In response to a reader’s request, this week we’ll go over the types of timeshares and considerations before buying a timeshare. If you decide to buy a timeshare, take time in the buying process to fully understand the contract, your obligations, and your ability to resell the product.
A timeshare is not an investment. Timeshare values typically decrease over time. Your resale price will be less than your buying price. Throughout your “ownership,” you’re responsible for periodic maintenance fees. These fees can increase every year. You must also consider your cost to travel to your timeshare for the total investment price.
Deeded Timeshare versus Right to Use. A deeded timeshare is a real property right where you are guaranteed a specific unit for a specific time every year. You can rent, sell, exchange, or bequeath your unit in your estate plan. You collectively own the property with other timeshare owners. Because you “own” the property, you are also responsible for costs of upkeep and potentially the mortgage which should be included in your periodic fees.
Right to Use. You do not own the property and have access to an interval of time to use the property. Your interest in the property is considered personal property and you are not guaranteed a specific unit or specific time to use the property. This type of timeshare may also include a complex point system, alternate years of use, and other clauses affecting your actual ability to use the unit.
Potential scams. Don’t buy a timeshare under pressure or as an impulse, regardless of the incentives offered. The timeshare market is glutted with unsold timeshares so whatever deal today IS NOT A “ONCE-IN-A-LIFETIME OPPORTUNITY.” Ask for such incentives to be in writing. Review your contract before signing and make sure to read the cancellation and resale policies. In the moment, you can’t imagine selling, but your family or yourself might need to in 20 years. Keep a paper trail of transactions and correspondence. Whatever someone tells you in person or on the phone is harder to prove than what’s in writing. Do not agree to anything over the phone or in person unless it is in writing and you’ve reviewed the document. Feeling rushed or isolated before making a big decision is often used by scam artists.
Exchanging your timeshare. Tired of the Florida beach and considering Gulf Coast? Want to change your skiing location? If so, you could exchange your timeshare with another plan owner with an equivalent unit. Read your contract closely to understand the process to transfer. This can take weeks to accomplish and will have additional costs.
Selling your timeshare. Be wary of companies who approach you and offer to resell your timeshare. After you research the company, ask for everything in writing. Do not agree to anything over the phone. Like selling other property, ask about fees, advertising progress reports, and if the company is licensed to sell real estate where your timeshare is located. Expect to sell your timeshare at a lower price than you bought it.
Consider your options. If you are impulsive by nature or not, consider the total costs of a timeshare and its value to your life. For some, they are great opportunities to create annual family memories. For others, they are expensive headaches that take more money to sell than ever expected. Remember, there is no free lunch or a legitimate opportunity that’s too good to be true. You’ll have to pay in some way. And if you are okay with the costs and understand your risks, enjoy your timeshare and enjoy your vacation.
Disclaimer. As always, my column is not legal advice, instead merely insight into the law and legal profession. If you have a general question about the law or legal profession, please email me at email@example.com or call 435.610.1431.
Published in The Wayne & Garfield County Insider 7/25/2018.
Photo courtesy of the Federal Trade Commission.
Hello readers! A few of you have asked me to write about vacation peer-to-peer rental liabilities. Vacation peer-to-peer rentals include homes rented under companies like Airbnb and other home sharing companies. These rentals provide much needed and enjoyed supplemental income for homeowners and families. When placing your home as a vacation rental, make sure to consider the following factors.
Read your home insurance policy. Some home insurance policies somewhat cover businesses in the home but many do not. Typically, the business must make a maximum revenue to be covered. Other home insurance policies only cover the people named on the insurance policy and their guests (not paying clients) and relatives. Lastly, a home insurance policy may require the named insured to live at the home for the policy to cover the home. Consequently, during a vacation renter’s stay, a fire, plumbing flood, or other home issue could not be covered by your policy and you would have to pay, in full, for the damage.
Read the vacation rental company’s host coverage policy. The company’s policy may only cover damage during the booked period, require reports within a certain time-frame, have limited value or max coverage amounts, and require the rental be in complete compliance with the company’s policies before providing coverage. Compliance could include safety features such as smoke detectors, adequate lighting, or requiring homes comply with local building ordinances. By reading the company’s home policies and damage recovery policy, you can understand where there may be gaps between your homeowner insurance the company’s policy.
Consider your personal liability. You are liable if a guest is injured, becomes ill, or has their property damaged in your home. Your homeowner insurance and the vacation company’s insurance most likely do not cover your personal liability. Remember that quaint, creaky back stairway into your home? Your slippery walkway? That beloved cactus plant on your front porch? The specific way you must push the nob to turn off the stove? After giving you some things to fret about, the good news is that an umbrella personal liability coverage is very valuable if you are running a small business and renting out your home for short periods is a business. It can help you avoid major financial crises from an injured guest, reduce your risk, and protect your profit margins.
Celebrate your entrepreneurship and small business ownership. If you rent out your home as a vacation rental, you are running a business. The IRS distinguishes between long term renting (such as having tenants) and vacation rentals. If you are a landlord with a few rental units, you are not necessarily a small business. However, if you are running a vacation rental, you are a small business. Small businesses must file with the IRS, the state, and their city or county. Further, vacation rentals must pay federal and state taxes, including occupancy taxes. Businesses must also meet zoning requirements for their communities to retain their business license. Failure to become licensed by the federal government, state, or local government can result in preventable fines and headaches.
Everyone could use and should consider how to make a supplemental income and embrace economic opportunities. Vacation rentals are a great way to increase your income and meet the market demands of the area. Before you decide to add your residence to the vacation rental community, make sure to do your research and be comfortable with the risks you are taking.
Disclaimer: All materials in this article are prepared for general information purposes only to permit you to learn more about legal concepts. The information presented is not legal advice, is not to be acted on as such, may not be current, and is subject to change without notice.
Published 11/16/2017 in The Wayne & Garfield County Insider.