Buying a resale contract to break even?

[aceshigh73]

Hello,

Might ruffle a few feathers here, but its Sunday so why not?

At what point does a resale contract become valuable enough to purchase and rent for a while to pay for itself?
Using a couple of popular renting sites, "premier resorts" get $18 pt.
On a 150 pt contract (lets assume you rent all 150 every year) that would gross $2700
Dues lets say are $9 pt to keep in mind future increases. $1350
$1350 (remaining) would go towards contract principal (also assuming no financing)
If you got the pts for $100pt. (leaving out closing costs for now) that would be about 11 years of renting to pay off contract and paying dues
The remaining years you would just be paying for maintenance?

This obviously works less on a 2042 resort, but is my math correct here?
Assumptions are renting price would increase in line with dues, but who knows?

 

[Disfamwa]

Renting out points is income, so you would also need to subtract taxes at your marginal tax rate.

 

[Brian Noble]

Your after-tax rate of return is somewhere between 6-7.5%, depending on your tax bracket. That's very close to (and probably a little less than) the expected long-term post-tax return of an SP500 index fund. Renting takes work. Buying an index fund is set it and forget it.

For what it's worth, this is the conclusion I come to every single time I look, where "this" is "It's better to just buy an index fund than to try to become a DVC landlord."

Now, that's Renting 101. A buy-strip-flip strategy might well be better. I haven't looked too closely, because it's still too much sugar for a dime for me.

 

[AstroBlasters]

Your after-tax rate of return is somewhere between 6-7.5%, depending on your tax bracket. That's very close to (and probably a little less than) the expected long-term post-tax return of an SP500 index fund. Renting takes work. Buying an index fund is set it and forget it.

For what it's worth, this is the conclusion I come to every single time I look, where "this" is "It's better to just buy an index fund than to try to become a DVC landlord."

Now, that's Renting 101. A buy-strip-flip strategy might well be better. I haven't looked too closely, because it's still too much sugar for a dime for me.

This made me think of the threads in the “For Rent” board where a lot of the inquiries are for 4-8weeks out in hard to book rooms (Animal Kingdom Value) and hard to book resorts (Grand Cal, BCV, or BWV studios)….smh… no thank you!

 

[Epcot Forever Forever]

This obviously works less on a 2042 resort, but is my math correct here?

That depends on the 2042 resort, some pay back just fine if you rent right.

I think the rent to own strategy is tough to square with the reality that you have so so so little control over the underlying product you’re renting out. There are quite a few somethings that could change that ruins your model and there wouldn’t be a single damn thing you could do about it.

For me that’s a hard pass.

 

[supersnoop]

What you're asking for is a "present value of future payments" question. If I want to return 10%, factoring in dues and taxes, I'd need to buy BLT at $65 (according to my back-of-a-napkin math).

 

[bakerworld]

From forums for the last dozen years I have seen quite a few DVC members who rented their points fairly exclusively and either they stopped posting or died as I no longer see postings. COVID was an issue. I think taxes have tightened up on payment venues, like PayPal. A few constantly complained, which is why they were posting. LOL. I just don't see posters talking about paying for their DVC vacations by renting as much. It will be interesting to see the contributions to the scenario query.

 

[aceshigh73]

That depends on the 2042 resort, some pay back just fine if you rent right.

I think the rent to own strategy is tough to square with the reality that you have so so so little control over the underlying product you’re renting out. There are quite a few somethings that could change that ruins your model and there wouldn’t be a single damn thing you could do about it.

For me that’s a hard pass.

Yes, im starting to talk myself out of iT. Too many factors in play. I had thought about buying a relatively 'cheap' BWV contract and then renting until i paid it off, but the contract would end so quickly after that perceived payoff date it wouldnt be worth it.

 

[Starport Seven-Five]

Your after-tax rate of return is somewhere between 6-7.5%, depending on your tax bracket. That's very close to (and probably a little less than) the expected long-term post-tax return of an SP500 index fund. Renting takes work. Buying an index fund is set it and forget it.

For what it's worth, this is the conclusion I come to every single time I look, where "this" is "It's better to just buy an index fund than to try to become a DVC landlord."

Now, that's Renting 101. A buy-strip-flip strategy might well be better. I haven't looked too closely, because it's still too much sugar for a dime for me.

This was the same conclusion I reached when thinking about buying a larger contract (at less $ PP) and renting the extras vs buying a smaller contract.

