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View Full Version : Is DVC considered an Asset or a Liability for future real estate purchases?


princessaloha
04-07-2012, 04:38 PM
Unable to locate an answer to this one. I understand that DVC are deeded pieces of real estate but with the deed having an actual end date and the market value dropping as soon as you sign on the dotted line (direct sale) does this put DVC in the Liability section when you go to purchase other real estate instead of an Asset?.

We are planning to purchase a few more real estate properties in the next few years and wonder if this will negatively impact our purchasing/credit power?

Does anyone know where we can read up on this? Thank you in advance!

WebmasterDoc
04-07-2012, 06:21 PM
Regardless, a DVC property would be an asset since it will always have some value.

We purchased several contracts between 1993 and 1999 and can still sell them for more than we paid - although not as much as we could have a few years ago. In tracking our usage over the years, we "broke even" within about 6 years and they don't owe us anything at this point approaching 20 years. At this time we are able to enjoy our DVC stays for only the cost of our annual maintenance fees and can still sell for what we paid - recouping our original cost.

In any event, a deeded property will always be an asset and not a liability - unless you are upside down with a mortgage where you owe more than you could get from selling. That was never an issue with any of our purchases.

My understanding is that DVC does not report it's mortgages to the credit agencies, so ownership will not affect your credit rating.

CarolMN
04-08-2012, 08:03 AM
DVC is a deeded interest in an expiring RTU (Right To Use) lease. Perhaps you could list it as such.

mjc2003
04-08-2012, 11:11 AM
We are in the process of going through a mortgage right now, for a new home purchase, and nothing showed up on the credit report. It was neither a liability nor an asset, it simply wasn't there. Hope that helps.

JimMIA
04-08-2012, 11:49 AM
Your DVC contract, as Doc said, is an asset. The value of that asset should be listed at whatever you could reasonably resell the contract for, less any selling expenses (broker's commission, etc). If you purchased direct, depending on what you bought and when, the resale value could be less than half of what you paid. Frankly, however, I would think most lenders would consider ANY timeshare as zero value.

If you financed your DVC, the balance due on the loan should be listed as a liability, and your payment would factor into your borrowing power.

Unless you own a zillion points or have a huge mortgage, I doubt if your DVC would really affect your purchasing ability one way or the other.

dclfun
04-08-2012, 01:27 PM
We are in the process of going through a mortgage right now, for a new home purchase, and nothing showed up on the credit report. It was neither a liability nor an asset, it simply wasn't there. Hope that helps.

THIS! My guide told me that it's neither and that it would never show up when making other purchases. If you default, nothing dings your credit report, if you pay on time every month ( and you buy with payments required), it doesn't help your credit either. As the pp said, the purchase simply isn't there. We are buying a home now and DVC isn't on our credit report.

princessaloha
04-08-2012, 02:15 PM
Mahalo nui loa everyone (WebmasterDoc, CarolMN, mjc2003, jimMIA, dclfun)! We got our answer. In terms of another real estate purchase, DVC is neither an Asset nor a Liability because neither the initial purchase nor the MFs appear on any credit reports.

Could this be a real world example of actual Pixie dust magic?!!! :wizard::rotfl:

JimMIA
04-08-2012, 04:54 PM
In terms of another real estate purchase, DVC is neither an Asset nor a Liability because neither the initial purchase nor the MF’s appear on any credit reports.I'm not sure where you got that answer, but I'm quite sure neither an accountant nor an attorney gave it to you.

Anything of value is an asset in the legal or accounting sense. Anything you owe is a liability...whether or not it's detailed in your credit report.

When people talk about something "not counting because it doesn't show on your credit report" what they really mean is "you can hide this liability in order to make your creditworthiness appear better than it really is." They're talking about credit score, not assets and liabilities.

As a practical matter, I don't think DVC ownership matters one way or the other. The resale value is too small to materially affect the asset side of your financial statement, and any loan you might have is probably less than a car loan and wouldn't have any effect.

However, if you have a loan and you "forget" to disclose it on a mortgage application, the lender could find out about it and decline your application based on the fact that you weren't forthcoming (to be nice:rolleyes:) in the information you submitted.

You didn't mention whether you have a loan on your DVC or not, but if you do I would go ahead and disclose that.

JimMIA
04-08-2012, 04:55 PM
Could this be a real world example of actual Pixie dust magic?!!! :wizard::rotfl:No. Like all magic, this is illusion.

Lynne M
04-08-2012, 05:52 PM
Mahalo nui loa everyone (WebmasterDoc, CarolMN, mjc2003, jimMIA, dclfun)! We got our answer. In terms of another real estate purchase, DVC is neither an Asset nor a Liability because neither the initial purchase nor the MFs appear on any credit reports.

