Buying DVC with INTENTIONS of renting it out?

[GoofItUp]

Now I will admit that I have not invested the time or brain power to do the math on this, so it might never work anyways....

Do people buy into DVC with the intentions of renting their points out for a certain amount of years to pay for (or subsidize) the cost of the contract, and then using it personally later? While I really wanted to buy DVC, I do not want to finance it and we have some other major-cost items we need/want to save up for right now.

I really don't think I would do it this way, but I'm just wondering if it's ever crossed others minds and what the pros/cons would be. So, as a "what-if", what do you think?

 

[wildernessDad]

I think that some do. But I didn't and I don't recommend it for others.

Like I have said in the past, I am against the commercial renting of points. I am not against someone renting their points every once in a while for personal reasons. Please let me make that clear.

 

[crisi]

Some people do. I'm not sure that its cost effective at the current cost of points right now, plus maintenance fees, and the cost per point being $10-12 - at least on this site. Also, I'm thinking your timing is bad - with the economy not doing great and gas and airfare more expensive - plus DVC's expansion - there are more points on the market to rent then there were a few years ago, and a lot of people deciding to travel closer to home.

(I do think people who bought in at OKW at $53 a point can still make a killing renting points - remember that you have to compete against those folks with your points).

 

[JimMIA]

I think buying to rent is a fool's bet.

Buying today, you'd be looking at a pretty low-margin proposition -- probably with a per point cost of $7-9, and renting at $10-12. That's hardly a formula for getting rich. As Crisi points out, your competitors would have costs in the $6-7 range, and could undercut you easily. And they would. I can think of a lot better places to put money to work.

Also, using a DVC ownership for commercial purposes is prohibited (renting occasionally is not), and it would be a simple matter for Disney to determine if the account was being used that way. Plus, DVC could someday prohibit renting altogether. They would have to amend the POS, but they've already done that to restrict renting somewhat.

 

[GoofItUp]

I think buying to rent is a fool's bet.

Buying today, you'd be looking at a pretty low-margin proposition -- probably with a per point cost of $7-9, and renting at $10-12. That's hardly a formula for getting rich. As Crisi points out, your competitors would have costs in the $6-7 range, and could undercut you easily. And they would. I can think of a lot better places to put money to work.

Also, using a DVC ownership for commercial purposes is prohibited (renting occasionally is not), and it would be a simple matter for Disney to determine if the account was being used that way. Plus, DVC could someday prohibit renting altogether. They would have to amend the POS, but they've already done that to restrict renting somewhat.

It wouldn't be to make money as an investment. It would be to help pay off the DVC contract so that it could be used personally in the future. In other words, buy at today's prices knowing that it won't be used for maybe 3-5 years.

 

[Brian Noble]

I looked at it. The return on investment for a cash purchase is pretty modest given the current rental points market, and you'd be cash-flow-negative if you finance through Disney.

 

[disney54us]

We have been members for 11 years and have 5 contracts. In all those years I have never rented. Funny right now is the first time I am considering it for some of my points we won't be using. I think the other posters are correct, you may not get the money your looking for and what if you can't rent the points? It would be like buying a beach house thinking that if you rent it you can cover the mortgage. I wouldn't chance it, I would wait till you can save enough to buy what you want or buy a min. amount of pts. to start and add on through the years.
They have been cracking down on 'commercial renters' (it's about time). So as said before you would be breaking your contract.

 

[JimMIA]

I looked at it. The return on investment for a cash purchase is pretty modest given the current rental points market, and you'd be cash-flow-negative if you finance through Disney.

I haven't done the math, but I suspect Brian's right. If you paid cash, you could probably cover your dues for those years when you don't use the points, but I think it would be a losing proposition if you financed.

 

[GoofItUp]

I haven't done the math, but I suspect Brian's right. If you paid cash, you could probably cover your dues for those years when you don't use the points, but I think it would be a losing proposition if you financed.

This is what I figure....in a magic Disney world it would pay for itself in the first few years, but in actuality it would subsidize the contract cost at best.

I suppose life is full of choices, and DVC just may not be in the cards for us too soon no matter how we try and play it. Darn it!

 

[srenga]

If you bought a contract for cash today, I figure you could get about a 6-7% return by renting. Better than you would get in a bank, but still a poor investment as your principle is at risk and you have to spent time and effort to rent the points.

However, the rental aspect of DVC was a big selling point for me. The years that I want to vacation non-Disney, it's nice to know I can just rent out my points for a respectable return and pay cash for a ressie rather than be limited to trading points thru II

 

[Brian Noble]

Here's a real example all on a per-point basis. This is for an SSR resale, assuming you negotiate well and get a little lucky on the ROFR floor (which seems to be dropping recently.) I'm being a little conservative with the rental rates.

Capital invested $76
Dues are: $4.21
Rental revenue: $10
Pre-tax income: $5.79
Pre-tax rate of return: $5.79/$76 or about 7.6%

For grins, at $11pp rental revenue, returns are 8.9%. At $12pp, 10.25%.

