Buying a second house and spending part of every year there relaxing is appealing, but there are many things to think about before you pull the trigger. Timeshares are an option that provides some of the benefits of a vacation property without full ownership. If you're thinking about purchasing a timeshare, here's what you need to know.

Simply put, what is a timeshare?

A timeshare is a shared ownership holiday property. In exchange for splitting the purchase price of a timeshare with other buyers, each owner is granted a certain number of weeks of use at the property each year. Timeshares are typically smaller apartments within a larger complex.

Exactly how do timeshares function?

Depending on the terms of your timeshare contract, you can share the costs of homeownership with other people. Depending on how long they intend to use the property, buyers may acquire "fractional ownership" of the whole. In still others, rather than truly purchasing the property, the purchasers instead enter into a long-term lease.

Point systems for timeshares

Buyers of timeshares used to be committed to a specific property for several years. However, in recent years, many timeshares have adopted a point system that gives buyers more leeway in selecting their preferred holiday home and vacation dates.

What is the approximate price of a timeshare?

Timeshare intervals typically cost $22,942, as the American Resort Development Association reported. The typical annual maintenance cost is $1,000, but this number varies widely depending on the home's square footage.

Before committing to a purchase, it's important to figure out how you'll pay for the timeshare. It could be preferable to use funds instead of taking out a loan. This is because most financial institutions will not lend money for a timeshare. After all, these properties tend to depreciate. While timeshare property developers may offer to finance, it is typically at a much higher interest rate than a bank and is usually for a shorter period.

Various Timeshare Structures

There are two main types of timeshares to choose from:

You will acquire full title to the property after you purchase a deeded timeshare. A percentage of the property is divided among the owners, usually in proportion to how often they will use it.

Non-deeded timeshares, sometimes known as "right to use" timeshares, allow you to use a property for a set length of time in exchange for payment but do not transfer legal ownership of the property to you.

Vacation rental vs. timeshare

Timeshares and vacation houses are viable solutions if you want a regular getaway. What's best for you depends on your budget, needs, and preferences.

With a timeshare, you can save a lot on maintenance fees and travel time. You won't have to worry about finding a tenant to pay the mortgage or cover the costs of owning and maintaining a second house while you're away. The annual maintenance costs could be cheaper than those of a vacation home over several decades.

Your assured reservation at your dream vacation site

A timeshare can be a great investment if you want to take annual vacations in the same spot. It saves you the trouble of arranging a trip every year and the potential cost of a hotel room every night.

Value on the secondary market is low.

Competition is high in the secondary market. Timeshares are plentiful, so you can lose money if you try to sell yours in the future. Be wary of scammers who prey on people trying to escape timeshares.

Potential Fiscal Repercussions

In most cases, you cannot deduct the loss you incur if you sell your timeshare at a loss (as you could with other investments). In this case, the Internal Revenue Service treats timeshares as personal property. One possible exemption would be renting out your timeshare throughout your allotted stay. If that's the case, it could be possible to write off the loss, much like you might do with an investment or rental property.

Conclusion

Take your time buying a timeshare after first doing some careful homework. It would be best if you thought about how often you'd like to visit the property and whether or not you can afford it. If the price of a timeshare is out of your price range, consider taking shorter, more infrequent trips instead.