As nations across the world battled the recent (and still ongoing!) health crisis, lockdowns, travel restrictions and curbs on “usual” recreational activities followed. Businesses from across the economic spectrum reacted differently, including from the travel and leisure-stay sector. Even the time-honored option of time-sharing of vacation properties felt the burden of these unprecedented measures. In the wake of the paradigm shift in how investors approach real estate opportunities and individuals and families have responded to vacation planning, perhaps it’s time to rethink how you make those plans.
According to the American Resort Development Association (ARDA), the size of the timeshare industry is approximately $10.5 billion, with large cap companies comprising of 1,582 resorts in the U.S., with a total number of 206,380 time-shared units. So, how massive is that? Well, to put things in perspective:
- Major League baseball rakes in $9 billion in revenue annually; and
- The music industry is valued at $8 billion in yearly revenue
According to ARDA, nearly 10-million American households are exposed to time sharing in some form. The industry association also boasts of a 2019 average occupancy rate of 79.3%, compared to 66.1% for hotels. And, that occupancy also brings great revenue to the timeshare resorts (approximately $2.96 billion) and the surrounding communities ($8.33 billion).
Clearly, up until now, timeshare has been a significant player in the U.S. economy, contributing a total (directly and indirectly) of $97.4 billion. But there’s a tectonic shift brewing that does not bode well for the industry’s future. Vacation and travel restrictions, precipitated by the ongoing pandemic crisis, has fueled calls for massive reform in how the industry operates.
Unable to respond positively to a deluge of reservation and contract cancellations, many industry players have made it difficult for members and guests to withdraw from their commitments. This development has further fueled suspicion and distrust of an industry that organizations like AARP have been sounding warning bells about.
A Case for a Vacation Place
As these developments unfold, it’s caused more time-sharers to have a second look at how they make their vacation plans each year. And, it’s not just ‘regular’ members and their guests who take advantage of timeshare places. ARDA figures indicate that many timeshare resorts also offer a variety of rental programs that non-registered members can take advantage of. In 2019, 13.1 million nights of this rental option were snapped up, reflecting $2.5 billion in industry revenue.
So, the question that renters and members are asking is: If it’s becoming more difficult to initiate a timeshare cancellation or reschedule our bookings each year, what alternatives do we have for planning our vacation stays? Interestingly, there is a solid business case for an alternative, and that business case mirrors the traditional “buy versus rent” challenge that so many homeowners are grappling with today.
UNPACKING THE NUMBERS
At the core of this discussion is the answer to a simple question: Should we buy or continue to rent (timeshare) our vacation place? To answer that question, we need to unpack the numbers and do some math – hopefully nothing more than simple addition and division!
According to ARDA, the average price of owning a Timeshare unit is $22,942. Consider this an equivalent to the price you pay to buy a home. However, in the case of Timeshare, that $22k-plus represents your fractional ownership of the property. Like you, other vacationers own fractions of the same property too. And, what do you get for your ownership? Pre-scheduled, unrestricted and exclusive use/access to the property.
The underlined word here is “pre-scheduled”. You can only vacation there for a certain amount of time – typically a week – during a year. And there lies the challenge. Because other fractional owners have also made plans – sometimes these are standing booking made years in advance – changing vacation plans (as was required during the current global health crisis) may mean foregoing your use of your timeshare.
In addition to the one-time $22k-plus payment, timeshare owners must also make annual maintenance payments, in lieu of which property managers perform upkeep and maintenance of your unit.
According to ARDA, the annual maintenance fee currently averages approximately $1000 a year.
Since we’re doing a buy-versus-rent comparison, let’s also take a look at the alternate rates to owning (albeit fractionally!) a vacation place. We’ll use the monthly hotel booking Average Daily Rate (ADR) to give us a proxy for the alternative.
The ADR tells us how much someone would pay, per night, if they rented their vacation place (a hotel room) instead of fractionally owning a timeshare unit.
ANALYZING THE NUMBERS
Let’s now analyze these numbers and see which side of the buy-versus-rent ledger makes better business sense.
The total cost of ownership (TCO) of a timeshare unit, over the course of a 10-year span – including one-time and ongoing maintenance – is $32,942. Given that you plan on using your vacation place for an average of 7-days a year, you’ll pay an average of $471 per night for occupying your timeshare slot. Based on ADR for a hotel, you could potentially stay for an entire year if you are prepared to spend that $32,942 on hotel rental as opposed to buying, owning and maintaining a timeshare.
The Better Alternate
Clearly, hotel rentals or an Airbnb can make a better alternative to timeshare, and more and more vacationers are sensing that. Not only does it make good financial sense, but there’s a convenience factor associated with the rental decision. When faced with a plan-altering decision, like a lockdown or travel bans, renters can simply cancel a hotel booking and plan to vacation at another location – where no such restrictions exist. Timeshare owners, however, won’t have that luxury.
Disclaimer: This content does not necessarily represent the views of IWB.