However, a developer purchase (AKV purchased at $96, dues $4.71) returns only 5.5%, 6.6%, or 7.6% w/a $10, $11, or $12pp rental revenue.

You also have to pay taxes on the income at your marginal rate (filed on a Schedule E---passive activity). What's more, those returns assume no shrinkage/lost points, etc. And, it's a lot of work.

If your goal is to invest and produce the money necessary to cover a DVC purchase, you'd probably be better off in an S&P index fund, which has better long-term rates of return, and takes zero effort on your part.

http://www.mutualofamerica.com/articles/CapMan/October03/SandP500.htm

If you really want to get into the timeshare rental business, there are much better opportunities out there. Those would be even more work, though, because you can't ride the Mouse's marketing coat-tails.

Edited to add: srenga is right on the money---it's a poor business, but a nice "sometimes we'll do something else" option, and in most cases a much better use of DVC assets than II.

Edited one more time: I'm also ignoring the fact that the asset depreciates over time, eventually to zero, but if you don't plan to sell, that's not a big deal.

 

[WALTSAGOD]

The OP is not talking about making money on an investment of DVC as I read it.

Wants he wants to know is he can buy a contract, and rent it out, having the rental income pay for the original contract investment, then use the remaining contract for his vacationing. That way he buys a contract, rent it out until others pay for it, then enjoys the remaining years himself.


Some of you good math majors should be ale to figure this out.

 

[Brian Noble]

Perhaps you missed it, but that's exactly what I just did. The short answer is: "If you finance from Disney at 10%, no. If you pay cash, yes---after about 20 years, give or take."

Of course, it takes less time if you ignore interest rates, but if you're the sort of person who ignores the time-value-of-money in a financial matter that spans many years, I'd like to borrow some money from you: give me $10,000 now, and I'll pay you back $1,000 a year for ten years.

 

[mjy]

All your discussion thus far has seemed to forget one other potentially extremely costly decision: The resumption of liability for a rental gone bad.

If someone does some major damage, it is ultimately the owner's head upon whom the hammer would fall.

I know that people quote success story after success story for rental. However, it would only take one major goof to foul everything up for an owner.

I know that I wouldn't want to worry about that.

Just my two cents worth . . .

 

[PamOKW]

I think some people may also underestimate the amount of time that goes into renting points. If a rental becomes "difficult" it can involve multiple calls and changes and at some point you may begin to question if the $10 pp is worth it. With the amount most people get on a rental having staid stagnant for many years while the cost of points and dues have gone up I'm not sure it's really worth the effort. I might consider a second job where you make some real money as a better way to finance the purchase.

 

[Dean]

The likely return on buying points to rent is down in the 5-6% range above inflation, dues, return of pricipal and other similar costs. Certainly not enough to justify owning for that purpose. I'd want 12% or more to justify keeping it for that purpose and 20% expected return to buy in for that purpose. To buy points and leverage them by renting just to be able to afford it is certainly a poor choice. For that, save some money, buy a smaller contract then keep saving and add on as you can afford it.

 

[Mtnman44]

Bingo. Buy half as many points, invest the rest of the money. Then later, use the investment nest egg to complete your DVC ownership.

The likely return on buying points to rent is down in the 5-6% range above inflation, dues, return of pricipal and other similar costs. Certainly not enough to justify owning for that purpose. I'd want 12% or more to justify keeping it for that purpose and 20% expected return to buy in for that purpose. To buy points and leverage them by renting just to be able to afford it is certainly a poor choice. For that, save some money, buy a smaller contract then keep saving and add on as you can afford it.

 

[Caskbill]

The OP is not talking about making money on an investment of DVC as I read it.

Wants he wants to know is he can buy a contract, and rent it out, having the rental income pay for the original contract investment, then use the remaining contract for his vacationing. That way he buys a contract, rent it out until others pay for it, then enjoys the remaining years himself.


Some of you good math majors should be ale to figure this out.

But by definition that's an investment. The ROI he is hoping to return is the amount he paid for the contract. That's the Profit on his investment.

If he was renting it out for strictly the amount of his annual dues, it would be a zero sum and therefore not an investment.

No different than if you bought a house, using a loan, and rented it out. The renters basically pay for the insurance, taxes, and loan payment. In 20 or 30 years you get the house free and clear. It's still an investment. The only difference is whether the original purchase was used with one's own money, or with someone else's money EG a bank loan.

The intent is still the same. Rent it out for a profit, where the profit pays for the initial purchase.

 

[Cruelladeville]

This sort of thing works better if you are using part of the points to pay for your dues, and you use the rest of the dues to vacation. That way your vacations are basically free. I don't know if I would want to invest in DVC, and expect to make a profit. I have on all of my contracts because I bought at $56, but there is actually no profit unless I either sell or rent to get back my original investment.

 

[Brian Noble]

Except that your purchase costs are higher. And, if you account for those costs properly, you would need to buy several times your own usage for your vacations to be truly "free".

Cash-flow-neutral is not the same as free.