Many smart people have lost lots of money trying to invest in real estate through timeshare condominiums and vacation homes. Many people are attracted by these so-called investments because they want to have a place to go during vacation, and it seems that these properties would also end up being good investments at the same time.
The way a timeshare works is that you’re purchasing a partial ownership in a condominium, such as the right to use the condo for one week out of the year. Let us say you pay about $6000 for this privilege. This may seem like a bargain, but if you do the math you will realize that you are paying quite a bit for the opportunity to spend only a single week in this condominium. If you were to pay this weekly amount for an entire year, the condominium would end up costing you $312,000, even though you could purchase a similar condo free and clear for much less than this (let’s say maybe $150,000 or $200,000).
You are paying a pretty big markup, and you will also be responsible for certain annual operating fees, usually a few hundred dollars or so. Instead of purchasing a timeshare, you may want to consider renting someone else’s unit for a week whenever you go on vacation.
This will likely be much cheaper, and you will be able to take a vacation in a different part of the country each year. You also don’t have to worry about the annual maintenance fees or the hassle of having to deal with any ownership requirements.
If you can afford to purchase a condominium out right, or if you can see yourself saving enough to purchase over the next few years, you may want to consider this option as well.
What about vacation homes? Well, if you’re wealthy enough to afford multiple properties throughout the country, that’s fine. However, many families who purchase vacation homes really can’t afford the extra expense and are simply making the purchase because they think it’s a good investment.
It’s nice to have a vacation home to go to a few weeks out of the year, but you have to look at your financial situation and determine whether you can really afford to have this luxury.
You may need to rent out the property for most of the year in order to help you pay for it, and this could raise some additional headaches as you will now become a landlord. Also, if you are purchasing the property as a vacation home primarily, make sure you enjoy the area as you’ll probably be spending a lot of vacations here in the future!
Be honest with yourself about your motivations. The vacation home could be a wonderful property for you and your family to enjoy, but it may not have the best potential as an investment property.
Source: Business Finance World – By Robert Charlson