Timeshares Part 1: The Terrible Math Behind Timeshares

The following is for informational purposes only and not meant to be investment, legal, or tax advice.

Timeshares are without question a complete waste of money. The salesperson’s commission on timeshare sales are allegedly astronomical (5-20%) although the actual commissions paid are not public record.  You pay an upfront fee and then annual maintenance fees that increase annually to obtain “ownership” of an “asset” that limits you to vacationing at a small number of destinations. Over the life of your timeshare you are hit with “special assessments” which mean even more fees. Try selling the timeshare and you will receive a fraction of the purchase price, pay commissions to a broker, an exchange, and potentially an attorney.  Buyers that finance their purchases are even worse off because they are paying interest to finance this purchase.

This article will discuss the nonsensical math and intentional misdirection that timeshare salespeople spout and then go through the real math behind timeshares. Future articles in the series will address surviving timeshare pitches, and taking advantage of timeshare offers.

The baloney math of timeshare pitches

Timeshares save you money relative to hotels. According to sleazy timeshare salesperson, lets call him Rizzo the Rat (after the Muppet Babies character), if you buy a timeshare, you are avoiding having to spend money annually on a vacation. Not only do you have maintenance fees (which increase annually), but you also have to plunk down a large amount of money upfront which has a significant opportunity cost associated with it.

If you add the maintenance cost plus the opportunity cost, you can tell that you are almost always better off just paying for a hotel independently.  

Illustrative example:

Timeshare cost in 2024 : $24,170
Assumed rate of return at 7%: $1,691
Timeshare maintenance cost average in 2024 for 1 week: $1,260 (differs from average below because this is only for one week, whereas the other average includes longer periods)
Total True Cost: = ~$2,951
Total nightly cost for 1 week: $421.57

Compare the example above with the average rate for a hotel room in the US which is somewhere between $159-200 a night. Some locations such as New York City and Hawaii can be significantly more expensive, but timeshares in these areas are also commensurately more expensive.

Hotel inflation rates are really high so lock in your vacation now. Nope, completely false. The historical inflation rate on accommodations is about the long-term rate of inflation within the general economy. Between 2005 and 2024, the average increase in the “Lodging away from home category” which includes hotels, motels, resorts, and vacation rentals increased by approximately 2.5% annually in line with inflation which was also ~2.5%. (Index increased from 123 to 195). Some places like Hawaii may have had higher rates of increase, but not to a point that would make a timeshare make sense. If the inflation rate for decades was that high above inflation, the hotel industry would be a massive percentage of the economy as a whole (much like we have seen with healthcare).

You can pay over time for your timeshare by financing it. The industry average interest rate on timeshare financing is 14.8%.  The interest rate you pay will vary depending on your credit score, the amount you are financing, and the timeshare company. Even under the best conditions the rate you will pay to finance a timeshare is likely to be double digits and cost you multiples of your original purchase price over time.

The timeshare company’s golden goose: fees, fees, and more fees

Maintenance fees, the not so silent killer. Timeshares come with maintenance fees that are ostensibly needed to maintain the properties in the system.  If you don’t pay your fee, you can’t use your timeshare. The incentive of the timeshare operator is to increase these fees above the rate of inflation. Usurpingly according to the American Resort Development Association, maintenance fees have increased from an average of $471 in 2005 to $1,480 in 2024, or roughly a 6% increase per year versus an inflation rate of about 2.5% over that period.

Kicking you when your down aka special assessments. You own a timeshare, you paid your ridiculous maintenance fee, and then wham you get hit with a special assessment where you have to shell out even more money. Special assessments are “one time” fees to handle maintenance on properties in the event that the annual maintenance fee is insufficient. If a timeshare company has a large number of owners’ defaulting on their maintenance payments, you may be hit with a “revenue gap fee” where you are given a special assessment to make up for the lost maintenance fees.

