, or "Marriot timeshare"? Big difference.

I own a WorldMark credits timeshare, similar to Marriot Destination Points; buy-in cost about $3,000-4,000. Any year I want, I can reserve a week 51 or 52 ski vacation in a 3 bedroom for $1100-1500 at a resort with a free shuttle to the base area. Comparable rentals are $600+/night on AirBnB, VRBO, etc. with no shuttle.

Simple calculation. Yeah, timeshare ownership, even with an ultimate resale value of $0, beats the pants off of renting.

 

[bogey21]

.
The big advantage of renting is flexibility to go only when you want to (don't go, short notice, and 12 months planned ahead) and where you want to go anywhere in the world. This may make it financially less costly.

I think flexibility and the "when you don't go" are the keys. If you own, when stuff happens that you can't use your Week or Points you have to figure out how to recoup you MFs. Renters don't have to screw with this. In addition, Renters will not have disposition issues...

George

 

[Dean]

Assumptions Scenario 1 - Owning a timeshare:

1. I purchase a quality week from a quality resort on the resale for $15,000.00, hold it for 15 years and sell it for the same price that I purchased.
2. I use my timeshare week for vacation every year.

Assumptions Scenario 2 - Not owning a timeshare:

1. I deposit my upfront cost for timeshare purchase into an investment account with ROI at 8% YOY.
2. I take vacations every year and stay in the same resort that I plan to make timeshare purchase, I pay retail price or rent from another timeshare owner.
3. The cost of my vacation without timeshare is MF of the timeshare + $2000.00. For example if the typical MF for a 2BR at resort A is 1800/Year, I will pay 3800 to rent a week in that resort.

Cost of Vacations with Timeshare:
investment account value at year 15 = 15000 * (1.08^15) = 47852.54,
net profit = 47852.54 - 15000 = 32582.54,
cost of vacation = $32,582.54 + MF over 15 years.

Cost of Vacations without Timeshare:
2000 * ((1.08^15) -1) / 0.08 = 54304.23 = $54304.23 + MF over 15 years.

Net Savings with Timeshare over 15 years: $21721.69

Disclaimer: This is only true when you have to vacation on a resort week that MF is significantly lower than rental or retail. This is also true if you can lock off your room and multiply the value with exchanges.

Explanation:
Q. Why you included MF for vacation option without timeshare?
A. It's based on the assumption that the cost of vacation without timeshare is equal to MF plus extra $2000. If the MF for that resort on year one is 1500, then my cost of vacation will be 3500 without timeshare. If, for example year ten the maintenance fee becomes 2500, then my cost of vacation to rent or buy from retail will be $4500.

Q: What is the formula you used to calculate cost of vacation without timeshare?
A: That is to assume if you have timeshare, you can deposit the yearly savings of vacation into the same investment account, so it's equivalent to making an investment with yearly contribution of $2000. There are different version of formulas to calculate this number and it depends on the contribution is made at the beginning or at the end of the year.


Now I feel like I am a timeshare sales guy

IMO a timeshare needs to make sense if the up front cost is totally lost. One also need to include a decent inflation year after year.

 

[Bob & Mary]

So that’s a financial calculation. How do we account for the quality? For example, we own Wyndham. No matter which resort we stay, we know the quality is going to be very good As opposed to rental property which may vary widely.

For us, timeshare has always been more about the quality of the accommodations, amenities, and vacation than the financial benefits if any.

 

[VacationForever]

As with a couple of posts above, you have to assume that you will sell for $0 after 15 years or however many years. The purchase price also depends...you can pick some up for more cheaply from resale market, or higher if from developer.

There is also a difference in rack rate of rental from the hotel chain vs. private owners. I don't trust renting from timeshare owners and would book directly from the hotel chain. However, if you rent from timeshare owners, the difference in MF and actual rental price varies with the resort. For some resorts, the difference may be under $1000, while others may command a $2000 difference.

 

[Ken555]

I assume no value at sale of my timeshare. I calculate nightly cost every year based on an average of the total nights due to the ownership with all fees/taxes (including extra housekeeping fees) to obtain an average nightly cost. I’ve found over many years, at least in my case for Westin Kierland, my average nightly cost is substantially lower than equivalent resorts would be for rental.

