Investing in timeshares or vacation properties can often be considered a financial fallacy because these investments usually don’t provide as high a return as other investments might, and they can come with significant responsibilities and costs.
To begin with, timeshares don’t appreciate in value like traditional real estate often does. They are more like pre-paying your vacation accommodation for many years in advance, rather than making an investment expected to grow over time. Secondly, they come with regular maintenance fees which can increase annually, potentially offsetting any savings made on accommodation. Lastly, the resale market for timeshares is very poor, which could complicate your plans if you want to sell it on later.
It’s easy to understand why people fall for this fallacy. Dreamy advertisements and catchy sales pitches paint a picture of affordable vacations, promising investment growth and high return on investment. Many people love the idea of having a home away from home and may think that investing in one will be a good financial decision. Moreover, individuals often overlook the recurring costs associated with timeshares such as the annual fees and maintenance costs.
An effective financial strategy would be to allocate your funds into diversified, well-researched investments that are expected to appreciate over time, like low-cost index funds, bonds or real estate properties which can generate rental income, and allow for long term capital appreciation. Additionally, maintaining an emergency fund, limiting liabilities and establishing a solid retirement plan are beneficial moves.
Here are some further readings:
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“Timeshares: Dream Vacation or Money Pit?” - Investopedia. This article provides in-depth analysis of timeshares investment’s pros and cons.
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“How To Sell, Cancel or Get Rid of Your Timeshare” - Clark Howard.
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“Freakonomics: A Rogue Economist Explores the Hidden Side of Everything”. Book Link. A book by Stephen J. Dubner and Steven Levitt, providing insights into common economic fallacies and applying economics methodology to curious real life situations.
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“Rethinking Real Estate: A Roadmap to Technology’s Impact on the World’s Largest Asset Class”. Book Link. A book by Dror Poleg, discussing real estate as an investment class, including vacation properties.
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“Why buying a timeshare is a bad idea” - MoneyWise.
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Timeshare - Wikipedia. Provides a comprehensive overview and history of timeshares, and discusses the associated financial implications.