Are Timeshares Worth The Money?

Video Transcript 

My name is Robert Bonavito, New Jersey forensic accountant. This video is part of a series of videos where I discuss forensic accounting topics for educational purposes only.
 
A lot of times people come into my office to talk about timeshares. And timeshares are really about money. I get to use my bag of money here, right? My $100 of Kennedy half dollars. But timeshares are interesting and it's interesting, and the timeshares are beautiful, the properties are great. But what I do is, when I look at a timeshare, I put on what's called "System 2" thinking. System 2 thinking is...it's not like you make quick decisions. System 2 thinking is when you actually go through the numbers, and think about it.
 
Now, here's a typical timeshare. If you go on vacation, they'll show you this beautiful property, and you fall in love with the property. And let's say it's $30,000 per week, and it's financed so it doesn't cost you anything. You can get two weeks and it's all kinds of incentives, and will give you free lunch or whatever. So let's just put our system 2 thinking on. We noticed 500 units for sale, for example. We know that they want $30,000 per week. Well, it's the cost of a car, but it's a vacation. You go away. It's a beautiful place to take the kids, right? And...so we know there's 52 weeks in a year, so a simple math means there's 26,000 weeks available in this place, this big, beautiful place.
 
When you do the math, you come up with the value of $780 million. So when you look at this building, it should be worth close to $1 billion, because that's what they are selling it for. Now, does that make sense that this place is worth, you know, this timeshare is worth close to a billion dollars? I was looking at one, and they had this exact numbers here, and I am thinking, "Ah, I think you guys could have probably built this for $200 million. That's quite a profit isn't it?" So that should make you nervous about the investment. Even though $30,000 maybe is affordable, but they are selling this for $780 million when you do this math.
 
And remember, when you buy a timeshare, not only you're probably overpaying for the property: You could have built it for $200 million, but you are paying $780 million. There's fees on an annual basis that go up every year, because they manage it. Two, if you try to sell the property, it's almost impossible in most situations. And three, remember you buy a property somewhere. Let's say you buy it in Cayman Islands or something like that, you have to fly there. You still have to provide for entertainment, car rental. All the costs of the vacation don't go away. You still have all those costs. The only thing you are saving on is you don't have to pay for a hotel. But what are you paying? You are paying $780 million for a hotel. Now, timeshares do work for some people, and I tell my clients, "Listen, if you're unbelievably rich, and you have unlimited free time, timeshares could probably work for you. But if you don't meet that criteria, it may not be the best thing."
 
So what I tell people is to sit down, use your system 2 thinking, calculate, and say, "Listen, you're selling this place for $780 million. I could build this for $100 million or $150 million." Most people are concerned about timeshares, and I have credible horror stories about people trying to sell timeshares. So, be careful. Listen, timeshares can be a great deal, but you really have to understand what you're getting involved with, and make sure it's somewhere you want to go.
 
If you have any questions on this video, just give me an email.