Tom Wheelwright and Henri Moreau join Robert and Kim Kiyosaki on the Rich Dad Radio Show today to discuss timeshares. Tom Wheelwright is a CPA, tax expert and Rich Dad advisor, and author of the book, Tax-Free Wealth. Henri Moreau is a timeshare specialist and real estate broker for nearly two decades.

Henri also owns Timeshare Properties, Inc., a real estate brokerage dedicated to buying and selling timeshares. The company boasts an A+ rating with the BBB, without one complaint in 17 years. Henri says, “Timeshares is one of those things where, when you’re done with it, it’s like a boat and you just want to sell it.” People selling are happy to sell, but the people buying the timeshares are happy as well. It’s a win-win.

“It’s really an attractive industry; lots of money, lots of leverage, but a lot of pitfalls also.” --Robert Kiyosaki

Robert shares that he became interested in timeshares as a form of income, discovering that opposed to a hotel, the money could be staggering. Ultimately, they did not take on the investment, but he says the money was very tempting. “You can buy a timeshare in Hilo or Kona, but you can vacation in Spain,” Robert says.

So, are timeshares good to invest in?

Henri says that a timeshare (and the often asked question, ‘are they good to invest in’) can be likened to marriage. When you’re in a good marriage, there’s nothing closer to heaven. But when it’s bad, there is nothing closer to hell. Timeshares are similar in the way that a good timeshare that is producing income and the availability of use for the investor is a good and happy situation. But, he shares, he also sees folks who end up with a mortgage and maintenance fees for something worth significantly less now, such as a client with a $360,000 loan on a timeshare property worth $30,000.

Tom Wheelwright bought a great timeshare, he says. Tom says that the ‘why’ is important. He loves the timeshare he bought, and the location, just north of Kona on the big island of Hawaii. The property is managed by Hilton, which he believes is one of the best companies he’s ever worked with, from a customer standpoint. He also likes that owning a timeshare is a forced vacation, at least for him.

Tom doesn’t often use the timeshares that he has access to outside of his home property. While he can utilize the membership for other locations, even Hilton Hotels, he says he primarily takes those ‘forced’ vacations at the Hawaii property he has ownership in.

Tom says that he loves it; “I’m in timeshare bliss, for sure.”

What exactly IS a timeshare?

Henri defines a timeshare and what it offers as the right to be able to use a resort for a certain period of time. Most timeshares are on a week schedule, so you will buy a timeshare for a particular week, out of a given year. You pay one time for the use of that week forever. You also pay maintenance fees, which the resort uses to keep the property up and well kept. Those fees do not subside. Your choice comes down to weighing the cost of the one time purchase fee, against the ongoing maintenance fees.

For some, like Tom Wheelwright, who bought the right to use that Hilton as his home resort, they’ll have access to those points accumulated at other Hilton properties. Those points can also be exchanged through other companies like RCI or Interval International, giving him up to 5,000 more resorts to choose from.

If used correctly, Henri says, there is massive flexibility with timeshares and the ability to be able to travel all over the world. Hilton is a good property because it has some of the highest trading power. This means someone with timeshare ownership in a Hilton property is able to give away his Hilton time for other high end or like resorts all over the world.

Tom Wheelwright says his cost basis is practically nothing; he paid around $35,000 for two weeks timeshare at the Hilton resort in Hawaii, which would be two to three times more than that today. His maintenance fees, he says, are about $200 a night.

“So basically the purchase price pays down the annual.” He also says that if you can’t use your week or two weeks timeshare in a given year, you can give it away.

How do taxes affect timeshares?

Tom says it depends on if it’s a fee simple ownership or just a membership. For a fee simple, you get to deduct your real estate taxes because you own the real estate. If it’s a membership, you do not get to deduct the taxes. If it’s for business, then it’s deductible in both situations. “Just make sure you are using it for business,” Tom says. “Then it’s deductible.”

