Purchase a Time-Share Interval or Rent Hotel Rooms?

Larson, Stephen J.; Larson, Robert B.
November 2009
Journal of Financial Planning;Nov2009, Vol. 22 Issue 11, p44
Academic Journal
•This paper is meant to help financial planners prepare for a discussion with clients about the purchase of time-share intervals. • Using present value analysis, cash flows associated with time-share interval ownership are compared to cash flows associated with renting vacation units from year to year. The authors hold constant variables such as time of year and type of accommodation. • Form of ownership offers specific rights and restrictions that should be considered when weighing options. • The risks associated with time-share interval ownership, including realities for resale and deductibility of taxes, are compared to the risks associated with simply renting vacation units. • The authors classify the risk of time-share interval ownership into purchase, ownership, and disposition stages. • Purchase stage risks include risk that the resort may be undersold, adversely affecting interval value and shared resort fees. These make it more prudent to purchase when the resort is nearly sold out. • Ownership stage risks include the risk of assessment, poor management, risk of recession/default by other owners, and the risk of exchange program failure. • Disposition stage risks include the viability of the resort location over time, recession risk at time of sale, and political risk, including devaluation of currency. • The present value of the time-share interval cash flows should be lower than the present value of the vacation rental cash flows to compensate for the risks of ownership. • Legal aspects of time-share interval ownership are examined, including state statute, resort covenant and restrictions, and form of ownership.


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