Q: My wife and I are looking for more ways to reduce our taxable income. Is buying a timeshare these days a good idea and can it help?
A: We received this letter as a follow-up to our recent story on a person that was trying to get rid of their timeshare and had found difficulty finding a buyer.
In answer to your question, while there are plenty of timeshare developments out there, we don’t usually think of timeshares as a worthwhile investment category. And we’re not sure how owning a timeshare would work to reduce your taxable income, other than if you lose money, thereby reducing your taxable income.
That’s hardly a good investment.
While we may not be fans of timeshare developments, lots of people love their timeshare purchases and use them every year. Judging from our email, however, many our readers appear to regret buying a timeshare and when they go to sell them, find that they can’t unload them.
If you decide to buy a timeshare unit, you first need to do your homework. In choosing a development, you first need to make sure the location is right for you now and as far into the future as you can imagine.
We have a friend in Mexico who once visited Orlando and thought it would be a great idea to invest in a timeshare. His kids were young and they used the timeshare for a couple of years. When the kids were older, they found other destinations they wanted to go to and the timeshare has been used little since. Even though it’s in Orlando, they’ve been unable to unload the timeshare.
After you’ve decided on a location, you need to figure out what type of a timeshare you want. Some timeshare developments are standalone, while others are part of a chain of timeshares, often using a system of points that can be applied toward different properties in other parts of the country, or world.
If you have a desire to transfer your timeshare use or time to a different development, you’d want to be a part of a chain of properties that allow the use of different properties. If you’re certain that one particular unit is right for you in one place, then you might want to go for that one.
We have family friends that bought timeshare units in Florida many years ago and the same group of friends have traveled that same week every year for the more than twenty years to spend this time together. They have rarely missed that week in late January to be together and it is one way this group of friends, who now lives all over the world, has maintained their friendship.
Part of the decision to buy a timeshare must also include a way to sell the timeshare. Some markets are flooded with available units. That should be a red flag to you that once you own the timeshare, you might have trouble getting rid of it. In some extreme cases, you might have to pay someone to take your timeshare off your hands.
In response to our recent timeshare article, we received a letter from several charities indicating that they are in the market to accept donations of timeshare units and credit the owner with the value of the unit. While there may be some charities out there willing to take a timeshare unit off your hands, you’ll need to be careful that you don’t wind up with a bigger problem.
If you plan to give your timeshare to a charity, start by checking out the charity with your local Better Business Bureau (bbbonline.org), CharityNavigator.org, and CharityWatch.org.
You might find that the charity you have in mind may not have a high rating and that some of their practices might not meet with IRS requirements. If you do find a good charity willing to accept the donation of your timeshare unit, your only benefit from that transfer is not having to make future payments to the timeshare management company and any deduction you might get on your federal income taxes.
The purchase of the timeshare unit in your portfolio of investments will be considered a real estate investment. If you rent out the timeshare, you would want to cover your expenses and make a profit. If your sole motivation is to buy a timeshare unit to lose money, we certainly can’t recommend that.
Before you buy a timeshare unit for your investment portfolio, you had better run the numbers and make sure they make sense. You have to see what buying the timeshare will cost upfront and then what your annual expenses will be. Consult with your tax advisor to see if the purchase makes sense from a tax perspective.
We come back to your question. If you’re looking for an investment, you probably can find many other opportunities other than timeshares that have a real upside, and fewer downsides.