Buying and selling DVC

[Jkarrows]

Could someone give me and idea, if you buy DVC on the resell market and then look to sell in a few years time do you loose a lot like you do if you brought direct from Disney and sold on the resell market?

I know if you buy direct from Disney you pay around 160 dollars a points and depending on where they resell for a lot less, what would the loss be if you brought resell and then at a later date sold on resell.

I know it's a difficult to predict question but and ideas?

Thanks guys.

 

[Msmithmd]

Selling any contract will set you back a brokers commission of 10%. So that's a start. Beyond that, resorts open more than a couple years typically sell for 40-70% resale of what they currently sell for direct. Obviously, someone else took that hit if you buy in resale.

Beyond that, you tell me where the stock market will be three years from now, and I will tell you where DVC resale prices will be at that time.

In other words, it's a guess- but the analogy actually holds fairly well, as the timeshare market is significantly closer linked to the health of the short-term economy as a whole, than is the primary residence real estate market. If the S+P 500 is in the toilet and unemployment is high, a whole lot of folks who shouldn't have bought timeshares in the first place will be looking to unload them quickly. If things are booming, private market resales will be strong.

Of course, extrinsic factors play a role as well. Overall theme parks management, practices of DVC in running the timeshare, length of contract remaining, etcetera will all play a role. But I think the biggest factor is short-term economics. A close second factor is current direct purchase pricing, as well as any additional restrictions that DVC might potentially impose on resale usage.

 

[drusba]

Obviously, it will depend on resale prices in a few years. they may go up some, they may go down some. The largest resale price moves for DVC in the shortest period of time occurred in the Great Recession when resale prices dived significantly and have recovered somewhat in the last few years. As long as the economy remains decent and there are no debilitating events that cause recession, prices will likely be close to what they are now in three years although eventually, and possibly sooner rather than later, prices of the resorts that have 2042 expiration dates (such as BWV, BCV, and VWL) are likely going to be adversely effected because the remaining ownership time is too short.

In any event, If you buy now and sell in a few years, I would expect you will have a loss even if resale prices overall go up some in the interim because your transactional costs -- broker commissions and closing costs (estimate those at about 10% to 12% of your sale price) -- will eliminate any possible gain.

 

[Dean]

Could someone give me and idea, if you buy DVC on the resell market and then look to sell in a few years time do you loose a lot like you do if you brought direct from Disney and sold on the resell market?

I know if you buy direct from Disney you pay around 160 dollars a points and depending on where they resell for a lot less, what would the loss be if you brought resell and then at a later date sold on resell.

I know it's a difficult to predict question but and ideas?

Thanks guys.

With appropriate assumptions you should lose a LOT less if one bought a seasoned resort resale compared to retail. In theory you should lose the the reduction based on reduced RTU and the commission if sold through a broker. You might get some help from inflation and increased retail priced. Obviously there are other factors that are difficult to control or anticipate such as the state of the economy and the perception of DVC/Disney. I would recommend against buying with a plan to resale later but it's a reasonable consideration as a safety net. For something like VGF it's more difficult to know.

 

[JimMIA]

Could someone give me and idea, if you buy DVC on the resell market and then look to sell in a few years time do you loose a lot like you do if you brought direct from Disney and sold on the resell market?

Obviously, a lot will depend on things like the overall US economy. In downturns, prices of luxury things like vacation homes and timeshares drop -- usually faster and farther than other prices.

Another big factor is your definition of "in a few years time." Buying resale, I think a decline of 5%-10% per year is a reasonable ballpark assumption. And as others have explained, you also will have some significant costs in selling -- at least 10% real estate commission + some minor other fees, and possibly some participation in annual MFs and/or closing costs.

Using that ballpark estimate, if you bought a contract, kept it for five years and did not have any MF or closing costs getting out, you would be looking at a loss of 35%-60% on your initial outlay.

While that may seem high to many, it does match my personal real-world experience with the two contracts I sold. Both were purchased at attractive pricing (one direct, but at a price that was actually cheaper than resale), and both were sold in the upswing in resale prices during the run-up to the imposition of restrictions on resale points in April 2011.

One contract I held for 5 1/2 years and sold at a net loss of 37.7%...6.85% per year. That was a smallish (120 point) contract, which probably accounts for the better outcome.