The only addition I would make is that there is risk in renting. Dead points, Disney suddenly becoming less popular, rental prices not keeping up with dues, etc. There is of course risk in any investment but buying points to rent is closer to buying a single stock than an index fund... and anyone who has bought individual stocks knows there are winners and losers in that game.

 

[Mikey15]

I’ve run the math on this before, just to try to justify a purchase, and it does work on paper. Since I believe $18 is what some of the “middleman” rental companies pay you, and charge the renter ~$23, it could theoretically work out well.

That being said, if you do want to pursue this, you actually get a much better overall return from a resort with a longer expiry than a 2042 one. It’d take longer to recover the initial investment on BLT, CCV, etc than BWV, BRV, but once you do they have decades longer for you to use yourself or continue to rent out.

The math looks really good on paper for AKV & AUL resale if you could actually get $18/pt renting them out, but those resorts have high demand in the priority booking window specifically for room categories of which they have very few. They’re broadly available at 7mo otherwise, which theoretically means you could end up with ~$15/pt renting them instead of 18. But the expiry on those is great versus other ~$100/pt resale resorts.

 

[Robbie Cottam]

Hello,

Might ruffle a few feathers here, but its Sunday so why not?

At what point does a resale contract become valuable enough to purchase and rent for a while to pay for itself?
Using a couple of popular renting sites, "premier resorts" get $18 pt.
On a 150 pt contract (lets assume you rent all 150 every year) that would gross $2700
Dues lets say are $9 pt to keep in mind future increases. $1350
$1350 (remaining) would go towards contract principal (also assuming no financing)
If you got the pts for $100pt. (leaving out closing costs for now) that would be about 11 years of renting to pay off contract and paying dues
The remaining years you would just be paying for maintenance?

This obviously works less on a 2042 resort, but is my math correct here?
Assumptions are renting price would increase in line with dues, but who knows?

SO, you are opening a can of we have all argued this before....
Some are going to tell you you are not allowed to rent for "Commercial proposes"

Some are going to tell you your money is better off else where...

I personal WOULD NOT use the popular sites, and I get $20 dollars per point for the "Premier Resorts" as you put it and 18 for the others....

That all being said this is a simple math problem.......
Don't look at it per contract but per point

Years left on the contract.... x

Price per point paid ............ y
net rental ........................... z

if z time x is more than what you paid it might might make sense....

Realistically, I look at about 12 years at an OKW or SSR, and 15 years at a poly or BLT....

From a financial stand point you are better off with an SSR, it just takes a little longer to rent the points, IF this is truly a business transaction...

The reality of it, if this was truly a viable money make plan, there would be no resale market....
Investors would be lining up to purchase unwanted contracts...
They would have found ways around the 7000 point total....

I will say that Over the years I have used the rental market to offset my cost of purchase and ownership.... But I use my points,

I have gotten lucky, with the prices in the secondary market, and was able to use my points as leverage for other toys, as well as have the rentals help differ the cost of those toys...

Is this a money making venture that can make me the 10 to 15 percent my 401k has made me over the same time frame, No, not only no, but hell no.....

I would say that over the course of my 18 years with DVC I have a net zero cost of purchase, I have taken some great vacation, I have bought a couple of toys,

I also bought in at 69 SSR and about 100 at BLT ..... so

I would say if you are planning on using the points some, are not looking at the resorts that expire in 2042, a rental plan might offset your ownership cost and maybe even recoup some of you purchase price.....

Are you going to send the kids to college, and buy a new plane.......

Well if it worked that well someone would have beat you to it

 

[Genie+]

That depends on the 2042 resort, some pay back just fine if you rent right.

I think the rent to own strategy is tough to square with the reality that you have so so so little control over the underlying product you’re renting out. There are quite a few somethings that could change that ruins your model and there wouldn’t be a single damn thing you could do about it.

For me that’s a hard pass.

Also I think the risks intensify the bigger you scale out.

If I were DVD/DVC my next move after normalizing resale restrictions would be tackling the commercial rental market. This would not be meant to affect members who are renting out the odd year they can’t use or a small portion of their points occasionally.

Renting is good for the product, but only up to a point.

The serious commercial renters are pulling the cream out of the product and diminishing the value for the rest.

Usage is much different between casual owners and those focused on the highest profit margins. The approach is a totally different angle from the business minded. Of course they’ll zero in on the highest demand rooms/dates at the lowest cost to them. They’ll gain the experience to do so, and even invest to do better (programs to stalk availability for instance).

