Money Rehab with Nicole Lapin - Are timeshares a smart investment?

Episode Date: July 19, 2021

Sharing is caring, but when it comes to timeshares, is sharing your vacation home... caring for your bank account? Nicole tells all! Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. I am so thrilled that I've been getting so many questions from listeners about all things related to vacation.

How to get the best travel deals. What are the testing and PPE requirements in airports these days? How do I travel to Europe faux free? So many question marks. And that makes my heart so, so happy because it means that you money rehabbers are thinking about taking vacation and hell yes, you deserve it. I want you to live your jet setting wanderlust best life. I want you to whip out those floppy hats if you want and vintage jerseys that have just been sitting in your closet for the last 18 months waiting to break out. And when you take those vacation pics and post them on Insta, because who are you kidding? You know you will,

please tag at Money Rehab Show because I am your biggest vacation cheerleader. But of course, Rehab Show because I am your biggest vacation cheerleader. But of course, because we are money rehabbers, we want to do the whole vacation thing right, which means having fun and funds in the sun. So today I'm answering a listener question from Terry. She asks, Hey Nicole, my husband and I really love to travel and we're considering buying some property, but we thought a better first step might be buying into a timeshare. Do you think that's a good investment? Alrighty, Terry, let's take a look at this from the top level. Depending on where you live, you're either super familiar with timeshares or there's some mythical concept, like Narnia. But like Narnia, you're sharing the lion, the witch, and the wardrobe,

so to speak, with six other families. Regardless, I think most people get that timeshares are shared houses, typically in some sort of beachy vacation-esque spot. And that's a totally fair initial understanding. A timeshare is basically a particular type of agreement to stay in a house. On paper, if you're signing onto a timeshare, you're paying for access to the house for X amount of time every year for Y number of years. And when your time in the house is up, another family moves in to start their X amount of vacation time. The costs of timeshares are much, much lower than buying a vacation home outright because you're sharing time in the house with other people. Yes, sharing time.

See what they did there? If you have a tradition of going to a popular summer destination every single year, it can be a bit of a gamble to try and find an Airbnb. And it's probably super pricey to stay at a hotel. But then May rolls around and you get that hankering for the ice cream flavor at that hole in the wall spot run by teenagers in that little town you went to last summer that you just love so much. So what do you do? Buy a timeshare? Well, here's the thing. A timeshare is not a good investment because it's really not an investment at all. The whole point of an investment is that you're planting seed money into an opportunity

and hoping it grows. But with a timeshare, there's virtually no chance that you're going to grow the money that you're spending. If you know me, and you should by this episode, you know that I caution against considering home ownership as an investment because the housing market is so volatile. But I do concede that if you're an HGTV guru superstar, you may be able to get more than you put down. Maybe. In that scenario, as unlikely as it is, I'm just saying, home ownership is a good investment because you were able to sledgehammer a wall to open up the space, work in some feng shui magic, boost the value of the property, and put a price tag on the house that's bigger than it was when you bought it. And then you pocket the profit. You planted your seed money

and it grew into a beautiful money garden. Hooray! Hold on to your wallets, boys and girls. Money Rehab will be right back. Money Rehab will be right back. Now for some more Money Rehab. But a timeshare does not present that same opportunity at all because you do not even own the house. And so obviously, you can't sell it. You would have as much right to try and sell your timeshare as you would to try and sell my house, which, hello, I live here, so what the hell?

You can't do that. And what the hell would be the response from the owner if you tried to sell the timeshare? So even though as a timesharer, you don't have the same upsides as a homeowner, you are blessed with a whole lot of downsides, including being on the hook for some of the property taxes, maintenance costs, homeowners fees, and just fees galore. And yes, you can deduct the timeshare property taxes come tax season. So if you're teetering on the lower limit of a tax bracket, this deduction may drop you into a lower, happier tax bracket, which we like. But this deduction is a little more complicated than if

you're a true homeowner. In a timeshare scenario, you're really dependent on the extent the property owner has his or her shit together. Many property owners, so the people who actually own the timeshare or the people you're paying, will lump the fees together, the cost to repair the hole in the fence, the charge for cleaning the pool, and the property taxes all in one bill. So you will need to make sure that you're getting itemized bills from the property owner or you won't be able to deduct the timeshare property taxes, which would mean another perk, poof, gone. There are some folks who have had some success putting their timeshare on a vacation rental site like Airbnb. If you jack up the price to rent the house and an eager renter scoops it

up, that is one way that a timeshare could be a little bit of a side hustle. That's perhaps the only way I see a timeshare being classified as an investment. But these success stories are few and far between, because it's tricky to rent out a house that you don't really own. The property owners may have some rules stipulating that you can't rent out your timeshare. Or even if you're technically allowed to rent out your timeshare, remember that you only have access to the house with one small window of time each year. So the pressure is on to find a family that is clean, will not fuck up your space, and is willing to pay a premium. Within that one week a year, you have the house. And here's the kicker. Timeshare contracts are notoriously

difficult to get out of. And the terms are normally decades, if not lifetimes, literal lifetimes long. And all money rehabbers should be very cautious of contracts that feel like they were put together by a Disney witch. Because if there's, I don't know, say a pandemic-induced lockdown and you can't physically travel to your timeshare for your allotted period of time, you're shit out of luck. Now, if you want to turn your home into a timeshare and be the timeshare overlord, now that's a potential opportunity. I mean, I'd love to be splitting my home maintenance costs with someone else. Sign me the fuck up for that situation. But Terry, here's my actual

recommendation. If there's a little slice of heaven on earth where you know you'll be headed every single year and you feel so strongly about getting a place there, make your own little DIY timeshare with your family or friends. Pool your money together and buy the house outright. You'll still bear a lighter financial load, but you'll have a lot more benefits of homeownership and not just the sucky parts. With this arrangement, you can still maybe follow your HGTV dreams, fix her up, and sell the vacation home later on. But didn't you say you wanted this to be a vacation home? I mean, do you really want to have to be replacing

rotten window panes and painting decks? The last word of caution here in finance, just like sexy time, don't get into bed with someone who is untrustworthy or, you know, an asshole. When you think about co-owning a house with your family, are you scared? Are you excited? Are you all of the above? If living with your parents was tricky when you were a teenager, imagine how much worse it will be when you're both on the lease. If you and your dad used to bicker about whose turn it was to take out the trash, imagine what it will be like arguing whose turn it is to pay the mortgage.

So for today's tip, you can take straight to the bank. Whether you're thinking about timeshares as an investment or vacation scheme, you have better options. Look into REITs if you want to get into the real estate investment game right away, or stick with a rental if you're looking for a home sweet vacation home. With timeshares, it just isn't worth it. I know they say sharing is caring, but in this case, sparing yourself headache is caring. Money Rehab is a production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab

is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hatikadur and Will Pearson. Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.