The other contract (310 points) was held for 6 years and was sold at a net loss of 42.3%...7.05% per year.

I did not pay any portion of the closing costs on either sale. In the case of the six-year holding, I had already paid the MFs for the year but my prorated part of that is not included in the 42% loss so that loss is probably a little understated.

 

[chalee94]

the basic thing is that no matter what you pay extra to buy direct, you cannot sell as a "direct" contract with those supposed "direct purchase benefits"...you will be selling a resale no matter how you purchased initially.

so whatever the difference is between the current direct price ($130 - $160) and the current resale price ($75 - $110) of your preferred resort, that is what you will lose when you go to sell.

 

[mcorbo]

I purchased AKV in 2007 direct from Disney at $82 per point. Only 7 short years ago. AKV on the resale market seems to be selling for around $75. Not too bad. If I were to resell today. my vacations for the last 7 years only cost me $150 a year ($7 per point different over 7 years) plus dues.

 

[Msmithmd]

Mcorbo- true, if you ignore both the time value of money, and the closing costs and fees both coming and going.

But to your point, DVC direct used to be a lot better deal than it is now IMO. At current prices I wonder how long the model is sustainable. But DVC sure seems to be able to sell at these prices. More power to them.

 

[crisi]

I purchased AKV in 2007 direct from Disney at $82 per point. Only 7 short years ago. AKV on the resale market seems to be selling for around $75. Not too bad. If I were to resell today. my vacations for the last 7 years only cost me $150 a year ($7 per point different over 7 years) plus dues.

For a timing example, I bought my points at BWV in 2002 at $63. Could get $80 for them now - but who knows for how much longer because its a shorter term contract.

That isn't to be expected. Right before the Great Recession there were people buying contracts that haven't recovered - and at the older resorts probably never will.

But DVC is like a car - buy it new off the lot and take the depreciation hit. Buy it a year later and pay a lot less - sell it a year later for almost what you bought it for. Provided a stable economy.

 

[bighoo93]

although eventually, and possibly sooner rather than later, prices of the resorts that have 2042 expiration dates (such as BWV, BCV, and VWL) are likely going to be adversely effected because the remaining ownership time is too short.

This will be interesting to watch. Just off the top of my head, I wouldn't expect the value to be directly affected too soon based on 2042 expiration, because relatively little of the value is based on use 20+ years out. However, it could be that the perception of lesser value ends up driving it down anyway, as resorts with later expiration dates become relatively more attractive to buyers. SSR's expiration date did influence my resale purchase decision, but if all else had been equal, except for expiration date and market price, I would probably have bought one of the earlier expiring resorts if it would save me significant money. In other words, total cost of ownership (purchase price + MFs) was much, much more significant in my decision than expiration or any other factor, really.

 

[Dean]

This will be interesting to watch. Just off the top of my head, I wouldn't expect the value to be directly affected too soon based on 2042 expiration, because relatively little of the value is based on use 20+ years out. However, it could be that the perception of lesser value ends up driving it down anyway, as resorts with later expiration dates become relatively more attractive to buyers. SSR's expiration date did influence my resale purchase decision, but if all else had been equal, except for expiration date and market price, I would probably have bought one of the earlier expiring resorts if it would save me significant money. In other words, total cost of ownership (purchase price + MFs) was much, much more significant in my decision than expiration or any other factor, really.

As a rule RTU doesn't have much effect until under 30 yrs from what I've seen. I do think we've seen some effect already but the momentum will likely pick up at some point, maybe it'll be 20 yrs. The Disney hype will give some insulation.

 

[djohn06]

Who cares about time value of money over 7 years? If you are dropping 15k on a timeshare or more then it's all about the entertainment. I'm assuming other funds are put towards investments cause this ain't one of them.

But, it you wanted to make an investment play you are probably about 12 months too late. BCV, HHI and SSR made a nice run in the last two years. They are all at their peaks and I cannot see another 20 percent return on them coming again.

 

[Jkarrows]

Thanks guys so great replies, thank you.

 

[bighoo93]

Who cares about time value of money over 7 years?.