Still more fees. Timeshare companies may also have a variety of other fees. Some companies will provide a certain number of bookings for free but then charge a booking and reservation fee. Others also charge cancellation or upgrade fees.  When a company offers an exchange program where you can exchange your timeshare for weeks at other resorts either in or out of their network, you will usually pay fees to access the network.

Point inflation, the hidden fee. Timeshare programs usually have a fixed number of points that you redeem for a given period of time, usually a week or two. These points are separate from any affiliated hotel group’s points and have a completely different value. The similarity in both points system lies in the timeshare company or hotel’s incentive to inflate away the value of points. By increasing the number of points required to purchase the same week at the same hotel, the timeshare company can increase their margins while decreasing the value of your timeshare.

If you are lucky you can sell your timeshare for something…and pay a fee. The industry does not report on the average timeshare resale price, but Koala Vacations, a fractional ownership site (not a timeshare, not in any way recommending fractional ownership) claims that most timeshare owners receive 10-20% of their original purchase price on the secondary market. In many cases owners will give away their timeshares to get out of their contracts and avoid paying the maintenance fees. Just to make sure to really drive home the point that you are getting ripped off, many programs also charge a transfer fee which can be as much as little as $100 or upwards of $10,000, with the average fee being between $500-1,000.  When selling a timeshare you will also have to pay a listing fee on the marketplace where you are selling and potentially pay an attorney to draft sales related documents. In the extreme case where no one wants to buy your timeshare and the timeshare company has done something illegal, you may need to retain counsel to sue the timeshare company.

The real math on timeshares

A timeshare is NOT an asset it is a liability. A financial asset generally has an expectation of positive returns over time. Have you heard of all the people making millions buying and then selling their timeshares? Neither have I because you only lose money when you have a timeshare.

The time value of money. Timeshares do not take into account the time value of your money. All timeshares will require you to purchase the timeshare for a deposit of $10k to upwards of $100k+. You are asked to pay the deposit upfront which you either get back a fraction of when you sell the timeshare or nothing if you get a bad timeshare.  Over a long time horizon you are foregoing significant interest, dividends, and cash flow you would otherwise be earning. Although it is true you will have to spend money on vacations in the future, you are able to earn cash from investing the $10-100k+ you would have spent on the deposit. Assuming even a 3.5% interest rate on $100k in cash, you would have $3.5 a year to spend (less taxes) on vacations and still have your entire $100k to use for any other purpose.

Annuity formula. The real cost of a timeshare is equal to the value of the deposit you place plus the present value of the maintenance fees (and any other fees you pay) less the present value of any cash you get from selling the timeshare in the future. Present value is the value of future dollars expressed in current dollars by “discounting” the value of future dollars by an interest rate or opportunity cost. You can find the ordinary annuity formula here and another formula that assumes maintenance fees increase at a constant rate here.

You can also use “Present Value” formula in Excel as seen below. Calculate the value of the future payments on the timeshare and add it to your initial purchase to get the true cost.

= PV (rate, nper, pmt, fv)

• Rate = interest rate or your opportunity cost
• NPER = number of periods
• PMT = annual payment(maintenance and other fees)
• FV = value of the timeshare when you sell it, use a negative value if you will be getting cash. For example if you sell for $10k, put in -$10,000.
• PV in Excel

For example if the timeshare cost $25,000, has a $1,200 maintenance fee, is sold in 10 years for $5,000 and your personal opportunity cost is 10%, the setup in Excel would look like this:

You would add the $5,444 cost of the fees overtime to the $25,000 initial purchase price to get the “true” cost of the timeshare in present value terms which in this case is $29,444.

The math on timeshares is truly horrible. When you are being sold a timeshare the salesperson will tell you a litany of lies and misrepresentations. The initial purchase has a high opportunity cost, you pay a constant stream of fees, and get little when selling your timeshare. The real math is scary and will turn off any logical person from ever buying a timeshare. So why do people buy timeshares….because of the high pressure sales pitch! The next article in the series will discuss how to survive the sales pitch and get cut rate vacations as your reward.