Buying DVC solely to rent

[101Pongo]

Just got back from WDW and chatted with a DVC rep in MK one day while the family was using the restrooms, it got me thinking...

My wife and I are already considering purchasing rental property in Florida when the Canadian exchange rate improves, do people buy DVC with the sole intent of renting out the points?

Is it as simple as that or are there restrictions/considerations I'm not aware of (does Disney require x% of stays to be in your name)?

The ROI seems favourable even after maintenance (ballpark 9 years to break even) at $13-$14/point rental and even better if the Canadian dollar dips after purchase.

 

[ziravan]

People have done the math lots of times here, not workable with the limits placed by DVC.

Commercial renting not allowed and DVC considers that 20 reservations per year.

In the old days, there was a family that had multiple members with thousands of points for rent. Maybe it would work in that quantity, but the 20 reservations per year limit was designed to stop that (and did).

 

[101Pongo]

We were thinking of going into the 500 point range which would be less than 20 res/yr. We could even split it into two 250 pt properties with one in each of our names.

Any other potential issues?

 

[aoconnor]

Just remember that each year the RTU gets closer which should theoretically make the contract less valuable. Of course that has not been the case so far-- BCV & BWV have nearly doubled from $55-65 a point to $110+ a point in just four years (which is crazy since F&W is nothing new and DHS has fewer attractions today than it did four years ago). But there is no guarantee that will continue.

If you bought BCV today and look to sell 10 years from now when there's only 15 years left on the contract, will you get $110? Doubtful, but who knows.

 

[bighoo93]

The ROI seems favourable even after maintenance (ballpark 9 years to break even) at $13-$14/point rental and even better if the Canadian dollar dips after purchase.

You could certainly do it, if that floats your boat. I don't think a 9-year payback is exactly something to write home about (and may be optimistic) if you are just looking at it as an investment rather than using the points yourself. But that's a decision for you to make.

 

[DVC Doctor]

not a good idea

 

[disneynutz]

My guess is that DVC will tighten their 20 reservations per year not written anywhere policy. If there was money to be made, everyone would be doing it. In addition the owner can be held responsible for any damages and in a couple of cases reported here, renters left the resort with a balance due on their room account and Disney went after the owner for collection.

Bill

 

[101Pongo]

Thank you all. Appreciate the insight.

 

[Dean]

Just got back from WDW and chatted with a DVC rep in MK one day while the family was using the restrooms, it got me thinking...

My wife and I are already considering purchasing rental property in Florida when the Canadian exchange rate improves, do people buy DVC with the sole intent of renting out the points?

Is it as simple as that or are there restrictions/considerations I'm not aware of (does Disney require x% of stays to be in your name)?

The ROI seems favourable even after maintenance (ballpark 9 years to break even) at $13-$14/point rental and even better if the Canadian dollar dips after purchase.

Just to pile on, it's not a good idea to buy just to rent, too much risk and too little return. As a condo owner in a vacation area, I'd suggest against buying something you won't use more than a week for 2 a year or something that you can't check on every couple of months. I also wouldn't buy extra just to rent and I would only buy cash if I did decide to proceed.

 

[101Pongo]

We would only buy cash, paying interest on credit would just be foolish.

We would only buy if CAD/USD was at par or better (likely only at CAD$1.10).

The average exchange rate over 1990-2017 is 0.8093. That could give us up to an extra 30% once you account for forex.

We would be banking (or gambling if you prefer) on the exchange rate going back down to historical rates and profiting from that.

 

[Dean]

We would only buy cash, paying interest on credit would just be foolish.

We would only buy if CAD/USD was at par or better (likely only at CAD$1.10).

The average exchange rate over 1990-2017 is 0.8093. That could give us up to an extra 30% once you account for forex.

We would be banking (or gambling if you prefer) on the exchange rate going back down to historical rates and profiting from that.

One issue buying in this situation for a condo or house is it's impossible to know the market and almost impossible to get the 80% of market value you should in this situation.

 

[101Pongo]

One issue buying in this situation for a condo or house is it's impossible to know the market and almost impossible to get the 80% of market value you should in this situation.

I'm not sure I understand what you mean.