When I first bought I also tried to calculate rental options based on opportunity cost of the purchase price, etc. Then I realized, for me, the main purpose of owning a timeshare was to force myself to travel and if I rented that wouldn’t happen. So I bought, and I really don’t care that the value of the unit has decreased since it still makes financial sense, based on an average nightly cost. YMMV.


Sent from my iPad using Tapatalk

 

[dori47]

Prior to the pandemic, I could vacation, and owning the timeshare meant I did vacation. I own my own business, as does my husband, and I was reluctant to vacation previously, but owning the timeshare, I don't want to lose out on my week. I have lost out on two weeks and some points since the pandemic as I cannot get away from work ( we are short staffed in my industry and over worked) I have never been able to rent my unit out, other than to family, but I keep trying on the years we can't make it. Since I paid very little up front, and my maintenance fees are not much, I feel okay about owning. I do worry I will not be able to sell when I decide I do not want it anymore, but for the 10 years we have been owners now, we have been happy.
I feel 8 % return is a little over the top, and the cost of renting is too high too, since you could likely get bargains last minute if you were flexible on where and when you went. So for the value, maybe being a time share owner isn't great financial decision, but every time we vacation and talk to other owners, everyone is happy they are an owner

 

[drlee]

Interesting analysis. Our view of our timeshare is based on a differeent set of criteria. (We were never going to buy a timeshare). But we found a place we loved, and wanted to return for vacation, so we bought an every other year (week) in Maui. We have since added to our portfolio, owning a total of four weeks there, with three of them being two bedroom units, so we can lock off and stay up to seven weeks if we want. When we invite people to come join us, the two bedroom units work great, and when it's just us, we have often stayed in the one bedroom units and traded the lockoffs. So since 2002 or so we have come back to Maui every year, and stayed in timeshares elsewhere from coast to coast via intrval trades. From a financial point of view, our first salesperson told us that this is not an investment. It is a commitment to vacationing where we want, and generally when we want. In this particular resort, when we first bought, rack rate at the hotel was $300 a night or so, and it's now $500+ per night. Yes, maintenance fees have increased, but we don't regret the purchase. Some non-financial aspects;
1. Guaranteed access to unit size and view (Platinum, ocean view) in season
2. A place we love and have no problems returning year after year
3. A magnet to draw kids, grandkids and friends for visits
4. High trade value. Have traded to many resorts, and even traded back into Maui. A fee lets us upgrade size (from lockoff to 1 or 2 bedroom)
5. Free parking, gym, resort amenities and great staff
6. Forces us to go on vacation, or to give away time to friends and family or rent to others.
So if we had done a financial future net value on timeshares, I don't believe that we would have purchased. We certainly couldn't do four to seven weeks in a row for the cost of the maintenance fees.
My point is that for many, the value of timeshares is not in the finance, but in the experience.

 

[marmite]

I've seen some TUGgers that have used 10 years (instead of 15), so that is what I generally calculate against. However, I really compare the cost of ownership to what I personally would usually pay for a vacation, not what the rack-rate or rental cost might be. i.e. If I usually get a condo on Priceline for $300/night, then I am using $2100 as my comparison for a week. I may very well be in a much larger and nicer unit when in a timeshare, however I am not a person that pays $6k for a week anywhere. If I used $6k a week as my measuring-stick, owning a timeshare would always come out far ahead.

 

[ahdah]

Interesting analysis. Our view of our timeshare is based on a differeent set of criteria. (We were never going to buy a timeshare). But we found a place we loved, and wanted to return for vacation, so we bought an every other year (week) in Maui. We have since added to our portfolio, owning a total of four weeks there, with three of them being two bedroom units, so we can lock off and stay up to seven weeks if we want. When we invite people to come join us, the two bedroom units work great, and when it's just us, we have often stayed in the one bedroom units and traded the lockoffs. So since 2002 or so we have come back to Maui every year, and stayed in timeshares elsewhere from coast to coast via intrval trades. From a financial point of view, our first salesperson told us that this is not an investment. It is a commitment to vacationing where we want, and generally when we want. In this particular resort, when we first bought, rack rate at the hotel was $300 a night or so, and it's now $500+ per night. Yes, maintenance fees have increased, but we don't regret the purchase. Some non-financial aspects;
1. Guaranteed access to unit size and view (Platinum, ocean view) in season
2. A place we love and have no problems returning year after year
3. A magnet to draw kids, grandkids and friends for visits
4. High trade value. Have traded to many resorts, and even traded back into Maui. A fee lets us upgrade size (from lockoff to 1 or 2 bedroom)
5. Free parking, gym, resort amenities and great staff
6. Forces us to go on vacation, or to give away time to friends and family or rent to others.
So if we had done a financial future net value on timeshares, I don't believe that we would have purchased. We certainly couldn't do four to seven weeks in a row for the cost of the maintenance fees.
My point is that for many, the value of timeshares is not in the finance, but in the experience.

