Discussion in 'Purchasing DVC' started by theguda, Apr 8, 2013.
Hahaha. I'm sure that was the case.
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I recently purchased a resale of 190 points of SSR at $50 net for $9500 out of pocket. It came with 190 banked and 190 current use year. I rented the 190 banked for $2200 which now dropped my cost from $9500 to $7300. In June I'm staying 9 days at Aulani in a 1 Br which has a cash value of $12500. So in essence I have not only recouped my initial investment but I'm up $5200 in less then 5 months.
Just my 2 cents
I don't think the originator of this thread is thinking of using DVC as a pure investment. I think he just used "the I word", and that almost always provokes the response we've seen here.
If the OP is proposing to over-buy beyond what they would use for personal vacations, and rent the "extra" out routinely, those "extra" points are absolutely an investment.
My point is that there are much better investments out there---even just limiting yourself to the timeshare rental market.
In my opinion this is a weak comparison unless you were actually planning on spending $12,500 for that room. Quite frankly, I don't know why you would as you could rent points from an owner and get that same room for about $4,000.
Have you read the thread? In no less than three separate posts the OP stated that it was indeed an investment.
There is no way you are going to get a 1br pool view for 8 nights for $4000 cash. Maybe a studio but not a 750sq 1br
The OP has more self control than me. I never have 'extra' points; in fact, we are always borrowing the points from the year ahead. But, thank goodness, this isn't how we spend our money or we would have debt!
Just for interest sake, I ran a fairly basic example through a spreadsheet to see how owing DVC and renting out points compared to a investment.
Here's my assumption that I used.
Point Bought = 100
$/Point = $60/point
Initial DVC Purchase Costs = $6,000
Initial Investment Amount = $6,000
MF = $4.80 (assume using SSR)
Annual MF Increase 3.5%
Tax Rate = 30% (this is on both the rental income and investment income)
Investment Return = 6% (I used this as it is my actual return on my investments since 1999)
Rental Rate = $11/point and increase by $1 every 4-5 years based on MF
I then ran these number for 10 years and 20 years and the results were.
Investing 10 years:
Total after tax earning = $3,054
Initial Investment = $6,000
Total Value after 10 years = $9,054
Renting after 10 years:
Total Rental Income after MF = $4,248
Value of DVC = ?
Total Value after 10 years = $4,248 + DVC resale value
For them to come out equal, the DVC needs to be worth $4,805 or 80% of it's original purchase prices after paying for realtors commisson.
Investing 20 years:
Total after tax earning = $7,662
Initial Investment = $6,000
Total Value after 10 years = $13,662
Renting after 20 years:
Total Rental Income after MF = $8,488
Value of DVC = ?
Total Value after 10 years = $8,488 + DVC resale value
For them to come out equal, the DVC needs to be worth $5,174 or 86% of it's original purchase prices after paying for realtors commisson.
Given the assumptions, it certainly looks like renting DVC points is not a good investment.
Playing around with the numbers can come up with all kinds of wonderful results.
For example, If on the other hand your investments only earn 2.5%, then after 10 years your DVC would only have to be worth 50% and after 20 years your DVC could be worth nothing.
On the other hand earning 6% and paying no taxes on either option, the DVC contract would have to be worth 78% after 10 years and 119% after 20 years.
For myself investing I'd rather just buy a nice dividend paying Canadian bank or dividend ETF.
Yes, I understood you the first time. And again I ask, have you read the thread?
Yes. Actually I've probably read dozens of threads on this topic and they play out in a similar fashion. I am a little disappointed that nobody has dropped by to helpfully point out that DVC specifically indicates that it shouldn't be viewed as an investment. Maybe I missed it, or just need to wait a few more pages...
Anyway, what did you mean by including the modifying term "pure" before "investment" in the post that I quoted, and then responded to using the same term? I noticed that you dropped it in the post when you asked me if I had read the thread. Was it just a typo, or was it there for a reason?
Anyway, I agree that if you are comparing different investments you should take into account the expected return of the alternative. But as far as determining when you expect to receive rental income equal to the initial purchase price I probably wouldn't do that.
