Time-Shares Require Caution

QUESTION: Recently, we have received a number of promotional letters indicating that we can win anything from a sizable amount of cash to a color television if we schedule an appointment to consider the purchase of a time-sharing condominium unit.

While we are willing to spend the time to see this presentation and maybe win a prize, we do not know enough about the time-sharing concept. What advice can you give us?

ANSWER: You should look long and hard before you commit yourself to purchasing any kind of time-sharing condominium unit. If you do want to buy into a time-sharing arrangement, you should do so cautiously and with no expectation of profit.

Oversimplified, time-sharing is a way of making money for developers. Instead of selling a condominium outright, the developer is selling ownership of the same unit for parts of the year and is making a lot more money in the process.

Many time-share operators permit a buyer to purchase a week or more, or even a season, such as the spring or summer. You own that time period, and other purchasers will own subsequent periods. Usually, these condominiums are fully furnished. In effect, you are moving into a hotel for the period that you purchased.

My concern with time shares is that people do not fully understand what they are buying. The documents are vague, written in complex legalese and often high-pressure sales techniques are used.

However, in fairness to the industry, it is making a valiant effort to change its reputation, primarily because of legislation that has been enacted in many states throughout the country.

If you are considering a time-share unit, do not jump in without giving the matter serious thought. Don’t be convinced by the sales rhetoric that you must buy now or the deal is off. As you know from receiving all of those sales brochures, there will always be another time-share unit and another sales representative if you remain interested.

Here are some questions to ask before signing up to purchase:

--What kind of title will you receive?

--Are you getting fee-simple ownership of your time interval or are you merely getting a long-term lease?

--What kind of mortgage financing is available and how much will you have to pay?

--Who controls the condominium or homeowner’s association? Do you have a vote in the association, or are you delegating all of your responsibilities to the developer, who in reality now becomes the new property manager?

--What are the other costs? Often, you will have to pay for such items as condominium maintenance, weekly cleaning, use of the swimming pool and other amenities, and these fees may continue on a monthly basis.

--Are there any tax benefits for you, especially since the 1986 tax reforms were enacted? Are the real estate taxes allocated, and are you entitled to treat this property as your second home, or is it an investment property for tax purposes? Discuss this important question with your tax adviser.

You must ask these questions of the real estate agent and make sure any representations by the agent are put in writing.

One of the interesting developments of time-share operations is the exchange program. Under this system, you can call a central service and swap your time-share unit with another owner at some other location. With the more modern arrangements, you are permitted to swap all over the world. But what restrictions does this program impose on you? What fee is charged to participate? Are you eligible to participate in only one such program or can you join others? I know of one couple who swapped a Christmas week with another couple who were only able to swap for a February week in Canada.