I agree with you 100%. We invested in memories and are making wonderful memories for our children and our 6 grandchildren. If we can't use them, then I am able to rent them on RedWeek because they are platinum weeks at the ocean.

 

[Dean]

I've seen some TUGgers that have used 10 years (instead of 15), so that is what I generally calculate against. However, I really compare the cost of ownership to what I personally would usually pay for a vacation, not what the rack-rate or rental cost might be. i.e. If I usually get a condo on Priceline for $300/night, then I am using $2100 as my comparison for a week. I may very well be in a much larger and nicer unit when in a timeshare, however I am not a person that pays $6k for a week anywhere. If I used $6k a week as my measuring-stick, owning a timeshare would always come out far ahead.

I look at it much like I would a risky investment. I use a 10 yr return of investment plus fees and reasonable inflation, in addition to the TVM/opportunity cost. For comparison I use private rental prices for the same and/or similar including a condo. It doesn't have to be windfall savings but it does need to be reasonably close to make sense. There do tend to be other benefits to owning as has been pointed out but there are also other risks like a SA or a change of one's personal situation even if the numbers made sense up front. IMO using the rack rates, even discounted, is a fool's comparison. I've also seen people say they didn't care what it cost or even if it was far more expensive owning but I can't see going into that situation knowing that.

 

[easyrider]

The cost of my vacation without timeshare is MF of the timeshare + $2000.00. For example if the typical MF for a 2BR at resort A is 1800/Year, I will pay 3800 to rent a week in that resort.

Every Marriott I have rented has been for not much over the mf. I rented a two bed KoOlina ocean view for about $2,100. Others locations that we rented were priced at just above mf. That is one reason I wouldn't bother buying a Marriott. They are easy to rent.

Bill

 

[marmite]

There do tend to be other benefits to owning as has been pointed out but there are also other risks like a SA or a change of one's personal situation even if the numbers made sense up front. IMO using the rack rates, even discounted, is a fool's comparison. I've also seen people say they didn't care what it cost or even if it was far more expensive owning but I can't see going into that situation knowing that.

Yes, very true. It is good to be able to rent (at least for your M.F.) if there was a circumstance change where you couldn't use (or afford) that week. I really am personally not interested in trying to rent out a week I own either, so want to be very comfortable by making sure my M.F. is well below what I usually pay for a week.

BTW, what is "SA" in this context please?

 

[Ken555]

BTW, what is "SA" in this context please?

Special Assessment.

 

[Ken555]

FWIW, I just reviewed my info on my Westin Kierland week. I banked in 2020 and 2021 and used very few SOs so far from those years so I just estimated for value of those years, but it's currently $135 per night all in assuming the value of my deed is zero if I sold now. If I sold for $13,000 (which I think is fairly close to market value, though it constantly changes) then the nightly average is $95. In either case I'm pleased with these results considering that the majority of my stays have been in Hawaii (in a studio or 1-bed).

BTW, my SDO trades to Hawaii (at the same Westin resorts I use my SOs to exchange to) currently works out to $122 per night (this assumes the deed is free, which is very close to what I paid). So when those exchanges are available, they truly are great deals. I have two more weeks next year with SDO exchanges.

 

[little1]

Do you mean "timeshare" in general, or "Marriot timeshare"? Big difference.

I own a WorldMark credits timeshare, similar to Marriot Destination Points; buy-in cost about $3,000-4,000. Any year I want, I can reserve a week 51 or 52 ski vacation in a 3 bedroom for $1100-1500 at a resort with a free shuttle to the base area. Comparable rentals are $600+/night on AirBnB, VRBO, etc. with no shuttle.

