How Do Timeshares Work

One advantage of investing in timeshares is that you can do it without much money. But of course timeshares make the most money for the initial developer. They get to take a little apartment or condo that is worth perhaps $140,000 and sell the use of it for as much as $7,000 for each week of the year. You can do the math.

How Do Timeshares Work
The timeshare concept is very simple. A person enjoys ownership by buying a week or weeks for a fixed number of years or for his lifetime in a luxury holiday resort or home. The owner only pays for his share for the upkeep and development of the property he owns.

Many of these timeshares have gone down in value after the initial purchase. They have a bad reputation because of the 'free vacation' offers and hard sales techniques used to sell them. People have also found that with the annual fees and the difficulty in planning their schedule around the week or weeks that they have use of their unit, they are not such a great idea for everyone. It can be simpler and even cheaper to just pay for a nice hotel at the same destination.

However, people do like the idea of owning a timeshare in a ski resort in Colorado, or on the beach in Florida. And they do work for some buyers.

• It sure is cheaper than buying a condo that you only get to use a week or two a year anyhow.
  
  For example, here in the ski resorts of Colorado, you can buy a 1-bedroom timeshare (one week per year) for as little as $4,000, and a many 2-bedroom units go for under $10,000.

How do you make money as an investor with Timeshares? You can't just buy cheap and resell for more. The spread is too narrow to be worth the trouble. Suppose you get a unit for $3,000 and sell it for twice that. You will be lucky to find such a deal, and after expenses you'll be lucky to make just $2,000 for your effort.

However, like in every other area of 'consumer real estate' you can make more money if you make it easier for buyers. How do you make it easy for them? Sell the timeshare with a small down payment and with high interest, but with low payments.

• For example, if you pick one up from a desperate seller for $3,000, and it is worth closer to $5,000 or $6,000, you might be able to sell it for $7,000. You just have to make it easy. Ask for $500 down and payments of just $105.65 per month. At 12% interest, that pays the balance off in 8 years.
  
  The buyer gets to tell his friends he has a timeshare unit in the mountains of Colorado. It costs him less per month than a rent-to-own large screen television. Meanwhile, you have invested perhaps $3,500 with closing costs ($1,000 minus the $500 down payment) to get a profit of $3,000, plus 12% interest on the whole $6500.

Those payments, by the way, will total $10,100 with interest over the 8 years, but it is hard to figure your real rate of return on the $3500. You would also have collected interest if the payments were going into the bank that whole time. In any case, you are making at least 16% on the money.

How Do Timeshares Work
Of course there will be those who don't pay on time and other issues. I wouldn't bother with this strategy unless I was going to do ten units or more to spread the risk and make the returns worth the effort. In any case, if you have you own timeshare that you want to get rid of, you can see how to make some more money in the process.