I can’t say for sure what will happen but expect clarification comes in 3-7 years. People disagree on what can be done. I think DVC would be within their legal rights to address this and almost obligated to do so. Commercial renting is explicitly prohibited in the contracts. Guides have to verbally point it out to buyers. The big question is what can they do? Limit spec renting? Provide clarification to what crosses the line into commercial, eg over a 3 year period a certain ratio of points must be used by the owner?

 

[Disfamwa]

Also I think the risks intensify the bigger you scale out.

If I were DVD/DVC my next move after normalizing resale restrictions would be tackling the commercial rental market. This would not be meant to affect members who are renting out the odd year they can’t use or a small portion of their points occasionally.

Renting is good for the product, but only up to a point.

The serious commercial renters are pulling the cream out of the product and diminishing the value for the rest.

Usage is much different between casual owners and those focused on the highest profit margins. The approach is a totally different angle from the business minded. Of course they’ll zero in on the highest demand rooms/dates at the lowest cost to them. They’ll gain the experience to do so, and even invest to do better (programs to stalk availability for instance).

I can’t say for sure what will happen but expect clarification comes in 3-7 years. People disagree on what can be done. I think DVC would be within their legal rights to address this and almost obligated to do so. Commercial renting is explicitly prohibited in the contracts. Guides have to verbally point it out to buyers. The big question is what can they do? Limit spec renting? Provide clarification to what crosses the line into commercial, eg over a 3 year period a certain ratio of points must be used by the owner?

It seems like limiting the number of reservations/times you can change a lead guest per year would be the best way to do it. Because to maximize profit, they pick up lots of highly desirable short rentals for confirmed bookings and charge by the night instead of by the point.

 

[Robbie Cottam]

Also I think the risks intensify the bigger you scale out.

If I were DVD/DVC my next move after normalizing resale restrictions would be tackling the commercial rental market. This would not be meant to affect members who are renting out the odd year they can’t use or a small portion of their points occasionally.

Renting is good for the product, but only up to a point.

The serious commercial renters are pulling the cream out of the product and diminishing the value for the rest.

Usage is much different between casual owners and those focused on the highest profit margins. The approach is a totally different angle from the business minded. Of course they’ll zero in on the highest demand rooms/dates at the lowest cost to them. They’ll gain the experience to do so, and even invest to do better (programs to stalk availability for instance).

I can’t say for sure what will happen but expect clarification comes in 3-7 years. People disagree on what can be done. I think DVC would be within their legal rights to address this and almost obligated to do so. Commercial renting is explicitly prohibited in the contracts. Guides have to verbally point it out to buyers. The big question is what can they do? Limit spec renting? Provide clarification to what crosses the line into commercial, eg over a 3 year period a certain ratio of points must be used by the owner?

You are correct, Commercial renting is explicitly prohibited in the contract, but it is not defined. Disney can not rewrite those contract for resorts that have already been in existents..... Moving forward, say with the new poly tower account DISNEY COULD define commercial rental .... But in all the Current HOA personal rental IS ALLOWED.....

However, with out the contract defining what is spec rental, what is commercial rental, how often the own must use the point in any three years period.....

Furthermore, It would be almost impossible for Disney to restrict how an owner uses their property.....
Say grandma and grandpa bought 7000 points for their kids and grand kids, kids get married remarried names change, etc...

Disney cancel a Christmas reservation and ruins a vacation but someone though it was commercial ......

Yea, I don't see Disney taking that chance....

 

[Brian Noble]

The big question is what can they do?

To me, Wyndham is the "standard-bearer" in this conversation--they have been the most aggressive at trying to curtail renting.

Most recently, they have sent cease-and-desist letters to owners they believe were renting "commercially," requiring that they refrain from certain behaviors for the next three months. (I don't remember the details, because I've not been on the receiving end of one of these letters.) Owners who continued to exhibit a pattern believed to be "commercial" during the three month period have their accounts frozen.

There appear to be several different mechanisms used to make that determination, and we probably do not know all of them, but they appear to include: Percentage of total reservations that include a guest certificate, percentage of points used per year associated with a guest's reservation, and publicly advertising for rentals (especially if you use Wyndham's copyrighted imagery). There may be others.