Simple calculation. Yeah, timeshare ownership, even with an ultimate resale value of $0, beats the pants off of renting.

I never paid more than the "net cost" of $1200 for any ski location using Wyndham or WorldMark system (and other systems) for 2-bedroom units. Some of them are ski-in and ski-out. Granted that I only booked the Christmas week 1 year in Lake Tahoe, The Ridge Sierra, for $1,100 for a 2-bedroom unit for 1 week.

I don't own any timeshare.

I have rented Banff/Camore for $600 (2x)
Colorado for $600 (3x)
Lake Tahoe for $550 to $800 (3x)
Park City/Canyon ski-in/ski-out for $1,150 (2x)
Whistler, across from the Olympic Village $1,100 (1x)

Not to mentioned non-skiing areas like
Atlantis (Bahama) for $1,100 (1x)
Lone Pine, AZ for $600 (1x)
Big Bear Lake, CA for $350 (1x)

To name a few....................

I think you and michael13 are way over-valued the "saving" or the true cost of timeshare ownership.

My 20+ years of renting from existing timeshare owners has been: my rental price has been consistently less than the maintenance fee paid by the owners for the same resorts.

Sincerely.....

 

[PcflEZFlng]

My ROI situation is somewhat unique, since my preferred season is low or shoulder. It was eye-opening when I finally compared numbers a couple of years ago. I was paying MFs for three TS contracts, but since MFs don't vary by season (Platinum and Gold owners pay the same), I realized it was more cost-effective for me to rent, especially since I could often get entire weeks at my preferred resorts for as a little as $300 via exchange company getaways, during my preferred seasons. I divested my contracts.

 

[sdhakala7]

I did this analysis and published something on TUG in the late 1990s.


The theoretically "correct" method is more complex and requires a lot of assumptons:
First, your timeshare will not likely hold it value. As we can see, the resale market is not very good right now and really has not been very good since 2007. Even in a trade-up or with a points unit (best chance for holding value) bought on resale, you will lose money over time. Thus, the proper analysis would be to amortize the purchase (assuming you paid cash) at about an 8% rate (net after tax return for a cyclical luxury equity investment) over say a 20 year period (assuming no salvage value).

Second, maintenance fees will appreciate over time for at least inflation plus some additional amount (usually about 0.5% to 1.0%) because construction, property and labor costs tend to rise faster than inflation (assume about a 2.5% to even 3.0% inflation rate). There may be a special assessment depending on the unit, if older or if vulnerable to weather or natural disasters (even if some insurance). [The maintenance fees on our main timeshare have gone from $640 per year in the late 1990s to $1200 now because of two changes in ownership and the newer owners putting the units in a large pool that includes more premium resorts with premium services. Not really happy, nor are most of the older owners because the accounting is not transparent and the value does not show up at our home resorts.]

Calculate the annual payments required and then discount all future payments at an 8% annual discount rate in order to arrive at a 20 year cost of ownership and average annual cost in current dollars.

Third, inevitably you will not always use your week or points efficiently unless you have a lot of flexibility to travel. [I found we really realized only 5.5 to 6 days equivalent a year for the week I purchased due to being locked into a fixed week or having to exchange it. In the end, the unit was worthwhile because our resort has had generous bonus time opportunities and "investor's meetings" which meant we often realized 8 to 9 days a year (some not premium time) for about 23 years now, except the past two years. We are now just before retirement time and having to combine and extend points due to Covid and work but our son-in-law and daughter will be able to use some of our banked weeks with RCI.]

Then figure out what you would pay for an alternative quality vacation each year for 20 years based on the average number of days you likely will actually utilize each year. Consider that you can choose more flexibly when to book times and use for shorter periods and adjust for the quality of the unit you own. [For us, having purchased an older resale standard unit and mid rated resort, our value is probably $200 per day increasing each year for inflation plus about 0.5%.] Figure out the cost of that for 20 years discounting future purchases. That is the alternative opportunity cost.

