Buy Resale just to Rent Points?

[Disney Dad ADL]

I am constantly surprised by how many people completely ignore the time value of money. This is one of the timeshare salesperson's oldest tricks.

Illustration: I have an open offer. Loan me $10,000, and have me pay you back $1,000/year for each of the next ten years, and at that point we'll call it even. If you are willing to do this, please send me a PM and we can consummate the deal. If you are not wiling to do this, ask yourself why you are willing to just divide price-per-point by the number of years on the contract.

Yeah, that's a good point as well. That's another wrench to consider.

However, I tend to discount it a little bit for various reasons. Assuming we are comparing something like Vero Beach (with high MFs and low initial cost) vs Bay Lake Tower (high initial cost and low MFs), there are a couple other things to consider:
1. In order for it to matter, you have to invest the initial "savings" and not use it to buy other stuff. I think people say they would do this, but I bet many (most?) in the end do not.
2. IMO, the interest rate you will receive on the "savings" is probably lower than one might expect. People often say they will get 8% or whatever they say is the historical returns on stocks, however I think you can't really invest the money in that way. The money you are "saving", unless you are getting extremely high interest rates or it's a very large amount, will eventually be eaten away by the difference in MFs every year. So it has to be invested with short term use in mind, rather than long term, and therefore in safer investments. Otherwise you run the risk of being unable to afford to pay for your MFs if say the stock market falls by 15%. in other words, more CD's and online savings accounts, maybe bonds at best, rather than stocks, and therefore much lower interest rates.
3. If the difference in annual cost is very high, the time value of money at some point could start favoring the other side. Just hypothetically (I haven't actually run the numbers), say 10 years from now in 2026, total cost of VB becomes more expensive than BLT. In theory, every dollar saved in MFs on the BLT side after that could be invested as well.

Anyway, ultimately to me it's all just a thought exercise more than anything that I find it interesting to think about. There's no way you can account for everything accurately and you should just buy what you want to buy. I think the risk that the DVC market tanks at some point is bigger concern than the difference between AKV and BLT.

Edit to add: Regarding the chart, I think the time value of money favors the low buy-in/high MF resorts, but the fact that annual dues increase over time favors the high buy-in/low MF resorts, so maybe they cancel each other out ultimately. I think the one exception is SSR, which is sort of a special value since it's low buy-in/low MF and clearly the cheapest of all.

 

[mustinjourney]

I am constantly surprised by how many people completely ignore the time value of money. This is one of the timeshare salesperson's oldest tricks.

Illustration: I have an open offer. Loan me $10,000, and have me pay you back $1,000/year for each of the next ten years, and at that point we'll call it even. If you are willing to do this, please send me a PM and we can consummate the deal. If you are not wiling to do this, ask yourself why you are willing to just divide price-per-point by the number of years on the contract.

Because math is hard and most people have no idea how to actually quantify it.

 

[mustinjourney]

Yeah, that's a good point as well. That's another wrench to consider.

However, I tend to discount it a little bit for various reasons. Assuming we are comparing something like Vero Beach (with high MFs and low initial cost) vs Bay Lake Tower (high initial cost and low MFs), there are a couple other things to consider:
1. In order for it to matter, you have to invest the initial "savings" and not use it to buy other stuff. I think people say they would do this, but I bet many (most?) in the end do not.
2. IMO, the interest rate you will receive on the "savings" is probably lower than one might expect. People often say they will get 8% or whatever they say is the historical returns on stocks, however I think you can't really invest the money in that way. The money you are "saving", unless you are getting extremely high interest rates or it's a very large amount, will eventually be eaten away by the difference in MFs every year. So it has to be invested with short term use in mind, rather than long term, and therefore in safer investments. Otherwise you run the risk of being unable to afford to pay for your MFs if say the stock market falls by 15%. in other words, more CD's and online savings accounts, maybe bonds at best, rather than stocks, and therefore much lower interest rates.
3. If the difference in annual cost is very high, the time value of money at some point could start favoring the other side. Just hypothetically (I haven't actually run the numbers), say 10 years from now in 2026, total cost of VB becomes more expensive than BLT. In theory, every dollar saved in MFs on the BLT side after that could be invested as well.

Anyway, ultimately to me it's all just a thought exercise more than anything that I find it interesting to think about. There's no way you can account for everything accurately and you should just buy what you want to buy. I think the risk that the DVC market tanks at some point is bigger concern than the difference between AKV and BLT.

Edit to add: Regarding the chart, I think the time value of money favors the low buy-in/high MF resorts, but the fact that annual dues increase over time favors the high buy-in/low MF resorts, so maybe they cancel each other out ultimately. I think the one exception is SSR, which is sort of a special value since it's low buy-in/low MF and clearly the cheapest of all.

And in my case, I had been shorting the market the last three years, so spending the money this year actually saved me from more losses!

 

[Dean]

Because math is hard and most people have no idea how to actually quantify it.

IMO it's more short sightedness than anything else. It's much like buying a car, some ask how much per month when the real issue is how much total. Buying DVC is a combination of short term money and long term money assuming one would go on vacation anything to WDW. The numbers and comparisons are quite different and even less favorable for non WDW DVC locations IMO.

 

[bwbuddy5]

Yeah, that's a good point as well. That's another wrench to consider.

