Trading Places - time-share resorts - Industry Overview

Kiplinger's Personal Finance Magazine, July, 2000 by Elizabeth Razzi

Marriott, Disney and some of the other hospitality companies maintain their own trading systems; Marriott's is probably the most extensive, which is a major selling point. Every other year Marriott owners have the right to skip a visit to their time share and trade it in for points, which can be banked and used at other Marriott time shares or hotels worldwide. They can also swap their time-share rights through Interval International. But only people who buy their time share through Marriott can join the Marriott points system. Marriott time shares sold directly from owner to buyer don't qualify. That has kept some Marriott time shares off the open market and helped prop up their resale prices.

Buy, don't invest

NO MATTER HOW popular they become, however, time shares are a lousy investment. Never consider your time share to be part of the real-estate portion of your investment portfolio. Yes, your time share is usually a deeded interest in a property, if only as tiny a slice as less than 2% ownership in one apartment among hundreds of apartments in a resort. But true real estate investments--such as houses, apartment buildings and vacant land--tend to appreciate in value over time, whereas time shares almost always do not.

And whether you use your vacation week or not, you still owe hundreds of dollars in maintenance fees each year. Those fees pay for taxes, management and upkeep of the buildings, furnishings and other amenities, and can increase over the years.

Time shares may be the least liquid assets on the planet, and if you do manage to find someone willing to buy one from you, you'll be lucky to get back half of what you paid. And you could have to fork over a sales commission of 25% to 30% for the privilege of selling at a loss.

Hotel-chain time shares are holding their value better than older resorts, but even they tend to sell at a loss. And it's too soon to tell how well luxury time shares like the Hardys' at Aviara will hold up once they hit the resale market.

But smart buyers know that what they have bought is vacation time at a premium resort for a fixed price. And when you think of it that way, buying a time share is a reasonable use of your money over the long term, according to Ziobrowski. He and his wife, Brigitte, an associate professor of finance at Augusta State University, in Georgia, studied the time-share market in Hilton Head, S.C., host to many such resorts. They figured that the break-even point is ten years. If you use the resort for at least that long, you will have spent less than if you had rented similar accommodations each year.

Shop the resales

YOU CAN ACCELERATE the break-even point considerably by buying a time share on the resale market, where you can often find one for half the price charged by a developer.

Resale is the only way to go, according to Jim Breslin of Naperville, Ill., who owns a company that makes valves for heavy industry. He and his wife, Pam, and their three children enjoy two one-week time shares. Their most recent purchase was a Marriott time share in Orlando, which Jim bought on the resale market for $9,400, 55% of Marriott's $17,199 asking price.