Don't Make A Bad Investment In A '401(v)'

Many people purchase timeshares believing they are financial investments. Perhaps what is causing some of this confusion is the term “401(v).”

A 401(v) is an increasingly common term used by timeshare sales representatives to denote an “investment” in your vacation, but the similarities between a vacation investment and a financial investment begin and end with the clever euphemism.

Brass Tacks: 401(v) Vs. 401(k)

Most people are aware of what a 401(k) is, but for the sake of comparing a true financial investment with a 401(v), here's a brief description:

A 401(k) is an employer-sponsored retirement plan in which a designated portion of an employee’s paycheck is automatically deducted each pay period. This money is removed before the income is taxed and then invested in a series of diverse options at the employee’s discretion. In many instances, the employer will match the employee contribution by as much as 6% of the employee’s gross pay. All investment funds appreciate tax-free for the duration of the plan and can be converted to an Individual Retirement Account (IRA) once the employee is ready to withdraw their savings.

On the flip side, since most timeshare contracts are written in perpetuity, timeshares could actually be viewed as the direct opposite of a 401(k): They don’t ­build your financial portfolio over time; they are instead a lifelong financial obligation. In fact, American Resort Development Association (ARDA) president Howard Nusbaum noted that a timeshare's value comes solely from the consumer's use and potential vacation savings, not because it is a sound financial investment. 

The Truth About Timeshares

As someone who has worked for nearly 15 years to help frustrated timeshare owners eliminate their ownership, I have met with many timeshare owners who are thrilled with their properties. Committing to your and your family’s vacation future can be a significant boost to your quality of life, especially if you get great annual use out of the timeshare.

Unfortunately, that’s the extent of the “investment” — owners (and potential owners) need to think of timeshares as a quality of life investment rather than a financial investment. Presenting them as the latter can be a dangerous proposition for consumers, as it might lead them into believing something that simply isn’t true.

The tangible financial value of timeshares decreases immediately following the purchase, and annual maintenance fees have been rising steadily for years. In 2005, the average annual maintenance fee was $471. By 2016, that number had more than doubled to $971, with major hikes every year in between. And when owners attempt to sell these properties, most discover there are very few takers on the overcrowded resale market — even though they’re often being listed for pennies on the dollar of their original purchase price.

Don't Make A Bad Investment In A '401(v)' curated from Forbes - Real Estate