Do you mean the resale market will jump and drop with the Canadian dollar?

 

[crisi]

I'm not sure I understand what you mean.

Do you mean the resale market will jump and drop with the Canadian dollar?

I suspect he means that you have two variables - the Canadian dollar and the resale market. Get lucky and you can make out like a bandit with both in play. But if either is unfavorable to your sale, you may have difficulty breaking even. If both are, you could loose your shirt.

But those variables are linked to the state of the U.S. economy, they aren't completely independent.

I do better on the stock market than I would renting out DVC points - but I don't know what the Canadian tax situation would be and the tax situation does factor into calculations.

 

[101Pongo]

Our worse case scenario (at 250-500pts) would be that we're unable to rent or sell, which would gives us the incentive to vacation more :-D

Really though, if CAD remained high (low USD) we shouldn't have a problem renting due to the increase in tourists, if CAD tanks we can use that buffer to sell at a loss but profit on forex.

Thanks for the tip on taxes, AFAIK rental profit is taxed as income in Canada and I don't think profit on sale of personal property is taxable as long as that property is held for x years. I will speak to an accountant or lawyer about it.

 

[DougEMG]

Since a DVC contract eventually is worth zero, compare it to an annuity and see how it works out. You'll just have to make some assumptions about rental rates and MF.

 

[wnielsen1]

As usual, a lot of good information in here. And a lot of nonsense too. OP, it looks like you are approaching it the right way (running analysis, getting answers to your what-if questions, etc.). After all of that, if the rate of return is acceptable given YOUR risk tolerance level than go for it. And if not, don't. And don't worry about anyone else's risk tolerance level. Only you have a complete picture of your finances.

 

[Dean]

I'm not sure I understand what you mean.

Do you mean the resale market will jump and drop with the Canadian dollar?

Two variables for a condo or house. One is you will not know the market sufficiently to know where the best place to buy is. The other, that if you are paying cash, you should be able to buy at or below 80¢ on the dollar. Of course you also have to consider the exchange rate and other variables related to being in a different country. Since you titled this solely to rent, I ignored the usage options of a condo or DVC.

 

[101Pongo]

Two variables for a condo or house. One is you will not know the market sufficiently to know where the best place to buy is. The other, that if you are paying cash, you should be able to buy at or below 80¢ on the dollar. Of course you also have to consider the exchange rate and other variables related to being in a different country. Since you titled this solely to rent, I ignored the usage options of a condo or DVC.

This is part of what draws me to DVC vs. purchasing a condo or house. Much simpler, set maintenance/upkeep (yes, I know it's subject to increase), lower overall investment, less involvement and large community support (namely you fine Dis'ers).

 

[supersnoop]

We were thinking of going into the 500 point range which would be less than 20 res/yr. We could even split it into two 250 pt properties with one in each of our names.

Any other potential issues?

The "20 reservation per year" is simply a metric that Disney uses to help identify "commercial" use. There are situations where someone makes more than 20 reservations for other people, but is not using the membership for commercial purposes. And, counter to that, they could change the metric or use some other method to identify people who are making commercial use of the deed. You should plan to pay within the bounds of the legal contract. Don't take a "we won't get caught" approach.

That being said, the ROI for renting too far out for the risk associated with timeshare ownership. Your ROI is likely in the 11-14 year range. Some folks will recognize that the deed should still have some value as an asset at that point, but that's where the risk comes in. There are better, less risky, less involved investments with higher returns.

 

[Dean]

This is part of what draws me to DVC vs. purchasing a condo or house. Much simpler, set maintenance/upkeep (yes, I know it's subject to increase), lower overall investment, less involvement and large community support (namely you fine Dis'ers).

From an investment standpoint a house or condo might be best, DVC is a poor choice for that. Now if you'll use it part of the time and you have to rent to own a full sized contract, that's a different situations and can be more reasonable. OTOH, the total dollars at risk with DVC can be a lot less than some houses or condo's, you'll have to decide how this fits into your situation. Investment wise I don't see either as reasonable for your situation unless you plan on spending months a year in Orland and even then, I'd live there first and learn the market then start looking for the right deal. Otherwise I'd look at rentals closer to home or simply equity investments.