Investing in timeshares - vacation planning

Black Enterprise, Feb, 1999 by W. Roger Witherspoon

Today's vacation clubs offer good value and accommodations for consumers looking to get away

For their 10th anniversary, Willie and Elizabeth Hurd wanted to spend four days at Shutters on the Beach, the luxury hotel in Santa Monica, California where they'd stayed during their second honeymoon. This time, they would need two bedrooms--the second for their two small boys--in a hotel where each room with a view cost about $500 per night. For the average traveler, that stay would cost about $4,000.

But for the Hurds from Celebration, Florida, the financial considerations weren't that lofty. "We paid the exchange fee of $75 through the Disney Vacation Club's Concierge Collection and spent 20 of our 300 points." Points? Exchange fees? Vacation dubs? What are these?

These are the currencies of the modern-day timeshare or vacation ownership industry, a thriving business in which families invest in future vacations. Timeshare owners essentially purchase access to the equivalent of a home or condominium at a vacation ownership resort, then have access to equivalent facilities through a global exchange network. The ownership of a week or more may be for a specified period each year or for a given number of years.

According to Chris Larsen, spokesman for the travel industry's American Resort Development Association (ARDA), vacation ownership is the fastest growing segment of the travel and tourism industry. "Last year, there were about $2.7 billion in timeshare sales, representing about 270,000 vacation weeks at an average cost of $10,000 a piece in the U.S.," says Larsen. "There are nearly 2 million owners in the U.S. now, and approaching 5 million timeshare owners worldwide." And they have access to some 1,200 American and 4,000 international resorts. Florida is the center of the American timeshare industry with about 24% of the resorts and sales of $838 million in 1996.

The growth in the industry emanates from many major hotel chains and resort companies entering this segment of the travel market. This brings higher standards, greater flexibility in the types of offerings and a variety of financing plans. Some of the major players in the field now are Marriott, Four Seasons, Hyatt, Disney, Travelodge and Ramada.

According to the national Council of Better Business Bureaus (BBB), there are two basic types of timeshare arrangements: a simple fee plan in which the buyer purchases and owns part of a real estate unit; and the right-to-use plan which provides access to the firm's resort facilities, but not ownership in the properties. Marriott, with more than 120,000 owners and 38 resorts worldwide, is the industry leader.

Under the point system, a buyer receives a type of vacation credit that is redeemable annually for a varying number of accommodations, depending on the season, day of the week, size of the unit and resort location. Marriott's prices start at $8,600 for a week, says Marriott Vacation Club spokesman Ed Kinney, "but prices go as high as $46,000 for one week in Park City, Utah."

It should be noted that the cost of the property is not the only cost of a timeshare vacation. All timeshare units have maintenance fees, usually $400-$600 per year, and there may be other costs. What makes the timeshare concept work are the exchanges. Though all the resort companies permit owners to exchange weeks or days within their own resort network, a major attraction is the ability to exchange quality lodgings anywhere in the world at the same, one-time fixed price.

These exchanges are made possible by two firms: Resort Condominiums International (RCI) and Interval International (II). Virtually all of the resort companies are affiliated with one of these firms. RCI is the dominant company with some 3,300 affiliated resorts and about 80% of the vacation exchanges, while II has about 1,600 resorts. The first year of membership with either RCI or II is usually included in the purchase price. After that, there is an annual fee, as well as fees for each exchange. Both companies have rating systems to ensure that travelers stay in condominiums of comparable quality to the one they purchased.

ARDA has the following advice for people considering timeshares:

* Remember that timeshares are not financial investments. If you're considering a purchase, you should think of it as an investment in future vacations, rather than an investment in property.

* Learn as much as possible about the company. Not all firms offering timeshares are financially stable, national businesses. The BBB reported 18,570 inquiries into timeshare companies in 1996 and 574 complaints, says Chris Burgess, director of operations for the Dallas BBB. These reports can be accessed through the BBB Web site at www.bbb.org. In addition, many local BBBs have 24-hour automated information services that provide telephone summaries of the reports on a company if you provide the firm's 10-digit phone number.

* Seek legal advice. A timeshare purchase is a long-term investment, more akin to buying a home than buying a car. Buyers should seek legal advice before signing purchase agreements.