Unearthing criticism of vacation rental timeshares certainly isn’t a difficult task. However, planners may not want to respond to clients’ timeshare queries with a simple “don’t buy.”

Instead, when clients ask about timeshares, advisers should be ready with informed observations about the long-term costs and the possible impact on retirement spending. Explaining the pros and cons of timeshares can help keep clients coming back for suggestions on all manner of topics that affect their finances.

Some advisers are upfront in their disdain for these arrangements. “I don’t favor timeshares, which are sold using high-pressure tactics,” says Bill Baldwin, managing director at Argent Wealth Management in Waltham, Mass. “Timeshares seem to have several levels of risk that don’t exist anywhere else, and they often don’t appreciate in value. Some of the timeshares I’ve seen aren’t cheaper than taking a plain old vacation where you want it, when you want it, particularly using Airbnb or HomeAway.”

Despite such opinions, timeshares are gaining in popularity. According to the latest annual report — through 2014 — from the American Resort Development Association, 7.9% of U.S. households own timeshares, up from 7.2% in 2012. If nearly one out of 12 U.S. households own timeshares, it’s likely that advisers will hear from clients, perhaps lured by the thought of dream family vacations.

Marilyn Bergen, a partner at Confluence Wealth Management
Marilyn Bergen, a partner at Confluence Wealth Management
Marilyn Bergen, a partner at Confluence Wealth Management

Contributing to timeshare growth has been an industry shift to more-flexible arrangements. “I have several clients who own them,” says Marilyn Bergen, CFP, partner at Confluence Wealth Management in Portland, Ore.

“Their deals range from a traditional timeshare, where you have the same one week at the same resort each year, to the more vacation-oriented packages, where you buy a week and have open access to any of the resorts in the system.”

As Nathan Mersereau, CFP, president of Planning Alternatives, a wealth advisory firm in Bloomfield Hills, Mich., puts it, “With a timeshare, you can go to an attractive location for your vacation, without having to buy a property.”

That’s one of the reasons advisers might hear from clients who are thinking about purchasing. To Bergen, “a timeshare can make sense for people who like the concept of owning something with a lot less responsibility and a lot more flexibility than a vacation home. Also, timeshares may be appropriate for busy people who need the use-it-or-lose-it feature of a timeshare to take a vacation or break from their working world.”

An adviser’s experience may shape his or her view of timeshares, and the resulting response to clients. Baldwin tells of receiving a “free lunch” from timeshare promoters in Aruba.

“They served it in a room with the doors locked from the outside,” he says. “I threatened to break windows. On another occasion, I got a call from a client who was in a sales office and actually yelled, ‘Help me!’ into the phone.”

If an adviser doesn’t have a strong opinion on the vacation strategy, Baldwin suggests he or she ask clients (a) Do you own a timeshare? (b) If so, would you do it over again? and (c) Why or why not?
“After about five replies,” he says, “you’ll see a trend. Responses might be, ‘It was good for a while, but —’ or ‘I tried to sell it, but there are 350 people ahead of me.’ Google ‘timeshare resales’ and you’ll find lots of websites with thousands of listings.”

Not all advisers bring dire views on timeshares to their clients. Mersereau sees both sides because he straddles both worlds — he owns two in Cabo San Lucas, in Mexico. He’s satisfied with one timeshare and looking to possibly sell another one. “I bought a timeshare at a resort that had three levels,” he says, adding that "iit was in the middle level, for $16,000, far below the posted price.”

Nathan Mersereau, president of Planning Alternatives
Nathan Mersereau, president of Planning Alternatives
Nathan Mersereau, president of Planning Alternatives

Mersereau also lucked out with finding an even less-expensive unit in the same location. “I bought from the owner, who had a unit on the most desirable level, for only $5,000.” The owner was tired of paying the annual maintenance and wanted to get out.

Now Mersereau and his family vacation in the cheaper location, and he’s pleased with the arrangement. What about the unit he bought for $16,000?

