Vacation Home vs. Timeshare: Which Is the Better Investment?

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Both vacation homes and timeshares have their supporters, but they are very different types of investments. To choose the right one for you, you’ll have to ensure that you understand the ins and outs of what an investment in each might mean, along with what you’re looking to get out of your investment. For example, if you want ownership control and greater appreciation potential, you might prefer one option over the other. The same is true if you just want a place to get away for a week or two per year and aren’t interested in higher costs and ongoing maintenance.

Here’s a look at what vacation homes and timeshares are, their pluses and minuses, and the type of investor that might be right for each one. 

What Is a Vacation Home?

Buying a vacation home is the same as buying any other type of home, except for the location. Vacation homes are typically located in prime tourist destinations, such as on a beach or in the mountains near a ski resort. Vacation homes are often – but not always – larger homes, capable of handling families or groups of visitors. Some are used exclusively for family getaways, while others primarily target the rental market.

Nothing prevents a vacation home from having a single use. Some owners use their property for a few months per year – almost like a timeshare – while renting it the rest of the year. When you own a vacation home, you have complete control over how you want to use it.

What Is a Timeshare?

A timeshare, like a vacation home, is typically located in a desirable tourist destination. Investors who buy into a timeshare are allocated certain time slots each year when they can use the location. Beyond that, the timeshare is off-limits, as the available time will be allocated to other investors – hence the name “timeshare.”

Whereas a vacation home conveys ownership rights, a timeshare investment only allocates usage rights. But since you’re sharing the investment in a timeshare with other investors, your costs are proportionately lower than buying an entire vacation home yourself as well.

Which Option Makes for the Better Investment?

In nearly all cases, a vacation home makes for a better investment than a timeshare. Here are the primary reasons why:

• With a vacation home, you own the entire property, including the land; with a timeshare, you can only use the property for a certain period each year
• Vacation homes tend to appreciate in value over time, whereas timeshare values often decrease
• Vacation homes offer complete control over when you use the property, who you can offer it to and whether or not you want to rent it out; timeshares have strict limitations as to usage rights
• Vacation homes can generate nightly, monthly or year-round income, whereas timeshares can only be rented for limited windows per year, if at all
• Vacation homes generally have fixed mortgage payments, although property taxes can increase annually; timeshares have generally rising service fees that may apply whether or not you even use the property
• If you rent out your vacation home, you can generally deduct your expenses
• You can stay at your vacation home anytime you’d like; with a timeshare, you’ll have to compete against other owners in terms of picking prime times to stay, such as over holidays

This isn’t to say that a timeshare doesn’t work better for particular types of investors, particularly cost-conscious ones. Owning a vacation home will generally involve a higher initial outlay and higher ongoing expenses. You’ll also be responsible for all maintenance expenses. If you make a bad investment, you’re generally putting more of your capital at risk as well. 

The Bottom Line

If you’re simply looking to spend a few weeks per year in a location you know that you’ll love forever, the lower costs of a timeshare might make more sense for you. But it’s important to understand that the potential for appreciation is much greater with a vacation home, and it’s also generally much easier to sell. In other words, for strictly investment purposes, a vacation home is typically a better option. If you approach your vacation stays as an expense rather than an investment, however, you may prefer a timeshare.

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