Could this be a real world example of actual Pixie dust magic?!!! :wizard::rotfl:

Forgive me, but hoo, boy, that was some bad advice you got.

A DVC loan may not appear on the credit report, but that doesn't mean you're going to be able to hide a DVC loan from the bank. They will look at your bank statements. They will look at your tax returns. If they see a loan payment coming out of your bank account, or mortgage interest deducted on your taxes, that you didn't report as a liability....you're sunk. They'll reject you right there.

princessaloha
04-08-2012, 07:55 PM
I'm not sure where you got that answer, but I'm quite sure neither an accountant nor an attorney gave it to you.

Anything of value is an asset in the legal or accounting sense. Anything you owe is a liability...whether or not it's detailed in your credit report.

When people talk about something "not counting because it doesn't show on your credit report" what they really mean is "you can hide this liability in order to make your creditworthiness appear better than it really is." They're talking about credit score, not assets and liabilities.

As a practical matter, I don't think DVC ownership matters one way or the other. The resale value is too small to materially affect the asset side of your financial statement, and any loan you might have is probably less than a car loan and wouldn't have any effect.

However, if you have a loan and you "forget" to disclose it on a mortgage application, the lender could find out about it and decline your application based on the fact that you weren't forthcoming (to be nice:rolleyes:) in the information you submitted.

You didn't mention whether you have a loan on your DVC or not, but if you do I would go ahead and disclose that.

We would not take out a loan for any DVC purchase. Cash payment in full only. Would list the MF under "other expenses" when applying for other loans as we believe in full disclosure. We are of the mind that if the bank says you can't afford the loan with all your accurate information then it's probably a good thing not to get that loan. DVC's are a bit different than other real estate (ie. end date, the deed for all intent and purposes is for use of property and not actual physical location). So I wanted to know if it would or could negatively impact future purchasing power prior to us jumping in.

I will continue to research this. Will report back if I get a definitive answer.

ETA: Will call our loan officer (and tax consultant for tax purposes/questions regarding DVC while I'm at it) this week, which is probably what I should have done in the first place. Sorry if I caused confusion with this one.

dclfun
04-09-2012, 04:02 PM
I trust my DVC guide. I was hoping that all my on-time payments would help my credit but no....it does NOT show up anywhere so no help, no hurt. I would consider my DVC though as an asset as it's worth more now than what I paid but I can't count it as such.

princessaloha
04-18-2012, 04:38 PM
Aloha :wave2:, I promised to update once I spoke with our loan officer so here it goes.

According to our loan officer (I'm summarizing in my own words): In regards to future home loan applications (ONLY): In most cases, ALL timeshares are considered both Assets and Liabilities.

An asset because (or more accurately IF) it has a resale value (the resale value would need to be determined on an individual bases according to things such as type of timeshare, etc. Your loan officer would make that determination at the time of application).

A Liability because of the MF (debt to income ratio) and/or any outside financing obligations(loans) (if you have one). ETA: even if Disney does not report, it's a good idea to disclose to your bank when applying for any other loan to make sure you don't put yourself in a bad financial situation with your debt to income ratio.

However, she stated that whether it would need to be included in any loan application would need to be determined by the loan officer at the time of application (in most cases it would be); therefore the best thing to do is to discuss it (full disclosure) with your loan officer prior to filling out the application and let your loan officer guide you in how best to proceed.

Again, thank you everyone :grouphug:

OrangeCountyCommuter
04-18-2012, 05:21 PM
Your DVC contract, as Doc said, is an asset. The value of that asset should be listed at whatever you could reasonably resell the contract for, less any selling expenses (broker's commission, etc). If you purchased direct, depending on what you bought and when, the resale value could be less than half of what you paid. Frankly, however, I would think most lenders would consider ANY timeshare as zero value.

If you financed your DVC, the balance due on the loan should be listed as a liability, and your payment would factor into your borrowing power.

Unless you own a zillion points or have a huge mortgage, I doubt if your DVC would really affect your purchasing ability one way or the other.

Well,

It might not NET to asset.

If you owe money on your DVC it could be a net liablity.

Let's say you bought direct from Disney a year ago at $100 Plus a point and paid 10% down. Between that and your payments let's "guess" you still owe $85 on the points. See much selling for that?

Just like my home I paid 50K more for it then I could sell it for. Now it's not a liablity, but it's not actually much of an asset right now either (I think it nets to about $5K as an asset LOL!)

And there are a lot of DVC owners right now in a net liablity position!