“Sometimes I can find someone who’ll use it and pay me the annual maintenance amount, which is much less than the listed price for a stay there. I wouldn’t mind selling it, though.”

His personal experience allows Mersereau to offer valuable advice to interested clients. Most importantly: shop around. “Don’t jump into anything,” he says. Good values may be available in secondary-market resales. In the basic timeshare math, a client who spends, say, $600 a year in maintenance and receives $2,000 worth of lodging will save $1,400 a year. The lower the upfront cost, the sooner the initial outlay will be recouped and the better the purchase, financially.

“Clients have told me that they got a better deal on the secondary market after their vacation, rather than buying directly from the aggressive promoters at the resort,” says Ron Kelemen, CFP, an advisory associate in the Salem, Ore., office of wealth management firm H Group. “If a client hasn’t actually been to a place, searching reviews and rating systems may give a prospective buyer a good idea of what it’s like.”

Ron Keleman, advisory associate for the H Group
Ron Keleman, advisory associate for the H Group
Ron Keleman, advisory associate for the H Group

Bergen also owns two timeshares; both offer one week per year at various locations , including the Oregon coast and Maui. “The rationale for the first purchase was that we were working so hard that one month just slipped into the next and we were not taking enough vacations,” she says. “We figured that, if we'd paid an upfront fee for a week somewhere, at least we'd take one week's vacation each year.” Thus, a timeshare might be worthwhile for clients in the all-work-and-no-play category.

A few years later, Bergen purchased another week’s timeshare from a different company, which has provided some enjoyable family vacations. However, Bergen reports that it has become more difficult to get the units she’d like for desirable weeks in some popular destinations. “I’m not sure I'd buy as a new owner now,” she says. “But historically, it's been a good decision.”

Even Baldwin, no fan of timeshares, finds some instances where they might make sense. “The real answer to timeshares lies in use,” he says. “Some families go to Disney every year. For them, a Disney timeshare might work out.”

Also, certain properties may be exceptional. “The Deer Valley Club is an example,” says Baldwin, referring to a private residence club in Park City, Utah. “There were a glut of units on the market for a time, but prices have appreciated nicely and now only a few units are available. This is one of the highest-end timeshares around. I’ve been there and have heard great reviews from one of the owners.” The key point is that timeshares vary widely, from place to place and from deal to deal, so advisers should evaluate each offering carefully in order to make a knowledgeable recommendation.

Price appreciation is nice, but can’t be assured. “Timeshares are not investments,” says Kelemen. “Rather, they are lifestyle purchases. Therefore, a good deal for a given client could depend upon location, flexibility, liquidity, the ability to use the time at other locations, how well it suits one’s vacation patterns and preferences and a price that’s better than comparable units.”

A lifestyle purchase can have different meanings for different people. “We recently went through the financial planning process with a new client,” says Mersereau. “Among her assets is a timeshare; she put a substantial value on it, for her balance sheet.”

According to Mersereau, the planners at his firm weren’t sure the timeshare had such a value, but they used the client’s number on her balance sheet rather than disputing it. In this case, downplaying the client’s valued asset could have damaged the relationship. “She sees her family members going there every year, and spending vacation time together,” says Mersereau. “It’s a matter of lifestyle, wanting to encourage a certain experience. The desire to gather the family can have a powerful emotional appeal.”

Keeping the emotional aspects in mind can help advisers handle clients’ timeshares prudently.

Reasons for Buying Timeshares

[] Save money on future vacations 44%
[] Resort location 43%
[] Flexible locations, unit types, times of year 35%
[] Certainty of vacation 29%
[] Certainty of quality accommodations 28%
[] Ability to pass to heirs 27%
[] Exchange opportunities with other resorts 23%
[] Affordable price for vacation home 23%
[] Amenities at home resort 23%
[] Affordable financial terms 23%

Source: American Resort Development Association, online survey of 1,722 timeshare owners. Multiple responses were permitted.

Donald Jay Korn

Donald Jay Korn is a New York-based financial writer who contributes to Financial Planning and On Wall Street.