Have you been tempted by the allure of a property in a dream location? For anyone who can not afford a second house or apartment, a timeshare is often an alluring prospect. However, their reputation as a scam is not unwarranted.
From the buying process to attempts to sell, timeshares are full of hidden traps. Below, we answer the question “Why are timeshares a scam?” in our must-read guide.
They Are Not a Great Investment
From a purely monetary value, timeshares are not a great investment. Even taking into account the fact that they can be written off as tax, they are not as lucrative as other ways to make money. Once you add on the fees and upkeep costs, the amount of profit you will make is actually very little if any. In most cases you lose money.
If you have got a mortgage to pay for your timeshare, then all other costs must be factored into a budget. The fine print could include payments for gas, electric, maintenance, heating, air conditioning, and special assessments. These costs mount up quickly.
Even if your timeshare does increase in value, you still have the daunting task of selling the share to make your money back. Timeshares are notoriously terrible to sell, so essentially, you are tied in to the property for life. The only way to offload it will be to sell it at a discounted price, thus losing your money.
If you do sell it at a loss, you will not be able to deduct this on your tax return. There are some exceptional circumstances, but in general, you should assume this will be the case.
Why Are Timeshares a Scam?
The industry has so many timeshare scams and scam artists working in it that many states have worked towards introducing laws and accreditation, to keep the fraudsters out. However, that does not mean the business has cleared up. In fact, the scammers have just changed their method.
The first thing you should do with anyone selling a timeshare is to check they have a state license to do so. If not, walk away and report them to the authorities.
Timeshare resale brokers have poor reputations, some unwarranted, but many not. The most famous scam is to tell sellers they have buyers waiting and charge a middleman fee. However, once the fee is paid, the buyers never appear and you have lost any money paid.
In extreme circumstances, these scammers will pass you off to another. The second scammer will contact you, pretending to be from a consumer protection agency. Once they get your upfront fee for their consumer law firm, they will also be gone.
Any offer that relies on urgency is likely to be a timeshare scam. Sales are plentiful, so no offer will go quickly or sell fast. However, that is not what the scam artists will tell you.
If it sounds too good to be true, then it probably is. Timeshares are extremely easy to buy but really tough to get out of. Don’t get locked in without plenty of thought beforehand.
Renting Is Better Value
One of the main reasons people buy a timeshare is that they believe it has value over booking a hotel room. However, if you add up all the money you would pay on a timeshare it becomes less of a prospect.
Think of your initial stake. Then add to it taxes, fees, maintenance fees, and costs. Now compare this with a stay at a hotel, and you will undoubtedly pay less. The average cost per week of timeshare ownership in 2022 was $24,140.
Then think about how the timeshare binds you down. If you are booking hotels, you can spend your vacation wherever you like. With a timeshare, you are in one place for every vacation.
Some of this money could be claimed by renting out the timeshare. However, with so many people trying to rent out properties, the rise of rental style websites and hotels, competition is tough. Many contracts also do not allow you to rent out, so check for this in your contract before you buy.
If you do rent, scheduling your allotted time can also be troublesome. Many states have specific laws about misleading this information during the sale. Trying to schedule time to rent the property to others can be even more taxing.
Defaults Are Costly
If you take out a mortgage on a timeshare, you are bound by the rules and regulations that face any mortgage loan. If you default on payments, you face foreclosure. However, many people do not realize that they also face foreclosure if they miss any payments associated with the timeshare itself.
This could include all of the bills, special assessments, and common costs mentioned in the first part of the article. This will seriously damage your credit score, make getting another loan harder, and increase the cost of any future loans you do take.
In the event of a foreclosure, the proceeds of the sale may not be enough to cover the amount you owe the mortgage lender. This is known as the deficiency, and it can result in the timeshare mortgage lenders coming after you.
If your state allows timeshare deficiency judgments, you can be sued by the lender after foreclosure. This will be for the amount you still owe, and it can be taken from your wages or bank account. Luckily, many states have passed laws that prevent these legal challenges, protecting anyone who defaults.
Buying a Timeshare
If you are still looking to buy a timeshare, then think very carefully. Look at other investments and options before committing, and protect yourself from scams at every turn. If you can answer the question “Why are timeshares a scam?” and still proceed with confidence, then perhaps a timeshare really is for you.
For most people, timeshares are a nightmare and they need a safe, affordable way out. Lonestar Transfer are specialists at helping the cancellation or transfer of timeshares. Contact us for a free, no-obligation timeshare consultation service, and release your timeshare starting today!