You absolutely can if you rent points from a DVC owner and book a stay that way. Here's the breakdown for a 8 night stay in a 1BR unit at Aulani for June 1-23 this year:
Standard View: 296 points
Island View: 352 points
Pool View: 368 points
Ocean View: 400 points
So assuming a rental rate of $11 per point (very doable) the costs for the week are:
Standard View: $3,256
Island View: $3,872
Pool View: $4,048
Ocean View: $4,400
As you can see, this is significantly less than the $12,500 figure that the poster used to analyze their benefit from DVC. If they would have actually paid that much then it is a valid comparison. But my point is that given how easy it is to pay significantly less, to pay $12,500 for that stay is insane.
I've never had much use for "break even" analysis where DVC is concerned (or any other timeshare purchase). To me DVC is a way of pre-paying some vacation costs for those people who will only be happy staying in moderate or better accommodations onsite at WDW.
Whenever I see one of these threads, I always find a bunch of comments from people who bent assumptions and monkeyed with the costs/benefits to come up with a financial rationalization for what they wanted to do in the first place.
To me, a much more important analysis would be the following:
How much is this going to cost?
What are the benefits?
Can I afford it?
Do the benefits warrant the expenditure?
If the answers to those questions are positive, I'm in. If not, I'm out.
If I have to construct a financial rationalization to purchase, I'm out.
You correctly point out one of the dangers of a breakeven (or any) analysis, which is trying to fit the inputs to arrive at the desired answer. But that doesn't mean it is a bad analytical tool, only that it needs to be used properly. It is really just a quantitative version of some of your questions. Those, too, could be fudged to arrive at the desired response.
This sounds great until you actual try to rent these points and realize how frustrating it is to get what you want. I personally has a hard time renting Aulani from Dave's and realized I wanted to control the fate of my own reservations.
I think you need to be careful not to lump everyone who has performed an analysis of the options into one group of people who have "bent assumptions and monkeyed with the costs/benefits". The fact of the matter is that you have options other than purchasing DVC to stay at Disney. Whether it be paying cash for Moderate resorts, renting points, buying direct or buying resale. I think it's important to weigh those options against each other when deciding which one to choose.
While I agree with you about the "break even" analysis that involves renting every single point until you have achieved a return of principal, I think there is a more useful analysis to determine the crossover point between purchasing and some of the other options.
I may be in the minority, but after receiving the information packet from my salesperson I had made the decision that I wanted to buy. It wasn't until I did the financial analysis that I realized that buying direct was not a viable option. The numbers actually talked me out of a purchase, and not into one. So honest analysis does happen. How else would you answer your question "do the benefits warrant the expenditure?"
The POS wording you refer to isn't a restriction but a statement of expectations. They're basically saying you're foolish if you buy it as an investment, not that you can't. This is wording required by FL statute based on the timeshare legacy of selling touting resale and rental profits.
I think you're leaving out 2 issues, one is risk (lots, several types) and the other that your assumptions that the spread will remain proportional is overly optimistic.
And that's how it should be viewed. If you have a history of paying extra to stay on property and plan to cont that trend long term DVC MIGHT save you money on paper. In reality I think it rarely does because many just spend the money elsewhere but I guess that's another thread.
I wasn't talking about anyone in particular. I don't bother to read any of these "analyses" anymore, and I haven't read any of the scenarios in this thread for more than a few seconds. My eyes glaze over.
My initial reaction to DVC was similar to yours. I took the tour alone, and immediately decided I wanted to buy. Fortunately for my family, I didn't -- instead deciding to go home and research.
A random Google search led me to the DIS, and the info I gained here led me to make my first purchase resale. I later bought an add-on direct because of the numbers -- it actually WAS a better deal than buying resale (that was in 2005, I think). That's actually the only time I've looked seriously at the numbers for my own purchase.
I can crunch the numbers with the best of them. I can prove anything with numbers, but I didn't bother. It really was not important.
Interesting. I should have suspected that it was a statutory requirement.
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