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Old 09-15-2012, 11:06 AM   #1
blueferral
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Buy a contract to pay dues?

I know we are not allowed to make a profit by renting out out points. However, could I buy a contract and rent those points to cover the cost of its dues as well as the dues of my primary contract. I guess what I am asking is would Disney base the "no profit" across all points or each individual contract?
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Old 09-15-2012, 11:10 AM   #2
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What is not allowed is whatever Disney defines as commercial renting. If Disney identifies you as what they consider to be a commercial renter, that is what is not allowed.
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Old 09-15-2012, 11:33 AM   #3
OrangeCountyCommuter
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Would it not make more sense to put your money in something that is an investment? This just strikes me as bizarre.

"gee honey I invested 15k to pay our dues...and just think in 10 years this will be worth 5k". Hmmm.
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Old 09-15-2012, 11:41 AM   #4
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Quote:
Originally Posted by OrangeCountyCommuter
Would it not make more sense to put your money in something that is an investment? This just strikes me as bizarre.

"gee honey I invested 15k to pay our dues...and just think in 10 years this will be worth 5k". Hmmm.
It would be a mistake, IMHO, to look at DVC as"an investment". It is not a REIT, or real estate. It is a deeded lease and "prepaid vacation lodging".
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Old 09-15-2012, 12:04 PM   #5
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We have plenty of money in real estate. I manage our 7 rental houses.

I was thinking more along the lines of buying smaller contract at AKL in the secondary market. My family typically uses 160 points a year. We have 220 points. dues of 1195.7

add 100 points increases dues by 543.56

total is now 1739.26 (2012 dues AKL)

I actually use about 160 points a year. This would leave 160 points for rentals each year. If Dave rents them I get 1600.00. My dues are now 139.26 a year. I am aware that this will go up.

Assuming rental prices rise at or equal to dues (big assumption, I know)...

Buy AKL resale for $60 per point. 6k investment plus closing costs. No longer having to really pay dues, or a trivial amount anyway. As well as having a larger pool if I do want to take a longer vacation or more frequent vacation.

My main concern is Disney saying sorry your renting half of your points each year. You're not allowed to do that.
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Old 09-15-2012, 03:34 PM   #6
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Quote:
Originally Posted by blueferral View Post
...My main concern is Disney saying sorry your renting half of your points each year. You're not allowed to do that.
Again, it's up to DVC whether or not they consider you a commercial renter. Just buy the points you really want to use.

Rental prices will probably not rise similarly to dues. They've been stuck at $10 a point for the last 15 years. Plus there is a lot of competition in points renting.
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Old 09-15-2012, 05:08 PM   #7
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I totally agree with your thinking. Last year I make my first DVC purchase of 250 SSR resale @ $53 a point. I'm currently in ROFR for another 190 point contract @ $50 a point. The contract is loaded and I'm getting 380 points which I will rent to lower my overall cost to $30 a point net purchase. I am going to rent the 190 each year at $11 which will cover MF for both contracts. This means on a $5700 net initial investment I will be returning almost $2100 annually.... Thats over a 35% return on investment, not bad!!!!! and no more annual dues paid out of pocket.
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Old 09-15-2012, 09:48 PM   #8
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Originally Posted by htmlkid View Post
I totally agree with your thinking. Last year I make my first DVC purchase of 250 SSR resale @ $53 a point. I'm currently in ROFR for another 190 point contract @ $50 a point. The contract is loaded and I'm getting 380 points which I will rent to lower my overall cost to $30 a point net purchase. I am going to rent the 190 each year at $11 which will cover MF for both contracts. This means on a $5700 net initial investment I will be returning almost $2100 annually.... Thats over a 35% return on investment, not bad!!!!! and no more annual dues paid out of pocket.
You should mean...almost $2100 annually, less the $899 annual dues on 190 SSR points, for a present annual net of $1200. Still a nice 21% theoretical return on your $5700 net initial investment.
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Old 09-16-2012, 02:09 PM   #9
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If you consider the ROI of the prospect, even at resale prices, you'll find that the return just isn't very good. In your example, you'd be getting $4.56 free cash flow per point, which is an ROI of 7.6%. That ignores the fact that rental income (minus expenses) is taxed at ordinary rates. More importantly, it ignores the depreciation of the points, which will start cutting into your rate of return even more substantially. Finally, rental rates have remained fairly stubbornly consistent over the years, but dues are only going up.