But, the important part is that Wyndham takes the step of defining what they think is commercial, they employ that definition, and that's that. There haven't been many (any?) successful cases of someone accused of commercial renting who later convinced Wyndham that's not what they were doing, though again, I don't follow all of the conversations and maybe someone has been able to do so. Mostly: Wyndham shoots first and doesn't ask questions.

Some Wyndham owners believe the trust documents give Wyndham pretty broad latitude to do this (lots of "in their sole and unfettered discretion" and "reasonable discretion" sprinkled throughout). I am one of these. Some others think they are violating the governing documents, but AFAIK no one has tried to take it to the courts. I suspect anyone who did would be slowly strangled by Wyndham in process and delay, running up the legal charges until they gave up. Likewise, there aren't enough people in this category to make up anything that any competent attorney would take on spec as a class action, because we are talking about maybe hundreds of people with a several thousand worth of damages each. There's not enough there there.

My belief--which might be ENTIRELY WRONG--is that if Disney wanted to follow the same playbook, they could.

One common objection is that they got push back on both increasing the lockoff premium (which was obviously dumb) and the seven-season calendar (which was less dumb, but still broken), and so they would back down if they get push back here too. There is one important difference. For lockoff premium, all owners obviously lost value. For the seven-season change, that was also true, but a lot harder to explain, and it took longer to undo if I remember correctly.

In contrast, many owners would not be sad to see large-scale renters put out of business. In fact, I bet a lot of owners would be pretty happy about it, for exactly this reason:

The serious commercial renters are pulling the cream out of the product and diminishing the value for the rest.

So DVC has a lot more political cover to try to pull this off.

 

[Starport Seven-Five]

That all being said this is a simple math problem.......
Don't look at it per contract but per point

Years left on the contract.... x

Price per point paid ............ y
net rental ........................... z

if z time x is more than what you paid it might might make sense....

This math is a bit too simple as it ignores time value of money. You wouldn't leave 5 figures sitting under a mattress and we're in an environment where savings accounts are paying a guaranteed 4.5% and CD's are paying 5%. That's a huge elephant in the room that has to be included in these type of calculations due to the large front loaded cost.

For simple numbers lets assume a 200 point contract that costs 27k (about what AKL would cost):
27,000 * .05 = 1350
200*(18-8.24) = 1952

 

[Genie+]

You are correct, Commercial renting is explicitly prohibited in the contract, but it is not defined. Disney can not rewrite those contract for resorts that have already been in existents..... Moving forward, say with the new poly tower account DISNEY COULD define commercial rental .... But in all the Current HOA personal rental IS ALLOWED.....

However, with out the contract defining what is spec rental, what is commercial rental, how often the own must use the point in any three years period.....

Furthermore, It would be almost impossible for Disney to restrict how an owner uses their property.....
Say grandma and grandpa bought 7000 points for their kids and grand kids, kids get married remarried names change, etc...

Disney cancel a Christmas reservation and ruins a vacation but someone though it was commercial ......

Yea, I don't see Disney taking that chance....

“Accordingly, given these restrictions and other factors affecting resale or rental, purchase of an Ownership Interest should be based upon its value as a vacation experience and for spending leisure time, and not for the purpose of acquiring an appreciating investment or with an expectation that an Ownership Interest may be resold or that any reservation of use may be rented to a third party.”

 

[intamin]

Hello,

Might ruffle a few feathers here, but its Sunday so why not?

At what point does a resale contract become valuable enough to purchase and rent for a while to pay for itself?
Using a couple of popular renting sites, "premier resorts" get $18 pt.
On a 150 pt contract (lets assume you rent all 150 every year) that would gross $2700
Dues lets say are $9 pt to keep in mind future increases. $1350
$1350 (remaining) would go towards contract principal (also assuming no financing)
If you got the pts for $100pt. (leaving out closing costs for now) that would be about 11 years of renting to pay off contract and paying dues
The remaining years you would just be paying for maintenance?

This obviously works less on a 2042 resort, but is my math correct here?
Assumptions are renting price would increase in line with dues, but who knows?

