Many people have a place they love to vacation to. Â Sometimes after one visit, sometimes after a yearly tradition they decide to make it a more frequent getaway location, by purchasing something to keep those hotel costs at bay. Â But is it actually a savings?
Timeshares – A timeshare is a partial ownership of a piece of property, usually a condo or some other type of house. Â You own the right to use it for a single week (typically) out of the year. Â Someone else takes care of the maintenance and upkeep (but you pay for it via management fees). Â People like timeshares because it’s like visiting a home instead of a hotel. Â You can cook your own meals, and it’s the same location guaranteed every year. Â But is it better for your bank account?
For this article I looked at some timeshares in Ocean City, Maryland. Â For the summer months, it seemed like the average price was around $10,000 for an average timeshare (not ocean front or anything crazy) that would sleep an average family. Â The maintenance fees also seem to be around $1000 per year. Â If you assume you’ll go for at least ten years to this timeshare, the price for the timeshare comes out to approximately $285 per night. Â ($10,000 base + 10 years of $1,000 maintenance)
$285 isn’t a huge savings on hotel costs, especially given the flexibility of a hotel vs the rigidness of a timeshare. Â It’s not hard to imagine your week getting spoiled by a wedding, work trip or something else (of course you can always trade your week with someone else in theory, etc…). Â But what about the investment? Â Timeshares seldom appreciate. Â Because any appreciation in the value of the property is spread over all of the owners, and because supply is usually high, you shouldn’t expect any appreciation out of a timeshare. Â So overwhelmingly, you’re probably never better off buying a timeshare then simply renting someone else’s or staying in a hotel.
RV – Ah the Recreational Vehicle, truly the American dream on four (or more) wheels. Â The idea behind an RV is you can basically take your vacation home anywhere you want. Â The large initial cost will offset hotel costs, and especially if you are retired you can travel the country at your leisure for minimal cost.
Unfortunately there’s little math that makes buying a new RV work. Â With prices ranging from $60k – $600k, and depreciation that makes a Jaguar owner blush, you could probably fly first class and stay in the nicest hotels for the average use of a typical RV. Â Just to give you an idea of the math, let’s say you buy a $300k RV, and take it for a week of vacation per year, once a year for ten years.
RV Cost – $300,000, Gas Cost: 1,000 miles (500 round trip) $700 per year, hookups: $100 per year
So the average cost per night would be $4,400 per night. Â You’d get maybe 10% of that back on the resale of the RV given the depreciation. Â So a new RV for a part-time family is pretty much never a value proposition for most families. Â Even if you got a much smaller RV, the math is similar, it’s way more than a hotel would cost (the gas alone can be as much as a timeshare would cost!)
A used RV for a retired couple can make sense. Â If you use an RV full-time, and buy it used, and don’t actually move it more than once a month, this can be quite economical. Â Also a used RV has less value to lose, so it’s something to consider. Â But also keep in mind none of the costs I calculated include maintenance or insurance costs.
Vacation Home – Jeez, nothing seems like a great idea. Â But what about a vacation home? Â A vacation home works slightly better because of the chance for appreciation. Â In most areas though, especially those in dedicated vacation areas (the beach, a lake, etc…) there won’t be significant appreciation. Â Given the maintenance, insurance, and mortgage interest rate charges, you may be about equivalent to renting a house or staying in a hotel. Â But the chance for appreciation is there (the chance for depreciation is there as well as many learned in Vegas and Montana), so it’s not clearly such a loser. Â Treat buying a vacation home like you would any other investment though, and don’t convince yourself you’re doing it to save money.
How Should I Vacation? – Renting from others or using a service like AirBnB or VRBO is by far the most economical way to travel. Â You don’t take on any of the burdens of ownership, and in almost all scenarios you get out ahead money-wise. Â So let someone else take the risk of an extra house, timeshare, or RV, and just enjoy your vacation.