If you want to be a timeshare landlord, there are other options that will require much less of your capital to get started.
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Old 09-16-2012, 04:53 PM   #10
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I'm not sure how your coming to your numbers. I purchase SSR at a net of $30 per point, i rent for $11 per point and my maintenance fees of $4.73.

I net $6.27 per point a return of approximately 21%. Even if I was to pay federal taxes of 20% on that. Thats a profit of 16.8% after tax.... I don't know of any investments that can net that type of return.

Even if SSR dropped to $40 per point and I sold... after my annual return I would also see a $10 per point profit cause I was in at $30.



P.S. I did not purchase my additional points to make a profit, I did it cause I need more points for family vacations. Yes, I'm going to rent the initial points I get to lower my overall cost to $30 but after that, I do plan to use the points for family vacations. Its just nice to think I could make a profit on it if I wanted to.
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Old 09-16-2012, 05:15 PM   #11
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Quote:
Originally Posted by htmlkid
I'm not sure how your coming to your numbers. I purchase SSR at a net of $30 per point, i rent for $11 per point and my maintenance fees of $4.73.

I net $6.27 per point a return of approximately 21%. Even if I was to pay federal taxes of 20% on that. Thats a profit of 16.8% after tax.... I don't know of any investments that can net that type of return.

Even if SSR dropped to $40 per point and I sold... after my annual return I would also see a $10 per point profit cause I was in at $30.



P.S. I did not purchase my additional points to make a profit, I did it cause I need more points for family vacations. Yes, I'm going to rent the initial points I get to lower my overall cost to $30 but after that, I do plan to use the points for family vacations. Its just nice to think I could make a profit on it if I wanted to.
I think the points being made are that you are ignoring inflation on dues and depreciation on your "net of $ 30 per point". In the short term your numbers jive, but over time your points depreciate to zero value (and likely not on a straight line) and your dues will go up while rental rates will likely remain where they have for the last 10 years. Assuming you can always rent them out at $11, you are still doing well.
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Old 09-16-2012, 07:01 PM   #12
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Renting isn't for everyone, it does take some work and a business sense. There can be legal issues and problems with the renter just like there can be owners who rent and don't know what they are doing.

I expect that we will see a rule change about renting in the future.

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Old 09-16-2012, 08:03 PM   #13
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Also realize that you'd probably invest that money elsewhere (not keep it "in the mattress," as it were) if you didn't use it to buy a contract, so the gain you'd make on that other investment should be deducted from any gain you think you're going to make from this DVC "investment."
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Old 09-16-2012, 08:41 PM   #14
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Quote:
I'm not sure how your coming to your numbers.
I was responding to the OP, not you. The OP's deal was:

Buy AKL resale for $60 per point.
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Old 09-17-2012, 08:37 AM   #15
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Brian,
there have been a few sales that have gone through at 60 per point for AKL. Not many and usually with more than the 100 points I'm looking for. So, if I jump on it around 65.00 per point is more reasonable.

As to the initial investment. Would I be investing that in something else. Probably not. I'd be dropping it on a Disney cruise or an Adventures by Disney. So, a long term vacation possibility or a one time adventure or two cruises.

The dues I am not paying will pay down the capital investment in 4 to 5 years. I think that rentals in the $10 per point will pay that off even with increases in dues. After that its a wash. I'll either use them or rent them because my personal expenses should be less.
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