Break even with renting out points.

[pretzelsnstuff]

Looking for a thread about break even costs when renting points. (Please tag if it exists already)

I see a variety of costs when people rent out their DVC points.

What is your break even?? At what price per point are you earning versus just recouping costs from contract and annual fees??

 

[CarolynFH]

Obviously, dues are the same for everyone for a given home resort. The difference comes in what you call “contract” cost, which I assume means buyin cost. We paid for our contracts many years ago, so for us anything more than dues would be profit. Many other people here would count the buyin cost averaged over the years on the contract when purchased, which for us would add $1.39 a point, but we wouldn’t count it.

 

[AnnaKristoff2013]

Your income tax bracket and state tax rate is going to effect this as well to some extent.

 

[Chuck S]

It will vary for almost each owner, depending upon resort dues, initial buy-in cost, and so forth. For me, as an early purchaser, and if you only figure current dues and amortized buy-in from $53.50 a point, I'd be in the neighborhood of $11 or so. For some owner, using just those two basic costs, you could be looking at about $18. It really varies depending upon the specifics.

 

[CraigInPA]

Your actual cost is the annual cost of the point (e.g., bought at $100pp for 50 years=$2pp per year) plus the current maintenance fees and taxes (which vary by resort) plus the time value of money (e.g., your $2pp bought 10 years ago at 5% annual interest is $1.26) plus the taxes you'll pay on the income. Of these, the great unknowable is the time value of money. A few years ago I invested in Amazon stock. During the pandemic, it went up 25% in one year. That makes the straight line 5% used in the example a poor one year figure. But, that same stock, if I still owned it, would be down almost 40% in the last year, which wiped out the 25% gain, so the time value of money would actually be a negative number.

 

[mistysue]

It will vary for almost each owner, depending upon resort dues, initial buy-in cost, and so forth. For me, as an early purchaser, and if you only figure current dues and amortized buy-in from $53.50 a point, I'd be in the neighborhood of $11 or so. For some owner, using just those two basic costs, you could be looking at about $18. It really varies depending upon the specifics.

Not sure anyone would be at $18 yet - I guess if someone was just buying in and really tried, they could get there with a high priced BCV or BWV contract at around $200/point. Or with paying around $120/point at VB... if someone's offering $200/point at BWV let me know. Buying Poly a few years ago and we're still under $10/point even at the crazy high costs in recent years.

 

[HyperspaceMountainPilot]

Not sure anyone would be at $18 yet - I guess if someone was just buying in and really tried, they could get there with a high priced BCV or BWV contract at around $200/point. Or with paying around $120/point at VB... if someone's offering $200/point at BWV let me know. Buying Poly a few years ago and we're still under $10/point even at the crazy high costs in recent years.

I was offered BCV for the low low price of $250/point on a DCL cruise in Jan.

I actually saw in my member account later that month that I could make a small purchase for $275 a month. No idea if anybody is actually paying those prices but YIKES!

 

[happythoughts & pixiedust]

I find it quite difficult to accurately figure "break even" or equivalent cost per point because there are so many unknowable assumptions that have to be made. The best I've done is a Present Value analysis that determines how much cash I'd need to 1) buy the contract and 2) have enough left over to fund the annual dues until the contract expires. To know this "present value" of the entire contract you need to assume a reasonable discount rate (what you'll earn on your money over time), and a reasonable inflation rate for DVC dues. Once you have this "present value" of your contract you can calculate how much of an inflating annual payment you could draw over the life of the contract (again assuming the same discount rate and inflation rates for your alternate accommodations/use for the payment besides using the money for DVC). If you want to get complicated you can assume a different inflation rate (argument being that DVC dues will inflate faster than a different hotel or whatever else you'd alternatively use your "present value" lump sum on.

The result of this calculation is your "inflating payment" that your DVC money could produce for you if you didn't buy your contract and fund your maintenance fees. The reason you have to calculate an inflating payment is that it provides for equal purchasing power over the life of the contract.

Assuming a 6.5% discount rate and 3.5% annual inflation (for dues and alternate accommodations), the blended average of my five contracts works out to be an equivalent of @12.88 per point.

This all assumes holding the contracts to expiration and the value of those contracts going to zero. However, the depreciation curve for DVC contracts has not been linear, and instead of declining in value they have increased in value despite many fewer years on the contracts. If you can sell your contract before expiration and recoup what you paid, or even more than what you paid for your initial buy-in, you will reduce the equivalent cost per point.

Break even also changes every year because dues go up and the value of the contract changes. So typically "break even" price per point increases each year. (though adjusted for inflation on a real basis remains fairly constant).

