DVC Landlord - can this business really work?

[DisneyWalker44]

My statement that DVC does not allow this still stands.

I guess it depends upon what you means by Disney now allowing this...

If you mean they have language whereby they claim to have the ability to stop it, I'd agree.

But they are clearly "allowing" it, as people are engaged in the business and not being stopped.

Sure seems like a lousy business to me, but I personally wouldn't be scared off by Disney claims about being able to stop commercial renting.

 

[DisneyWalker44]

It would be possible but unlikely to not have to claim the rental income as per the vacation home rules.

However, I know of no loophole that would allow an owner to legally avoid paying sales and resort taxes if they charge people to stay in their timeshare.

 

[Dean]

However, I know of no loophole that would allow an owner to legally avoid paying sales and resort taxes if they charge people to stay in their timeshare.

If one meets all the requirements of the rental home exclusion, several CPA's familiar with timeshares believe one could use those exclusions. That would require at least 15 days personal use and no more than 14 days rental. Ultimately it would be up to the IRS to decide.

 

[DisneyWalker44]

If one meets all the requirements of the rental home exclusion, several CPA's familiar with timeshares believe one could use those exclusions. That would require at least 15 days personal use and no more than 14 days rental. Ultimately it would be up to the IRS to decide.

I believe you are just talking about the federal income tax, not the 12.5% Florida/Orange county sales and resort tax.

 

[Dean]

I believe you are just talking about the federal income tax, not the 12.5% Florida/Orange county sales and resort tax.

Correct, we were talking earned income. I didn't realize you had taking a small detour to sales tax. However, most who discuss this mistakenly assume that you owe the full 12-12.5%. That is not my understanding. My understanding is you only owe 6% sales tax plus a surtax that varies by county, currently 0.5% for OC. Military and rentals over 6 months are generally exempt. I can give you anyone place to download the forms if you want, just email me privately.

 

[CarolAnnC]

All this just makes me happier that I don't rent my points out, LOL!

I wonder if you file to pay the taxes if DVC can track it thru the resort taxes and deem it commercial renting?

 

[DisneyWalker44]

My understanding is you only owe 6% sales tax plus a surtax that varies by county, currently 0.5% for OC.

Why do you think DVC rentals would be except from the Tourist Development Tax? https://tdt.occompt.com/excise/

 

[DisneyWalker44]

if you file to pay the taxes if DVC can track it thru the resort taxes and deem it commercial renting?

Since both commercial and non-commercial renters are required to pay taxes, I'm not sure how Disney could use the tax info to identify commercial renters (if they wanted to - which they don't currently seem to.)

 

[DVC Mike]

While I personally don't rent my points, I know of people who have a substantial amount of points, and rent out a portion to cover their annual dues. It works for them, and DVC hasn't cracked down on them. I know what the rules say, but DVC apparently doesn't always enforce them.

That said, I think there are easier and more profitable ways to recoup your MFs than buying more points than you need and renting them out. It's just too much of a hassle!

 

[CarolMN]

.......(snip)......While 20 is arbitrary, the fact that the legal paperwork including the POS specifically allow renting and that that a definition of "commercial" was omitted would require that DVC have a definition that would stand up in court. IMO, that requires something that essentially everyone, including those that rent, could agree is commercial. So while they could vary from 20, it's unlikely it could go much below that. Then you get into what's 20. Is a change of room types or resorts one or 3, etc. ......(snip).

The OP was stating he was purchasing DVC with the express intent of renting in order to recoup the full cost of the DVC in 12 years. My statement that DVC does not allow this still stands.

And I would disagree somewhat. Currently and likely into the future, a normal size contract used in this way would not violate the rules as in place. I could see the argument that it was bought specifically and only to rent out as commercial but as of yet that would not be the case with DVC. Still, it would be stupid choice but there's no rule against stupid.

I guess it depends upon what you means by Disney now allowing this...

If you mean they have language whereby they claim to have the ability to stop it, I'd agree.

But they are clearly "allowing" it, as people are engaged in the business and not being stopped.

Sure seems like a lousy business to me, but I personally wouldn't be scared off by Disney claims about being able to stop commercial renting.

For me the bottom line here is that Disney has all the money and the power. They can cancel your reservations and freeze your account.

Sure, you could take them to court and perhaps in the end, you might even prevail. But realistically, who would be willing to do that? I doubt you could even find a lawyer willing to take this on. Not even close to enough gain to warrant the expense! JMHO. YMMV.

