Doctor's Review: Medicine on the Move

August 19, 2017
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This could be yours

Timeshares and fractional properties are a steal right now, but are they right for you?

Vacationers discouraged by sky-high travel costs and shrinking budgets may find refuge in a niche property market. There is currently a supply-demand sweetspot created by anxious sellers flooding the market with getaway properties they aren’t using coupled with buyers who are reluctant to spend.

It’s definitely a good time to hunt for shared ownership of luxury properties at bargain prices. Eric Redeker, a realtor based in Invermere, BC, who specializes in timeshares, says this year has been exceptional for resale deals. Sellers are frantically dropping prices to compete among the proliferation of listings.

Fractionals multiply

The umbrella concept known as vacation ownership, which includes timeshares, fractional ownership and private residence clubs, is appealing to a growing number of enthusiasts. It’s a practical alternative to buying a summer home that’s often left vacant for the majority of the year.

Instead, an owner pays a proportionate fee to share a cottage or resort with other buyers, all of whom schedule in advance when they’d like to use it. Maintenance fees, which can cover everything from housekeeping to property taxes, are also divided among the owners.

While the concept certainly isn’t new, the market has evolved since the first timeshare resorts emerged in Canada in the late 1970s. In the last 10 years, Ross Perlmutter, executive director of the Canadian Resort Development Association, says the fractional market has grown dramatically. “It’s the fastest growing segment of shared ownership by far.”

Perlmutter describes fractional ownership as “real estate light.” It’s an annual commitment of usually five weeks, which can be split up and assigned to different seasons. It’s common for a fractional to be priced in the six-figure range.

Perlmutter says the concept appeals to “aspirational real estate owners” who don’t want the burden of maintaining a cottage.

A timeshare, on the other hand, is what Perlmutter calls “a lifestyle product.” It’s designed for people who aren’t concerned with having a stake in their property, but rather the right to use it. Timeshares are sold as weekly intervals, which makes them more affordable. They are also rarely deeded.

Priced to move

In the current climate, there is a significant spread between what developers are charging for new units and resale prices. “[Resale] prices are ridiculously low compared to the original market,” said Redeker, who lives 25 kilometres north of Fairmont Hot Springs, a popular destination near the Rocky Mountains.

Redeker’s inventory of more than 500 timeshares is growing by more than 100 every year. Some clients are even offering to give their properties away for nothing to avoid the pinch of annual fees.

For example, prices for Fairmont Resort Properties villas in that town vary according to the time of year. For the winter season of January to May, a two-bedroom villa goes for $21,000, which entitles the occupant to one week per year for life. During the peak months of July and August, a unit costs $33,000.

Redeker sold villas for these summer months for $11,000 last year. Those prices have dropped this year to $9000. SellMyTimeshareNow.com, one of a plethora of online vacation ownership bazaars, listed a Fairmont villa for as low as $2995.

Try before you buy

Vacation ownership isn’t the exclusive domain of large resort developers like Fairmont. The quantity of properties that pop up on timeshare websites, including postings on eBay and Craigslist, can be overwhelming.

That makes a positive first-hand experience — even if it means renting the first time — an important part of the buying process. “Sight unseen is not a good idea,” says Redeker.

The Reefs Club in Bermuda sells 1/10 ownership in 19 units; two- and three-bedroom units go for US$350,000 and US$410,000 respectively. To compare, clients can rent those units for US$1375 and US$1875 per day. In this way, prospective buyers can stay at the residence club on a trial basis, says Director of Sales Chrissy Frith.

“For this type of investment no one is going to put down $400,000 without seeing it and having an affinity to it,” says Frith.

Indeed, a buyer’s own assessment goes a long way in figuring out if a particular location — whether it’s a popular Canadian destination like Canmore, AB, the Okanagan Valley or Collingwood, ON — and the property itself represent good value for the listed price. A scan of websites shows a wide range of prices (presumably at the discretion of the sellers) at the same property with scant explanation for the deviations.

Fools rush in

Even with the best testimonial of all, one’s own, partial ownership isn’t always a no-brainer and certainly not an investment that should be rushed. When Cathy Bogaart was 24, she and her then-boyfriend were vacationing in St. Maarten at an all-inclusive. A few aggressive vendors talked the couple, fresh out of university, into attending a timeshare seminar. They bought into one on the spot, without knowing anything about how it worked.

Even though there were incentives thrown in and they figured out a way to finance the purchase, the whole experience turned sour. Bogaart and her boyfriend split two years after their holiday and hadn’t, until that moment, put much thought into their $10,000 investment.

Unforeseen expenses turned the once fanciful idea into a rather costly burden. To transfer the title to her name cost a few hundred dollars, even though the original funds were hers. That’s on top of the maintenance fees, which have ballooned from the $300 range to more than $1000. She’s not quite sure how much the expenses have piled up since she signed up.

“I almost don’t want to know because it’s so depressing,” she said.

Bogaart, now 33, feels betrayed with an apparent disconnect between what was promised at the seminar and what’s transpired. But she admits she didn’t read all the fine print.

Industry watchdogs

It’s not clear how dubious the deal offered to Bogaart by Sunterra Resorts (now Diamond Resorts) may have been back then. Regardless, the industry has taken steps to squeeze out aggressive pitchmen who sweet talk innocent vacationers.

“Industry associations have worked very hard with governments to put legislation in place to protect consumers,” says Gloria Collinson, an industry consultant who sold the first fractional property in Canada at Chandler Point, ON, when it opened 10 years ago.

While vacation clubs that boast more inventory than they actually have may still be around in some parts of the world, the Consumer Protection Act in Ontario gives consumers up to 10 days to back out of a contract. Collinson says rescission periods are comparable across the country.

Even with a greater sense of assurance, consumers need to do their homework. Laurie Billard, a real estate agent for RE/MAX Performance Realty, based in Mississauga, ON, spoke of a client who invested in a Florida timeshare and put it up for sale without ever using it.

“Some people buy them thinking they can travel right away, but it took them a year to get points,” Billard said.

Some resorts work on a points system which allows users to put together a package of different accommodation options, including amenities and services. It’s similar to a rewards-based program at retail stores, where amassing points opens doors to greater rewards. Points are also an ideal way to find different vacation spots every year at an exchange house like Resort Condominiums International, through which weeks can be swapped to use at other resorts around the world.

Billard’s clients paid “quite a bit of money” for it upfront. That didn’t include points in the bank, so they couldn’t arrange a holiday anywhere.

There certainly isn’t a shortage of potential destinations. The Timeshare Resource Center says the areas with the highest concentration of US timeshare resorts are Florida, California and South Carolina. For Canadians, the Caribbean is another easy bet.

The website lists Canada, among other more exotic places like the US Virgin Islands, India and China, as emerging hotspots. Those may be the best bet for bargain hunters. The site suggests a likely way to find a good deal is to look at places where the industry is nascent and where demand hasn’t exploded.

This article was accurate when it was published. Please confirm rates and details directly with the companies in question.

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