The ABCs of time-shares

For some people, time-shares set off alarm bells. They imagine sitting through a four-hour presentation on the “deal of a lifetime,” only to be bullied into signing an agreement filled with hidden costs.

While time-shares were once a hotbed of scam artists, developers now have to meet state regulations that protect consumers. Today, some three million Americans own time-shares and they are an affordable, predictable holiday option. You pay only for travel and food, and you know exactly what you’re getting in terms of accommodations and amenities.

Still, hard-sell tactics are common and time-share agreements may be hard to get out of. So before you buy, make sure you understand how these pre-paid holidays work.

What is a time-share?

A time-share is a vacation property that is owned or leased by several individuals, each with the right to use it during a specified number of weeks each year. Usually vacationers use the property at the same time each year, though some agreements allow you to pick a week within a given season.

Most time-shares are condominiums at vacation resorts, but they may also be recreation vehicles and cabins aboard cruise ships. Even luxury hotels such as Marriott and Hilton have gotten into the act.

What’s the appeal?

• They’re affordable. New time-shares often carry hefty price tags, but resales are usually far cheaper.
• They’re familiar. You know exactly what you are in for at vacation time each year -- no nasty surprises in the accommodations or disappointment over recreation facilities, restaurants, beaches, ski hills and the like.
• They’re flexible. You can often exchange a week at your time-share for a week at another.

Different kinds of time-shares

Time-shares come in several flavors. The main difference among them is whether you’re buying ownership of the property or simply the right to use it.

• A fee simple plan means you’re buying ownership of the property in perpetuity, and you receive a title as you would with any house or condominium
• A leasehold interest sometimes gives you ownership rights, but only for a specified number of years. After that, the rights revert to the fee simple owner, though you may have the first opportunity to renew.
• With a right-to-use agreement, you’re not buying ownership, but simply a license to use the property during a specified time.

A bigger share

Many time-share transactions are done through exchange companies that work with several resorts. You exchange your time-share weeks for points that can be used to buy weeks at another time-share. How many points you earn from your time-share depends on:

• how popular the locale is
• how big the property is
• whether it’s available during high season
• its reputation

All time-shares involve an up-front fee, plus annual management or maintenance charges. For some people, simply renting a cottage or buying a one-week resort package each year makes more sense.

If you decide to go the time-share route, consider financing it with a home equity loan. Because these loans are secured by the equity in your home, the interest rate tends to be lower than for other types of consumer loan.