The most expensive resale contracts (BCV, VGC) have a break-even around $17-$18 depending on buy in price. The most economical resale contracts (VGF, CCV, PVB, SSR) could be as low as $11 depending on buy in price. There are also situations - like original buyers of VGC who sold last year for ~$300 pp - where they made money on the whole deal. They recouped their original purchase price plus all their dues and more. Their stays cost them nothing. When you add the value of their stays to their total return they did spectacularly well. On the other side of the coin there are people who bought direct (any resort) and sold very shortly thereafter, taking a $50+ per point loss.

For most people who buy resale of the non-2042 expiration resorts, their break even is probably around $13-$15 per point. So in order to make it worth the time and hassle of renting points they need to collect a premium - going rate seems to be around $17-18 a point right now. That's a 13-38% premium over "break even". I find historically the rental premium over "break even" averages around 25%. It's enough to make owning vs renting appealing on top of the added benefit of more control.

I've found over the past several years Disney cash rates equal out to around $35 pp, so the average "break even" per point rate for the resale buyer is saving them 60% off cash rates on average.

But that is where the real value is in your points - using them for stays that would have cost significantly more. The rental premium is only 25%. The cash rate premium is 150%! You get way more value for your points when you're using them rather than renting them out.

Renting is a nice fall back because you're almost guaranteed to cover the "cost" of your points, but you won't make enough to justify the time and hassle of regularly renting them out.

 

[Chuck S]

It will also depend upon what you actually mean by break even.

If you are referring to only covering the actual costs of the point the member offers for rent, or are you talking about breaking even on all the pints they own. For instance, many owners will have the goal of renting about 1/2 the points they own, and think asking for about double the dues on those points, so they can cover the dues on ALL of their points, as an owner, I think that is pretty fair, as the renter is still getting a discount from a cash reservation and the owner is breaking even on all the annual fees for their points. At some resorts, that would be asking nearly $20 per point, just to cover all of their dues.

 

[CarolynFH]

I find it quite difficult to accurately figure "break even" or equivalent cost per point because there are so many unknowable assumptions that have to be made. The best I've done is a Present Value analysis that determines how much cash I'd need to 1) buy the contract and 2) have enough left over to fund the annual dues until the contract expires. To know this "present value" of the entire contract you need to assume a reasonable discount rate (what you'll earn on your money over time), and a reasonable inflation rate for DVC dues. Once you have this "present value" of your contract you can calculate how much of an inflating annual payment you could draw over the life of the contract (again assuming the same discount rate and inflation rates for your alternate accommodations/use for the payment besides using the money for DVC). If you want to get complicated you can assume a different inflation rate (argument being that DVC dues will inflate faster than a different hotel or whatever else you'd alternatively use your "present value" lump sum on.

The result of this calculation is your "inflating payment" that your DVC money could produce for you if you didn't buy your contract and fund your maintenance fees. The reason you have to calculate an inflating payment is that it provides for equal purchasing power over the life of the contract.

Assuming a 6.5% discount rate and 3.5% annual inflation (for dues and alternate accommodations), the blended average of my five contracts works out to be an equivalent of @12.88 per point.

This all assumes holding the contracts to expiration and the value of those contracts going to zero. However, the depreciation curve for DVC contracts has not been linear, and instead of declining in value they have increased in value despite many fewer years on the contracts. If you can sell your contract before expiration and recoup what you paid, or even more than what you paid for your initial buy-in, you will reduce the equivalent cost per point.

Break even also changes every year because dues go up and the value of the contract changes. So typically "break even" price per point increases each year. (though adjusted for inflation on a real basis remains fairly constant).

The most expensive resale contracts (BCV, VGC) have a break-even around $17-$18 depending on buy in price. The most economical resale contracts (VGF, CCV, PVB, SSR) could be as low as $11 depending on buy in price. There are also situations - like original buyers of VGC who sold last year for ~$300 pp - where they made money on the whole deal. They recouped their original purchase price plus all their dues and more. Their stays cost them nothing. When you add the value of their stays to their total return they did spectacularly well. On the other side of the coin there are people who bought direct (any resort) and sold very shortly thereafter, taking a $50+ per point loss.

For most people who buy resale of the non-2042 expiration resorts, their break even is probably around $13-$15 per point. So in order to make it worth the time and hassle of renting points they need to collect a premium - going rate seems to be around $17-18 a point right now. That's a 13-38% premium over "break even". I find historically the rental premium over "break even" averages around 25%. It's enough to make owning vs renting appealing on top of the added benefit of more control.

