CONSUMERS : Some Hints About Condo Time-Sharing

Times Staff Writer

This is the seasonal prime time for developers to pitch time-shares--those vacation packages where you can "own" for a week or two a condo on the golf course or a hotel room at a ski resort without the wrangles of 100% ownership.

So, if you've recently been getting post-card or phone pitches saying you've won a dinner, a color TV or a clock radio if you come to view real estate in such locations as Palm Desert, Lake Tahoe or Aspen, welcome to time-share time.

If you go, expect pressure sales tactics from most agents, and by all means be prepared to ask a lot of questions about what they're offering. You'll probably be sorry if you don't.

For openers, don't look at a time-share as an investment in real estate--owning 1/52nd of something isn't much. Basically, you're buying a hideaway or vacation place. The best thing a time-share can provide is a way to save money on your vacation and insure against vacation inflation in the future.

The average time-share in the United States is for a week and costs $7,500, according to several industry sources. So, if you plan to use it 20 years, that's only $375 a year, considerably less than most hotel rooms in resort areas cost for a week today. Projected against future hotel costs, you could save a big bundle of money.

Of course, in addition to that $375, you'll have to add whatever you will be paying for your loan, also property taxes and maintenance fees each year.

The latest trend in time-shares is something called "fractional ownership," offering the buyer a larger piece of the property pie, perhaps a quarter share, so that he or she owns it for 13 weeks a year. Quarter shares cost a lot more--from about $20,000 to as much as $100,000 at a fancy resort in the Virgin Islands--and may appeal mostly to retired persons and self-employed people who have the time to spend in them.

No matter what kind of time-share you are thinking of buying, "it should be looked at as vacation ownership, not as a real estate investment," said Stephany Madsen, vice president of the Washington-based American Resort and Residential Development Assn. and executive director of its Vacation Ownership Council.

For one thing, Madsen cautions, you "shouldn't expect to receive what you paid for it if you want to sell it." Industry analysts report that some time-share owners turn a profit when their properties are sold, but the majority do not.

If you decide to go for your prize and take a look at the resort, it's "buyer beware," according to Mark Boyle, a Chicago attorney who works with the Resort Property Owners Assn., a consumer-oriented group that frowns on the "you've-won-a-prize" style of promoting resorts or condos.

Basically, a prospective owner's best defense is to "know what you're buying and who you're buying it from," Boyle said. "It's tough to find out if it's a legitimate operation," he added. "You have to be a tough consumer and really make them tell you what you're buying."

Boyle counseled that prospective buyers should not sign anything on their first visit, even though salesmen will most likely try to pressure them into it. Most states have laws giving the buyer three to 10 days to change his or her mind after signing a contract to purchase a time-share. In California, it's a three-day period.

Boyle advised that if you're interested in the time-share you take the contract and a copy of the deed of property home with you and study it carefully or have a lawyer look it over before you agree to purchase.

"They'll high-pressure you, pop champagne and everything, but if they say 'today's the day' and won't let you have a copy of the contract and deed to study, walk away," Boyle said. "If it's not there tomorrow, you didn't miss anything." Be sure, too, to check with your accountant on the structure of the loan for the time-share to make sure you can write off the interest on your taxes. The tax laws concerning second homes and time-shares have changed dramatically since 1986.

Typical time-shares are usually based on a fixed period--say, a week in March every year for 20 years. But there are the floating kind--meaning you can choose a week during a certain time period each year or that you may have the use of a different unit every year.

But, you also need to know what kind of time-share you're being offered: a deeded property with fee simple ownership, meaning you actually own 1/52nd of the property itself and should have a title insurance policy with it, or a "right-to-use" plan under which you don't own the property, only the opportunity to use it yearly for a specified time. These types of time-shares also can be called "club membership" or "vacation license" ones. Remember, you will pay yearly maintenance fees for both the deeded and right-to-use ones.

'Right-to-Use' Cheaper

"Right-to-use" arrangements are usually cheaper than ownership, because you're not buying the property. And, with right-to-use contracts, the building will return to the developer or seller after a certain number of years.

Whatever kind of time-share you may be considering, make sure you know who the developer is and if he or she has a good track record in time-share properties. Check out the company that will be managing the property and find out if its track record has been good or bad in terms of maintenance, repairs and replacement. You don't want your week to be the one the company picks for painting or cleaning the carpet or the drapes.

You also don't want to buy a time-share under construction and then find that the developer doesn't have enough money to finish it. So, get a written commitment from the seller that the facilities will be provided as promised.

Be sure you know what all your obligations and costs in buying and maintaining any unit will be.

You also would be wise to see if the time-share resort belongs to a vacation exchange whereby you can trade your time-share with someone else. For example, one in Palm Springs for one in Aspen or the south of France.

Many exchange companies are doing a brisk business because people don't want to go the same place for their vacation every year and enjoy the option of trading, according to Renee Spencer, director of corporate communications for Resort Condominiums International, the world's largest vacation exchange.

Resort Exchanges

"Most resorts do belong to exchanges now," Spencer said. However, for consumers who wish to trade time-shares, there is an additional fee--vacation exchanges charge a yearly fee and a set price per week of exchange.

RCI, for example, has a yearly subscription renewal fee of $59 per consumer and charges $79 per week of exchange per unit for domestic exchanges; $99 for international ones.

It also has a "fair exchange policy," meaning it will only exchange like units. That's why, Spencer explained, consumers buying condos or time-shares "should be sure they know the seasonal designation and occupancy specification of the week they are purchasing." Thus, Spencer explained, "we wouldn't exchange a unit with occupancy for sleeping six people for one that sleeps only two. If you have one that sleeps only two, you can only exchange it for a two." Likewise, in most cases, you wouldn't be able to trade an off-season week in the desert in August for an in-season one in Tahoe in the winter.

What about selling your time-share if you don't want it anymore? The prospects aren't all that good. According to the latest newsletter of the Resort Property Owners Assn. "between 200,000 and 300,000 time-share owners have listed their property for two years or longer without being able to resell."

Obviously, the time-share you buy at a popular resort during the prime vacation season will trade or sell faster and better than one in an obscure location in the off-season.

If you already have a time-share and want to sell it or are considering buying one, you might want to check out Time-share Auction '89, the annual Los Angeles time-share auction, sponsored by Tri West and run by Piatelli Co., on June 11 at the Los Angeles Convention Center. For more information, call (213) 823-1200 in California, or (800) 423-6377 from outside the state.

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World