Investment Mistake: Holiday Resorts’ Timeshare Vacation Ownership

I have made a lot of bad investments and a lot of bad decisions spending money, thanks to my ignorance. Though voracious reading and experience improved me a little regarding money matters, twenty years back, in 1996 at the age of 26, with less organized thoughts and as a novice in personal finance, I was much more foolish than I am now! When I ponder over the investment mistakes I have made, one of the mistakes that would first pop up and which I want to share with you today is about a timeshare vacation ownership I bought from a reputed timeshare company. Even a kid would say it was a ridiculous mistake, read below and get to a conclusion yourself. Let me begin elaborating you where it all began.

The luring offer and T&C

One fine day in March 1996, I was approached by a great salesman who had excellent oratory skills. It was a referral by a friend, and that friend should have made some gain from this referral. This sales representative was literally selling dreams of a posh vacation at affordable prices! “You are going to have a 3-star stay for your vacation every year. The costs for you are minimal. If you don’t have the time for vacationing, you can sell your unused week and make money. Moreover, your timeshare value is going to appreciate ‘forever.'”

Whether I go for a vacation or not, yearly maintenance charges will have to be paid every year. It worked out to the tune of around 1400 rupees per year back then. Apart from this, electricity charges for the period of my stay have to be borne by me, calculated based on the meter reading. Each apartment had an individual electricity meter.

The colorful dream sold to me

Without a second thought, I succumbed and fell prey to his mesmerizing words. I agreed to buy a twin bedroom apartment timeshare vacation ownership, the payment of which was to be made in three installments within a year. A complimentary 1-year RCI membership would be provided as well, which I should renew out of my pocket if I wanted to continue beyond the first year.

The vacation ownership was for 99 years from the month I finish the third installment. The sofa in the living room could be converted to a bed, converting the living room to a bedroom as well; so six adults could comfortably stay in the twin bedroom apartment. The week could be exchanged for any other destination in the chain of resorts of the timeshare company. The company had over 10 operational resorts then. The total amount worked out to be around Rs 96,000/-. I promptly paid it off by March 1997.

The sold dream in a nutshell

I got lured to the idea of this vacation timeshare ownership because of the following salient features:

One week stay in a 3-star equivalent, completely furnished twin bedded condominium at a resort in an attractive location.
A kitchenette in the condominium with all necessary utensils, electric stove, and refrigerator. You just have to get the required grocery on your own.
An eatery in the resort premises if you are lazy about cooking yourself.
A grocery store in the resort premises itself.
Indoor games room, library, spa and a host of other features.
Electricity charges billed at the end of the stay based on the usage, computed based on meter reading.
Annual maintenance charges of just 1400 rupees.
Convenience of exchanging the week for any week of choice at any resort owned by the company.

I thought it would be one of the good investments I ever made because I can inflation-proof vacationing for the next 99 years apart from long-term capital gains, two birds in one shot! But it panned out to be just a daydream! Here is how the events turned out to be.

The bitter reality that dawned

Timeshare company is a business run for the profit of its shareholders. Public buildings like hotels, resorts etc., need renovation every few years, the money for which has to be funded either through further aggressive selling, fresh equity, or from profits. Hence the management is in constant pressure to increase the profits year after year to keep the business afloat and to keep the shareholders happy. The management is in dire straits to show that it is a wonderful business to further tap the capital market and to further lure the investors. So the management indulges in all the ways it could milk the existing members as well as non-member guests. These are the ways by which they deviated from what I had been told while selling me the timeshare:

Removed everything in the kitchenette and replaced just a microwave oven and a couple of glass bowls instead. So they took away the convenience of preparing own homely food and instead are forcing to eat at star hotel rates in the restaurant at their premises or depend on room service.
Billing electricity charges based on the usage has been completely done away with. Instead started charging utility charges of around Rupees 2000/- a day irrespective of the usage.
Bumped up the annual amenity charges to Rupees 6500/- which roughly works around to Rs 1000/- per day of the ownership.
Dirty rugs, linen, furniture became the order.
With the membership number going up day by day, you are competing with everyone in the crowd for the popular holiday dates or season. Except for the base week, it’s hard to find an accommodation for those days.

Are you getting value for money in a vacation timeshare ownership?

I understand that timeshare vacations are typically sold these days for anything between Rupees 4 lakhs to 15 lakhs for a 25-year period through equated monthly installments (EMIs) and accrual of points. Now let me show you a back-of-the-envelope calculation with the least amount involved. If I have that Rupees 4 lakhs, locking it in a bank fixed deposit will fetch at least 8% interest per annum, i.e., Rs 32000/- a year. The timeshare is for 7 days every year. 32000/7 days = Rs 4571.43. With that 4571 rupees a day, I could easily go for posh accommodation at various places in any season. And if I want capital appreciation too, I have a lot of avenues.

Apart from that initial membership fee of Rupees 4 lakhs, timeshare companies also charge annual amenity fee for the upkeep and maintenance of the property, utility charges for the period of your stay etc., all of which work around an additional Rs 3000/- a day.

So totally it works around 4571+3000 = Rs 7571 a day. For that much you can stay in a 5-star hotel! Is the resort stay equivalent to a 5-star hotel stay? Never! Is the timeshare resort accommodation worth that much? Not at all! Being a timeshare member, do you have any privilege while booking for a stay at any resort? No, you are one among the herd! You are not getting any value for the money you are paying.

Disadvantages of owning a vacation timeshare

So, to sum it up let me list out the cons of owning a vacation timeshare:

Popular holiday dates and peak season holidays are the same for every member. So you will be competing with every other member of the timeshare company for a stay in the date of your choice. Mostly you will have to compromise either the destination or the date to get an accommodation.
There may not be a resort of the timeshare company at the destination that you are planning your next vacation. So, either the timeshare is useless or you are psychologically forced to change the destination where there is a resort!
Investing in a vacation timeshare does not give you any tangible appreciation or value for money. In fact, buying a timeshare is not an investment but an expense.
Market is flooded with people who want to sell (second sales) their timeshare. Once you have bought a timeshare, it is next to impossible to sell your timeshare. In fact, why would anyone look to buy from you if they can initiate a fresh buy from the timeshare company itself?
Salesmen would brainwash you that a timeshare investment is inflation insulated. But timeshare companies are in a compulsion to increase their profits year after year and earn their shareholders ever-improving returns. Hence they keep on milking you inflated charges in different ways once you are their customer. The calculation I did above should have enlightened you by now.

The Bottom Line:

Vacation timeshare was an idea of the past when Internet and smartphone was not there. Times have changed. Now you have the world at your fingertips. You get wonderful deals online at throwaway prices at any given time. Travel assistance sites help you find and book the best deals in a matter of seconds. Cash is always the king!

You are going to be a loser if you are deciding to buy a vacation timeshare. Just google whether a timeshare vacation ownership is worth it to confirm what I say. Invest the money elsewhere that would give you both capital appreciation and returns. (Otherwise even a bank fixed deposit will do, though parking money in bank FD for the long term is foolishness.) Meet out the expenses of your yearly vacation from the returns. Don’t do the silly mistake of buying a timeshare, which I did without a second thought. So if you read anywhere or if any of your friend recommend buying a timeshare saying it is a wise, inflation-proof investment, smile and move on.