Good question. While I'm thinking about it, could I borrow $10,000 from you, interest free? I'll pay you back in 7 years... ;-)

 

[Dean]

Who cares about time value of money over 7 years? If you are dropping 15k on a timeshare or more then it's all about the entertainment. I'm

IMO anyone buying DVC either needs to be well enough off that they wouldn't really notice if they got scammed out of the $15K or they should only buy if DVC makes sense financially. I don't buy the philosophy that it's lost money so don't worry about it, if it's lost money, don't buy. IMO that's the way people look at things that are not going to get ahead and they make the same type of decision at multiple turns (like buying a car or toys) or that have enough that the sum doesn't matter in their life. Likely most in the latter group aren't going to be looking at DVC unless they're right at the transition to the upper group anyway. In my view one should only be buying if you have no consumer debt (in addition to other financial qualifications like college fund, retirement savings, etc) and can pay cash so it's truly money that would otherwise be available to invest or to reduce non consumer debt where applicable. Reduced for the amount one would have spent on vacation for lodging only if they didn't own so I use the amount of 50% in long term investments for resale and 25-33% for retail depending on specifics.

 

[Jkarrows]

IMO anyone buying DVC either needs to be well enough off that they wouldn't really notice if they got scammed out of the $15K or they should only buy if DVC makes sense financially. I don't buy the philosophy that it's lost money so don't worry about it, if it's lost money, don't buy. IMO that's the way people look at things that are not going to get ahead and they make the same type of decision at multiple turns (like buying a car or toys) or that have enough that the sum doesn't matter in their life. Likely most in the latter group aren't going to be looking at DVC unless they're right at the transition to the upper group anyway. In my view one should only be buying if you have no consumer debt (in addition to other financial qualifications like college fund, retirement savings, etc) and can pay cash so it's truly money that would otherwise be available to invest or to reduce non consumer debt where applicable. Reduced for the amount one would have spent on vacation for lodging only if they didn't own so I use the amount of 50% in long term investments for resale and 25-33% for retail depending on specifics.

An interesting point, I am looking at buying as I current visit Disney every year and have for the last five years sometimes twice and no doubt by now could have brought my DVC ownership, we are also looking forward to Halloween 2015, full opening of Disney Springs 2016 and Avatar land 2017 so there is at least three more trips in the next three years if not more.

 

[Dean]

An interesting point, I am looking at buying as I current visit Disney every year and have for the last five years sometimes twice and no doubt by now could have brought my DVC ownership, we are also looking forward to Halloween 2015, full opening of Disney Springs 2016 and Avatar land 2017 so there is at least three more trips in the next three years if not more.

I don't know your situation enough to make specific recommendations and I'm not interested in prying but since you did quote the post above these are all general statements including the following. There's the question of what one is doing and planning to do vs what one should do. I was gratified that you suggested you'd be paying cash and assume that means you have your financial house in order in general, that's a wonderful and low stress situation to be in.

 

[Jkarrows]

I don't know your situation enough to make specific recommendations and I'm not interested in prying but since you did quote the post above these are all general statements including the following. There's the question of what one is doing and planning to do vs what one should do. I was gratified that you suggested you'd be paying cash and assume that means you have your financial house in order in general, that's a wonderful and low stress situation to be in.

No problem, thank you for taking the time to reply above, it's all very useful.

Thanks

 

[djohn06]

Good question. While I'm thinking about it, could I borrow $10,000 from you, interest free? I'll pay you back in 7 years... ;-)

If you care about time value on EVERY PURCHASE we all would be driving 13k cars and living in 2 bedroom houses with a pull out couch. Time value should have no factor on a luxury item. A timeshare is a luxury item.

 

[Dean]

If you care about time value on EVERY PURCHASE we all would be driving 13k cars and living in 2 bedroom houses with a pull out couch. Time value should have no factor on a luxury item. A timeshare is a luxury item.

That may be true if you have sufficient wealth to throw the money away without thinking about it. To me taking it to that level means NO consumer debt, NO house debt, and ample savings on track to covering college and retirement. BTW, a $13K car is a pretty nice car and even that level of vehicle likely isn't appropriate for someone with significant debt and certainly shouldn't be financed or even worse, leased. The house is a little different because in most cases it has a certain amount of investment value as well as locking in somewhat a rate for a place to live.