 

[Dean]

Why do you think DVC rentals would be except from the Tourist Development Tax? https://tdt.occompt.com/excise/

That was different than the info I had previously, thank you for pointing it out and the link.

Sure, you could take them to court and perhaps in the end, you might even prevail. But realistically, who would be willing to do that? I doubt you could even find a lawyer willing to take this on. Not even close to enough gain to warrant the expense! JMHO. YMMV.

Given the right circumstances I would. Lawyers love to take on big companies in many situations. Had I still owned OKW, I would have done so regarding the extension issues. IMO, DVC would never let this go to court because they likely would lose under case law regarding rentals where the developer is also renting. You could argue which way you think it'd go but would they want to chance it. If that happened they would lose all control and all rules would apply to the developer and club as it applies to members. I sincerely doubt they'd be willing to take that chance. I doubt it'd even get to the non binding arbitration hearing but it might get that far.

 

[Brian Noble]

The rate of return, even at current resale prices, is pretty low.

Let's say you can gross $10 per point on average. Some rentals will be higher, but you'll have to account for spoilage, etc. so that seems like a fair number. Dues are about $4.50 out of that, give or take, depending on where you own. That leaves about $5.50 per point of income. But, even a resale at $65 means that rate of return is only 8.5%.

You can do A LOT better with other properties---other timeshares will command lower rents, but they also have significantly lower cost bases. I can routinely get 20-30% ROI renting reservations at Wyndham Bonnet Creek, and I'm not even trying that hard.

 

[silmarg]

appreciate all the thoughts.

in full disclosure, I am a tax professional by trade, and while I have not vetted out all the detailed tax ramifications of attempting to do this.... I am fairly certain that all rental income is indeed subject to Florida sales tax.

And I know that one can not deduct losses on timeshare rentals as could be the case in the rental of real estate (as a time share is not considered real estate for this purpose). So if one incurred a loss on timeshare rentals it would be considered a passive activity loss and carried forward into years with passive activity income.

I agree with many posters, one would be at the mercy of Disney, DVC and DIS (or other boards) to keep the ability to keep the business flowing. And this is not an inconsequential risk.

As for a renter damaging property... this is a risk one take in any similar rental activity. I suppose there is better recourse in other venues (like security deposits, etc) but it would be a cost "of doing business".

When the dust settles, I doubt I would ever actually do this, but its interesting to see what everyone's thoughts are on it.

But with OKW resales offers as low as $55 (assuming this passes ROFR) one could take a vacation, rent a few points and put it back on resale for the low $60s. To me it seem win win win... even if you cant ever sell the DVC back. $55 sounds like a bargain to me... Am I a dope not to take the offer?

 

[Deb & Bill]

...Still, it would be stupid choice but there's no rule against stupid.

You know, Dean, you've said a lot of wise things in the past, but this is the best of all.

 

[crisi]

As for a renter damaging property... this is a risk one take in any similar rental activity. I suppose there is better recourse in other venues (like security deposits, etc) but it would be a cost "of doing business".

One of the issues on things like requiring a security deposit is that it isn't common practice to do so.

When you set up a DVC rental business you are competing not only with Disney but with people who just want to cover their dues because they are tight on cash this year. People who just want to cover the cost of whatever vacation they are taking instead of Disney this year. People who have a few extra points because the trip got shorter this year, or because their brother and his family backed out. Many of those people aren't interested in maximizing profit or complicated transactions, they just want to get rid of their points easily.

So as someone looking to rent points, you can rent from a guy who really just doesn't want to get stuck with the points he saved for his brother to come along and is willing to let them go for $8 - cover his dues when he makes the reservation, the remainder due 60 days out. Or the guy who wants a security deposit. The more business process put around the rental to protect the owner, the more attractive the casual landlord becomes to the renter.

 

[Dean]

You know, Dean, you've said a lot of wise things in the past, but this is the best of all.

I can't take credit as it's been said many times by many people in the past in various contexts. Fortunately with DVC it's not a multiple of 10-30 times value like it is some timeshare purchases retail.

 

[CarolMN]

The rate of return, even at current resale prices, is pretty low.

Let's say you can gross $10 per point on average. Some rentals will be higher, but you'll have to account for spoilage, etc. so that seems like a fair number. Dues are about $4.50 out of that, give or take, depending on where you own. That leaves about $5.50 per point of income. But, even a resale at $65 means that rate of return is only 8.5%.....

And that is without considering your time.