I've found over the past several years Disney cash rates equal out to around $35 pp, so the average "break even" per point rate for the resale buyer is saving them 60% off cash rates on average.

But that is where the real value is in your points - using them for stays that would have cost significantly more. The rental premium is only 25%. The cash rate premium is 150%! You get way more value for your points when you're using them rather than renting them out.

Renting is a nice fall back because you're almost guaranteed to cover the "cost" of your points, but you won't make enough to justify the time and hassle of regularly renting them out.

I'm glad we weren't trying to figure out anything like this when we bought. We just wanted to stay in a nice 2BR timeshare villa, like the ones we stayed in with my parents in various other vacation locations. They were much more comfortable for our family than one hotel room.

 

[crisi]

Looking for a thread about break even costs when renting points. (Please tag if it exists already)

I see a variety of costs when people rent out their DVC points.

What is your break even?? At what price per point are you earning versus just recouping costs from contract and annual fees??

Less than $9 a point. We've owned long enough that we long ago "paid for" our contract, so I would consider anything in excess of the $8.53 a point in BWV dues to be making money. Which is one of the reasons it can be dangerous to buy points with the intent to rent. If the rental market ever is oversupplied, someone who bought twenty years ago for their own use, and now is sitting with grown children and points they don't really use is going to be able to easily undercut anyone who bought within the past five years for the purpose of renting. There were a lot of threads about that around 2009 when the recession created a supply gut, and people who bought in at $60 a point and didn't have any loans against DVC were able to recoup costs for a lot less than people who bought in 2008 with loans.

 

[TheLyinKing]

Still in buying process but I basically amortized the purchase price + annual fees to the end of the contract and got a $/pt value that I use as a basis for my break even point. Keep in mind you have to pay taxes on profits when you rent. You can most likely deduct the annual dues from profit, but don't think you can with the purchase price!

Edit: Changed sell to rent

 

[HyperspaceMountainPilot]

Still in buying process but I basically amortized the purchase price + annual fees to the end of the contract and got a $/pt value that I use as a basis for my break even point. Keep in mind you have to pay taxes on profits when you sell. You can most likely deduct the annual dues from profit, but don't think you can with the purchase price!

Wait, why wouldn’t you be able to deduct your purchase price from your sale price? The purchase should be your basis, no?

 

[TheLyinKing]

Wait, why wouldn’t you be able to deduct your purchase price from your sale price? The purchase should be your basis, no?

Sorry I must've gotten sidetracked when I wrote this and didn't pay attention to wording. I meant rent price not sale price. As in when renting out points lol. I'll edit the post! Thanks for the catch

 

[HyperspaceMountainPilot]

Sorry I must've gotten sidetracked when I wrote this and didn't pay attention to wording. I meant rent price not sale price. As in when renting out points lol. I'll edit the post! Thanks for the catch

Whew. I was worried I might have bought into the ultimate tax trap.

 

[Ronaldo17]

I would guess roughly around $18-$22 ppt depending on home resort and length of contract.

 

[sethschroeder]

People do it but I wouldn't even worry about the math and put money elsewhere. So little control over what Disney does to draw demand and unlike actual investments you can't easily move your money out of DVC into something else if the market goes south.

 

[StitchesGr8Fan]

Your income tax bracket and state tax rate is going to effect this as well to some extent.

Yep. People forget that the rental income is taxable.

 

[beldred]

Not sure anyone would be at $18 yet - I guess if someone was just buying in and really tried, they could get there with a high priced BCV or BWV contract at around $200/point.

Well, I wouldn't be at $18 but I'd be real close at $17.14 if I needed to break even on renting in 2023. And of course it'll be higher in 2024+ as dues go up.
However, I'm one of those cases you mention... we bought BCV in 2022 at $155pp. If only I had known the bottom was going to fall out 6 months later. But obviously we didn't buy in at BCV to make money. lmao We bought to stay there as my husband loves it (I prefer BLT but eh, the location is nice at BCV at least.)

 

[HyperspaceMountainPilot]

Well, I wouldn't be at $18 but I'd be real close at $17.14 if I needed to break even on renting in 2023. And of course it'll be higher in 2024+ as dues go up.
However, I'm one of those cases you mention... we bought BCV in 2022 at $155pp. If only I had known the bottom was going to fall out 6 months later. But obviously we didn't buy in at BCV to make money. lmao We bought to stay there as my husband loves it (I prefer BLT but eh, the location is nice at BCV at least.)

Wait, can you buy BCV resale less than $155/pt now?