The pros and cons of timeshares vs. vacation rentals

Not much can beat vacationing in a place that’s yours. The big question, though—if you want to own vacation property, should you invest in a vacation rental or a timeshare?

While both options have unique perks, both financial and real estate experts overwhelmingly agree you’re better off investing your money in a vacation rental. Two massive benefits vacation rentals offer investors that timeshares can’t:

1. Value appreciation
2. Rental income

Here, we’ll look at the differences, risks, and rewards associated with both options so you can make the best decision that meets your financial and travel goals.

What is the difference between a timeshare and vacation rental?

While timeshares and vacation rentals are both ways to “own” vacation property, their similarities end there. Let’s first define each.

A timeshare is a type of vacation property you can buy within a shared ownership model. Points-based timeshares are the most common option today. These owners will purchase a timeshare in the form of points, which can be used to book stays at the owner’s primary resort or exchanged for stays at other resorts within the timeshare company’s global portfolio. In addition to paying money upfront, you’ll also be required to pay annual dues in exchange for guaranteed time to vacation each year.

Vacation rentals (also known as short-term rentals) are residences that homeowners purchase either to use for their own travels, to rent out to other travelers, or both. Vacation homes can range from mountain cabins to beach houses, villas to condos. Many travelers prefer to book vacation rentals for the amenities (like a kitchen, washer and dryer, swimming pool, or hot tub) and for the space and privacy they offer.

Is a vacation rental a good investment?

More and more, vacation rentals are considered attractive investments. As with any investment, vacation homes have pluses and minuses. Let’s dissect them here.

Pros of owning a vacation rental

You can earn more revenue

The indisputable upside of owning a vacation home? The extra income. Homeowners renting on Airbnb make an average of $924 per month.¹ And that’s just one platform. If you list your home on other sites, such as Vrbo and Booking.com, you’ll have even more opportunities to fill your calendar and make more revenue.

Vacation rentals can appreciate in value

Real estate tends to increase in value over time. Vacation homes are no different and can be a smart way to lock in a healthy financial future. And, if you time it well, you can sell your property for a profit. Want to boost your appreciation? Invest in upgrades and amenities that draw in even more guests and rental income, such as a hot tub (which can help you earn 15–20% more).

You can stay in your vacation rental whenever you’d like

Romantic weekends, family getaways, a reunion with your college buddies—a vacation home is your destination to make new memories. You decide when you want to stay and when you want to rent it out to paying guests. (Vacasa makes it easy for you to book your own stays.)

The best way to balance making memories versus making money? Book your personal stays mid-week and off-season

You can enjoy tax benefits

Renting out your vacation home is a business, so you may be able to write off business-related expenses that you’ll incur maintaining and repairing the property. These include HOA fees, cleaning costs, and vacation rental management fees.

Cons of owning a vacation rental

You’ll likely have to pay taxes

All those tax write-offs we mentioned? They have a flipside. If you rent out your vacation rental for 14 or more days, you’ll have to pay taxes to the IRS based on the rental income.

You’ll have to pay a down payment upfront

Most vacation rental financing options require a down payment. Underwriters will look at your debt-to-income (or DTI) ratio. If you already have a mortgage, you’ll need to show enough of a financial cushion to borrow for a secondary residence.

You’ll need to maintain the property

Whether it’s mowing the lawn, cleaning the pool, or making sure appliances are in tip-top shape, vacation home ownership comes with a long list of chores. Of course, you can outsource these tasks by hiring professionals, including a full-service vacation rental property management company like Vacasa.

Is a timeshare a good investment?

Technically, timeshares are not considered investments since historically they neither appreciate in value nor offer owners a way to make money. But, they do have perks for the right type of traveler.

Pros of owning a timeshare

You don’t have to worry about maintenance

While you’re responsible for paying annual dues, which go toward maintaining timeshare properties, you don’t have to worry about personally tending to maintenance or repairs, or investing in improvements.

Timeshares are good for group travel

Timeshares are typically spacious, residential condos with multiple bedrooms, kitchens, and a washer and dryer. Plus, you’ll find most timeshare condos located within larger resort communities that come with hotel-like amenities like a pool, a gym, and dining options.

Timeshares nudge you to take a vacation

You prepay (or finance) a lump sum upfront when buying a timeshare (not including the annual maintenance fees). So you may be persuaded to take those PTO days, instead of wasting the money you’ve already paid.

You can buy a timeshare for less

The average purchase price to buy an annual one-week stay at a timeshare was $22,942,² though that figure doesn’t include annual dues or financing fees. Nor does it reflect the cheap resale market, where current owners are willing to offload their timeshare for next to nothing. If you purchase a secondhand timeshare, you have to take over their annual dues and any increases from then on.

Cons of owning a timeshare

Timeshares can be difficult to sell

Buyer's remorse is rampant in the timeshare industry. Many timeshare owners are heavily pressured to purchase by assertive salespeople, then are locked into a long-term commitment that’s difficult to get out of. If you do try to walk away and resell, you’ll often find there are too many other timeshares for sale and too few buyers. Furthermore, if you sell at a loss, you can’t claim a capital loss on your taxes as you could with other real estate investments.

You can’t stay whenever you’d like

Unlike a vacation rental, you have to request to use your timeshare points or property. And, since there are so many other timeshare owners to contend with, you may have to book many months or even a year in advance.

Maintenance fees can be expensive

The average annual maintenance fee for a timeshare is $1,000,³ with fees increasing every year at a rate faster than inflation. If the property undergoes any major improvement or renovation, your fees can go up as well. Even if you don’t use your timeshare, paying those fees is still your responsibility and failing to do so can impact your credit.

You’ve got to watch out for upselling

Some timeshare companies will tack on extra costs to stay at certain properties, during certain times of the year. While you may be promised “free vacations for life,” don’t be surprised if you’re asked to pay hundreds or thousands in fees just to book the dates and property you want.

After assessing timeshares and vacation rentals for their investment benefits, vacation homes are the clear winner. They offer several financial upsides that timeshares do not. Vacation homes have historically appreciated in value, allow you to make money, and can give you some tax benefits. In other words, vacation homes can make you money, while timeshares cost money.