New Page

Wednesday, October 21, 2009 - The Dangers of Buying a Foreign-based Timeshare or Vacation Home - by Kelly Grant, REALTOR

With devastated foreign economies edging towards a potential freefall, many Albertans with disposable income are contemplating the possibility of scooping up timeshares or vacation homes at reduced rates. Before you embark on this risky venture, below are ten important concepts to understand before buying a foreign-based timeshare or vacation home: 

(1). When buying in any foreign land, Buyers are advised to first be pre-qualified by a locally-based mortgage broker experienced with the lending and taxation laws for that country. Being pre-approved for $X00,000 in Canada may or may not have any correlation whatsoever with what you can buy in a particular foreign country. Also, Buyers should consult the advice and representation of a locally-based REALTOR® who has impeccable qualifications, testimonials, is reputable, is knowledgeable, and is experienced with the area(s) being considered. The same diligence should be used when selecting a foreign-based inspector and real estate lawyer. 

(2). Note that many foreign-based housing markets have not reached their lowest points yet and many financial experts are predicting there will be at least two more large waves of foreclosures once a large number of interest rates are ‘reset’. If this transpires as predicted, housing prices in many foreign-based countries could fall to unprecedented levels far lower than today. This is different from the Canadian housing market that is built on much more solid financial lending principles by the banks that will go a large way to protect the Canadian market from the same level of devastating effects experienced in many other foreign countries. Note over the past several months the international community has commended the Canadian banking system as a model other countries should follow to avoid future lending calamities. 

(3). Owning a vacant property long-distance is risky. If you leave a timeshare or vacation home vacant for extended periods of time, there could be a sudden plumbing leak or flooding; mechanical or electrical equipment catching on fire; rodent, insect, or animal infestation; etc. Plus, your insurance company may require someone to check on the property every couple of days along with written notification the property is vacant in case of an unforeseen event requiring an insurance claim. Trimming the plants, mowing the lawn, or even shoveling snow must also be arranged and paid for in advance to ensure peace with the neighbors and compliance with local and municipal property-owning regulations. Other risks include fire arson damage, vandalism, or criminals who attempt to be a 'squatter' or else take on the identity of an owner before breaking in and renting out a vacant property to a trusting and unsuspecting renter who later must be evicted. It could also be more dangerous for families to take holidays in areas with sharp increases in crime. Also, with weather patterns changing, the risk of natural wildfires, earthquakes, hurricanes, or flooding could become future high-risk sources of property damage. 

(4). Many foreign-based counties, municipalities, and states have governments that in the past made bad investment decisions that may include but not be limited to large stockpiles of stocks containing financial derivatives and commercially-based credit default swaps often combined with bad management practices of spending more than they can afford (i.e. going into debt to pay for government services with higher and higher interest payments). As a result, many of these governments are now in financial peril or edging towards bankruptcy being unable to pay back money it has borrowed and lenders in the future refusing to lend them more money until what they owed has been paid. Owning a property within these foreign-based boundaries of a bankrupt government could mean a huge unprecedented spike in property taxes over the next two to five to ten years combined with some level of reduced government services including but not limited to water / sewer; roadways; police; fire; hospitals; and other government services. 

(5). With owning timeshares, by definition you only own a property for a certain part of a calendar year (e.g. two weeks or one month a year). In most cases, you may not know all of the other timeshare owners and whom they or their sub-renters have invited into the house. Plus, it is common for timeshare owners to spend the first few days of their vacation cleaning up the property that was not left to acceptable standards by the previous vacationer owner. Some people think they can mitigate this risk by buying as a group of family members or friends. Even this idea is not bulletproof because in a few years one or more group members could enter into financial hardship and end up having to sell for top dollar to someone outside of the group. These concepts are unsettling for many people who soon rule out the idea of timeshares. 

(6). When you own a timeshare or vacation home, you feel a tremendous amount of internal pressure to vacation there in efforts to get your money’s worth. While this may not seem like much of an issue for the first few years, imagine the possibility that after 5 or 10 years you and your family become bored with the place and would like to try and vacation elsewhere however the internal pressure to get your money’s worth still persists for as long as you own the property. 

(7). Global instability is increasing, and as a result more restrictions and cost are being placed on travelers flying between countries over borders. If the cost of flying suddenly double or triples or becomes too cumbersome to the point that you do not want to fly anymore, will the allure of the vacation home or the timeshare become obsolete to the point that it would hardly be used? Another problem with instabilty is that some foreign governments that place less value on individual rights and freedoms may try to expropriate property for any number of reasons, and so owning property in these areas of the world could be a bad investment if you cannot control or defend your property.

(8). As a result of the global economy hardships, the tourist industry is now in decline, and many good hotels and resorts in other countries are offering attractive travel packages for tourists. It is important to weigh the hotel option vs. timeshare or vacation home option since taking vacations and staying in hotels means you weigh the extra cost against the benefit of not being ‘locked down to one location’ and retain the freedom on future vacations to visit different locations; visit the same location; and / or you can decide not to take a vacation without any financial guilt. 

(9). If the timeshare or vacation home is part of a condo complex, there is the added cost, time, and effort of reviewing meeting minutes; reviewing financial statements; paying condo fees; etc. for each property you own. Plus, if there is mismanagement by the Condo Board or Property Manager these may be too difficult for a long-distance owner to easily notice and respond to. 

(10). Resale – this may be the most important factor to consider unless you are intending to move to your vacation home permanently upon retirement. If the foreign-based economy you are buying a property in is in decline, how liquid is your asset (i.e. how easily will it be for you to sell two or five years from now if you really need the money?) Will there be anyone who would want to buy it or is supply expected to heavily outweigh demand in the area at a given price point? Will the market of the foreign economy continue to spiral to the point that owners will dump properties at outrageously low prices just to avoid paying insurance and property taxes? If this event has a good chance of transpiring it may not be a good deal to buy at any price.

In summary, a vacation home or timeshare may sound like an exciting idea, however Buyers must carefully understand and mitigate the ten groups of risks described above in efforts to (a). avoid unexpected catastrophic results and (b). make good decisions leading to successful investments. 

[Article written and ©2009 by Kelly Grant, M.Eng., ABR, NCSO, P.Eng. - REALTOR® at Maxwell Devonshire Realty in Edmonton, AB]

Disclaimer: for those readers not currently represented by another licensed REALTOR®, to obtain more information on this topic and / or if you are serious about selling or buying in the Greater Edmonton Area, call Kelly at 780-414-6100 (pager) or send Kelly an email to to schedule a confidential appointment.

posted in General at Wed, 21 Oct 2009 15:57:44 -0600

New Page