However, I tend to discount it a little bit for various reasons. Assuming we are comparing something like Vero Beach (with high MFs and low initial cost) vs Bay Lake Tower (high initial cost and low MFs), there are a couple other things to consider:
1. In order for it to matter, you have to invest the initial "savings" and not use it to buy other stuff. I think people say they would do this, but I bet many (most?) in the end do not.
2. IMO, the interest rate you will receive on the "savings" is probably lower than one might expect. People often say they will get 8% or whatever they say is the historical returns on stocks, however I think you can't really invest the money in that way. The money you are "saving", unless you are getting extremely high interest rates or it's a very large amount, will eventually be eaten away by the difference in MFs every year. So it has to be invested with short term use in mind, rather than long term, and therefore in safer investments. Otherwise you run the risk of being unable to afford to pay for your MFs if say the stock market falls by 15%. in other words, more CD's and online savings accounts, maybe bonds at best, rather than stocks, and therefore much lower interest rates.
3. If the difference in annual cost is very high, the time value of money at some point could start favoring the other side. Just hypothetically (I haven't actually run the numbers), say 10 years from now in 2026, total cost of VB becomes more expensive than BLT. In theory, every dollar saved in MFs on the BLT side after that could be invested as well.

Anyway, ultimately to me it's all just a thought exercise more than anything that I find it interesting to think about. There's no way you can account for everything accurately and you should just buy what you want to buy. I think the risk that the DVC market tanks at some point is bigger concern than the difference between AKV and BLT.

Edit to add: Regarding the chart, I think the time value of money favors the low buy-in/high MF resorts, but the fact that annual dues increase over time favors the high buy-in/low MF resorts, so maybe they cancel each other out ultimately. I think the one exception is SSR, which is sort of a special value since it's low buy-in/low MF and clearly the cheapest of all.

Excellent points.

I like the tables, but they’re not perfect. To use a ridiculous example, if DVC offered a new property that’s $1000/pt, but the contract is good for the next 400 years, do we move it to the top of our table? Some may, but most wouldn’t buy because of the high initial purchase price.

 

[Brian Noble]

In order for it to matter, you have to invest the initial "savings" and not use it to buy other stuff.

Not really. Money has a time-value, whether you spend it or invest it. It is a property of money, not a consequence of behavior. In the DVC case, you assume that your travel plans are going to be completely the same, whether you own or rent. Then, rather than picking a particular return you think you would get in the invest-and-rent case, compute what the rate of return of owning is. If you think that rate of return is "fair," then buy. If you do not, then do something else. That something else could be: "Maybe we'll stay offsite some of the time, and we'll use this money for something else," but it's informed by the real costs of ownership.

You can do something similar in comparing the different resorts--just find the rate of return at which the total costs intersect.

 

[Disney Dad ADL]

Excellent points.

I like the tables, but they’re not perfect. To use a ridiculous example, if DVC offered a new property that’s $1000/pt, but the contract is good for the next 400 years, do we move it to the top of our table? Some may, but most wouldn’t buy because of the high initial purchase price.

I guess in theory as long as you can pay cash without financing, it's still a good deal.

One potential advantage (though not guaranteed) of a resort like that is that you may be able to get your initial buy in back if you decide to sell it if the DVC market holds steady (which is a big if of course). If you bought a 400 year contract for $1000 per point, it will probably still be worth close to that 30 years from now (again assuming the DVC market is flat). On the other hand, when you pay for annual dues, that money is never coming back.

Not really. Money has a time-value, whether you spend it or invest it. It is a property of money, not a consequence of behavior. In the DVC case, you assume that your travel plans are going to be completely the same, whether you own or rent. Then, rather than picking a particular return you think you would get in the invest-and-rent case, compute what the rate of return of owning is. If you think that rate of return is "fair," then buy. If you do not, then do something else. That something else could be: "Maybe we'll stay offsite some of the time, and we'll use this money for something else," but it's informed by the real costs of ownership.

You can do something similar in comparing the different resorts--just find the rate of return at which the total costs intersect.

Yeah, your point is taken. In theory, having money available is a benefit even if you don't do anything with it.

 

[Dean]

Excellent points.

I like the tables, but they’re not perfect. To use a ridiculous example, if DVC offered a new property that’s $1000/pt, but the contract is good for the next 400 years, do we move it to the top of our table? Some may, but most wouldn’t buy because of the high initial purchase price.

It's a good way to think about it. It comes down to a few key points. Is there a sufficient value for the individual, can they afford it (pay cash IMO) and what are the risks (there are quite a few). If one can afford it, the up front price itself is the lessor of the issues and should be the easiest to evaluate if one can do math. It's a little like getting a mortgage and looking at paying "points". They are almost never worth it because it takes so long to get a return but it depends on the specifics.

 

[McCrae]

Using a contract for "commercial" purposes is against the terms of the contract. It's not a well-defined term in the contract, but renting out points for 4 out of every 5 years could get you sideways with Disney.

For a small contract DVC are unlikely to show any interest. They do rent out the rooms they have at resorts so would be difficult for them to stop you.

 

[Dean]

For a small contract DVC are unlikely to show any interest. They do rent out the rooms they have at resorts so would be difficult for them to stop you.

It's within the rules to rent and it's actually contractual, the commercial clause is aimed at volume.