IMO it's not worth it.
1. The value of your points when you use them for your own personal vacations is about 30 dollars per point. Most studios cost 12-20 points per night and typically cost 4-600 dollars per night when paying cash. Compared to selling at 20 dollars per point you're getting less value when not using it for your own personal use
2. As has been said above you incur a larger amount of risk if you plan to consistently rent out points. The amount you're getting back for these points assumes everything goes amazing and you don't have renters trying to cancel reservations and you don't get stuck with points that can't be used. You could make people pay up front completely to help offset that but even so at some point you will waste points
3. The income is still taxed and technically DVC is not to be used for commercial use
4. It's basically it's own job trying to find reservations for people, coordinating with people to get things scheduled and get everyone's names for the reservation - your time is valuable, treat it as such.
5. Opportunity cost, like was stated above you could just as easily invest that money into a mutual index fund or CD for far less hassle.

 

[Mikey15]

This math is a bit too simple as it ignores time value of money. You wouldn't leave 5 figures sitting under a mattress and we're in an environment where savings accounts are paying a guaranteed 4.5% and CD's are paying 5%. That's a huge elephant in the room that has to be included in these type of calculations due to the large front loaded cost.

For simple numbers lets assume a 200 point contract that costs 27k (about what AKL would cost):
27,000 * .05 = 1350
200*(18-8.24) = 1952

It depends on how you feel both rental prices and dues will keep pace with the money market’s risk-free rate of return.

If rental prices continue to inflate (because cash rates continue to inflate) and dues continue to inflate, it all works out closely. E.G.:
Year 1
Rent 20pp
Dues 8pp
Net 12pp

Year 2
Rent 21pp
Dues 8.4pp
Net 12.6pp

Year 3
Rent 22pp
Dues 8.8pp
Net 13.2pp

There’s always risk rent plateaus due to macroeconomic conditions, in which case your savings interest rate probably declines too (unless you, say, parked it in a CD, to be more comparable to locking funds into a DVC ownership).

I agree that there’s variables but over a long enough view the TVM aspect should equal out, unless you’re also spending interest on a loan for the points.

 

[Robbie Cottam]

To me, Wyndham is the "standard-bearer" in this conversation--they have been the most aggressive at trying to curtail renting.

Most recently, they have sent cease-and-desist letters to owners they believe were renting "commercially," requiring that they refrain from certain behaviors for the next three months. (I don't remember the details, because I've not been on the receiving end of one of these letters.) Owners who continued to exhibit a pattern believed to be "commercial" during the three month period have their accounts frozen.

There appear to be several different mechanisms used to make that determination, and we probably do not know all of them, but they appear to include: Percentage of total reservations that include a guest certificate, percentage of points used per year associated with a guest's reservation, and publicly advertising for rentals (especially if you use Wyndham's copyrighted imagery). There may be others.

But, the important part is that Wyndham takes the step of defining what they think is commercial, they employ that definition, and that's that. There haven't been many (any?) successful cases of someone accused of commercial renting who later convinced Wyndham that's not what they were doing, though again, I don't follow all of the conversations and maybe someone has been able to do so. Mostly: Wyndham shoots first and doesn't ask questions.

Some Wyndham owners believe the trust documents give Wyndham pretty broad latitude to do this (lots of "in their sole and unfettered discretion" and "reasonable discretion" sprinkled throughout). I am one of these. Some others think they are violating the governing documents, but AFAIK no one has tried to take it to the courts. I suspect anyone who did would be slowly strangled by Wyndham in process and delay, running up the legal charges until they gave up. Likewise, there aren't enough people in this category to make up anything that any competent attorney would take on spec as a class action, because we are talking about maybe hundreds of people with a several thousand worth of damages each. There's not enough there there.

My belief--which might be ENTIRELY WRONG--is that if Disney wanted to follow the same playbook, they could.

One common objection is that they got push back on both increasing the lockoff premium (which was obviously dumb) and the seven-season calendar (which was less dumb, but still broken), and so they would back down if they get push back here too. There is one important difference. For lockoff premium, all owners obviously lost value. For the seven-season change, that was also true, but a lot harder to explain, and it took longer to undo if I remember correctly.

In contrast, many owners would not be sad to see large-scale renters put out of business. In fact, I bet a lot of owners would be pretty happy about it, for exactly this reason:



So DVC has a lot more political cover to try to pull this off.

Seriously,
We had this conversion LAST WEEK.
Wyndham has no bearing on this conversation because they are not DVC...
Not the same contracts, not the same corporate image,
Disney can do what ever they want you are correct, but if they violate the HOA, and membership agreements they would be facing a class action lawsuit.......

DISNEY CAN NOT HANDLE THAT TYPE OF BAD PRESS RIGHT NOW!