The above is technically a more "correct" way to evaluate the consideration. If you have heirs and long-time ability to afford and use, then you may assume some "salvage" value based on expected continued use adjusted for inflation. Similarly, you should assume some salvage value if you purchase a unit in a flexible points system with an established resort system and a good location.

Frankly, the math is not ever favorable for timeshare purchases at retail (timeshare presentations) and even worse for those who purchase on credit. But the math can be really compelling if you shop wisely in the resale market and buy towards the lower end. [We bought a 1980s standard timeshare but at a decent location in the 1990s. We recovered in use value net of maintenance fees the purchase price in about five to six years. But we paid only $2,750 at the time and used every time and even used some bonus time half the years.]

The math for purchasing an older fixed week at a very low price or close to zero price but then paying the fees and converting the fixed week into a points week for a fee or when offered a "best" offer requiring purchasing a certain amount of additional points can be sometimes worthwhile simply because you gain "use" value from the flexibility and resale/salvage value from the points system conversion (especially if the fixed week has no resale value and marginal use value relative to the maintenance fees). [We just made that decision because our resort system is aggressively selling existing owners on conversions for free with additional purchases of points at a discounted price. Our original deed limited which resorts we could travel and exchange for. So, we gained access to the entire system and points we can use on week-days with our flexible work schedule. With Covid, it helped them keep some sales people and generate activity. We had to have time and play the game to get the best price. They threw in an extra year of points and some bonus time privileges as well to make the math work for us just barely. Pretty funny sitting there doing all the math to figure it all out.]

-----

There is a simpler but less accurate way to estimate. 1. Figure out what the amortization would be annually for a 20 year payment (use a mortgage amortization calculator) on the purchase amount (less salvage value if reasonable) with a net interest rate of around 8% minus inflation, say 5%. That is the annual opportunity cost of the money pad net of appreciation of the value of the unit. Even if you assume salvage value will be $15,000 on an initial purchase of $15,000, the annual net cost of the upfront payment would be about $750 per annum.

2. Estimate the annual maintenance fee for the coming year. Say $1100.

3. Add #1 plus #2 to arrive at the total cost of ownership. That is $1850

4. Compare that to the value of the equivalent annual vacation days each year and discount for the reduced flexibility and risk of not being able to use the points. (Most people do not use all their weeks or points in a timely manner.). For a quality time share system, good location, and a resale purchase, that might be on average 5 days per year at $350 to $400 a night (or more). So, the value would be $1750 to $2000. That $15,000 purchase on resale would be just about a break-even investment. But for a standard unit, that might be worth $200 per night or about $1000 per year and that resale price is just not worthwhile.
----

Note: I value businesses and business assets for a living and have actually valued timeshare resorts from an investment perspective as well as ownership units.

 

[little1]

FWIW, I just reviewed my info on my Westin Kierland week. I banked in 2020 and 2021 and used very few SOs so far from those years so I just estimated for value of those years, but it's currently $135 per night all in assuming the value of my deed is zero if I sold now. If I sold for $13,000 (which I think is fairly close to market value, though it constantly changes) then the nightly average is $95. In either case I'm pleased with these results considering that the majority of my stays have been in Hawaii (in a studio or 1-bed).

BTW, my SDO trades to Hawaii (at the same Westin resorts I use my SOs to exchange to) currently works out to $122 per night (this assumes the deed is free, which is very close to what I paid). So when those exchanges are available, they truly are great deals. I have two more weeks next year with SDO exchanges.

My stay at Wyndham timeshare in Oahu for 5 days (3 years ago) was $500 (+ resort fee, I remembered it to be around $30 per day) for an 1-bedroom unit.
I don't own timeshare. I rent them from existing owners.

 

[little1]

Every Marriott I have rented has been for not much over the mf. I rented a two bed KoOlina ocean view for about $2,100. Others locations that we rented were priced at just above mf. That is one reason I wouldn't bother buying a Marriott. They are easy to rent.

Bill

I totally agree with Bill and have the same experience. With Marriott, I paid about MF or slightly above. With other systems, 50% to 100% of MF, and rarely I pay more than MF.

The advantage for me is that I don't need to book 12 or 13 months in advance to ensure that I get the week that I want. I normally will plan about 3 months in advance to get a good deal. However, I do need to be flexible with the week.