Pitfalls of Timeshares

As an example, Henri shared some details of a client who found herself on the bad side of owning a timeshare. “She made the cardinal mistake,” he says. It’s the biggest pitfall and the worst thing you can do when buying a timeshare. “She bought her timeshare brand new from the developer. When you buy a timeshare from a developer, it’s worth 90-95% less INSTANTLY. “Immediately,” Henri reiterates.

You can go into these sales pitch seminars from developers and walk out in massive debt. The only alternatives are to keep paying for them, or take a massive hit on your credit and let it foreclose, Henri says. And if you didn’t have it set up as an investment property, and are just using it as personal property, you won’t get any tax benefits out of it either, now or at the time of selling.

The typical interest rate on a timeshare loan is 15%. Most banks, however, won’t finance a timeshare, because if someone doesn’t pay that timeshare bill, the bank doesn’t get the interest payments for it. The timeshare company does. And they’ll finance it at a really high rate.

Fee simple ownership and memberships vary for companies. For example, Henri tells us that places like Marriott and Hilton offer fee simple ownership which gives you a deed to your property. Places like Diamond, Work Mark, Wyndham are basically just a membership; you are buying the right to use points forever. You pay for this timeshare until you stop paying the maintenance fees.

Another big pitfall is the maintenance fees. The average maintenance fee is about $1,000 per year for a normal timeshare. Some are more. What you are hoping for is that the use that you get out of the property is more than what it would cost to rent it.

Airbnb has helped and harmed timeshares. For some, being able to rent their unit out as an airbnb if they can’t use it for the week (or weeks) they’ve got in a given year, can be helpful. Some people can make more money on airbnb with their unit than their maintenance fees cost. For example, if someone had four weeks timeshare, they could, in certain instances and locales, rent out two weeks on Airbnb, paying for or earning more than their maintenance fees and still have two weeks to use the property themselves.

On the downside, of course, Airbnb is a convenient alternative to travel and is competition to the timeshare business.

Henri buys and sells timeshares. If someone is in trouble and needs to get out of their timeshare, Henri buys it and resells it. Henri’s company specializes in a timeshare called World Mark by Wyndham. It’s a point based system. Henri offers to buy their timeshare and pay them within 120 days. Henri pays the maintenance fees and tries to sell it fast. Usually he sells it to someone who has seen a presentation that offered the same timeshare at $50,000 and Henri offers it to them for $5,000. Everyone, he says, wins.

Golden rule: Never buy a timeshare from a slick presenter for retail. Only buy resell. --Henri Moreau

As for additional tax advice for anyone considering a timeshare, Tom says that owning a timeshare under your business or limited liability company is key. There is asset protection when you do that, for one thing, and if you are using it for business, it’s easier to show it was used for business rather than being reimbursed for it when or if you use it for business purposes. It’s harder to prove it was used for business, otherwise.

As far as the slick presentations go, Henri reminds us that most people get roped in by the freebies they offer to sit for the presentation. Kim shares that when she has asked about finances and expenses, the presenters were not always upfront and usually tell you they’ll get back to you.

Most states, Henri says, will give you 7-10 days to get out of it. You have to send written notice and this is stated somewhere very obscure on the contract. If you do send the written notice, do so with a return receipt requested and certified, so that the timeshare company cannot say they didn’t receive it.

Ask yourself the right questions such as “20 years from now, do I still see myself using this timeshare?” This is not a short term purchase.

Thoughts on selling a timeshare

Henri says that timeshares have the worst reputation for scams of almost any industry, worldwide. One of the biggest scams on the selling side is when someone contacts you out of the blue. That is a red flag. The second thing is do not EVER send money upfront to a company or marketing agency to get out of your timeshare. Once you send that money as the seller, you will never see it again, he says.

A timeshare broker should only get paid once they perform (or sell/market) your timeshare. Doing your homework on something like purchasing or selling a timeshare is critical.

You can find Henri Moreau at www.WIMcredits.net for more information.