DVC show financing

Tom P.

Mouseketeer
Joined
May 11, 2015
Let's also be fair to the DIS podcasters. Most people out there are pretty oblivious to their personal finances. DIS podcasters are not in the business of being financial advisors, and the expectation shouldn't be to receive sound financial advise from them. I personally think their financial "advise" is pretty atrocious, but that doesn't mean it comes from a place where they are trying to take advantage of people to line their own pockets. They may simply be unknowledgeable in this area as many others are.
It wasn't just that the podcasters weren't particularly knowledgeable in this area. Pete started the show by doing a mini-rant about people who have other points of view. In fact, he was essentially angry that other people advise not financing DVC purchases. They then took a moment to go around the room and explain why people who felt that were wrong.

This is a perfect example of what I mean by how this podcast is different from "normal" DIS podcasts. Normally, Pete is very careful to always point out that they are presenting one point of view and that other people have differing, equally valid, points of view. In this case, not only did he not say that, but they essentially mocked anyone who would suggest you should not finance DVC. They didn't just offer one perspective. They said "we're right and you're wrong" and then went on to present, in depth, all the different ways to go about financing DVC.
 

CanadaDisney05

DIS Veteran
Joined
Mar 20, 2017
It wasn't just that the podcasters weren't particularly knowledgeable in this area. Pete started the show by doing a mini-rant about people who have other points of view. In fact, he was essentially angry that other people advise not financing DVC purchases. They then took a moment to go around the room and explain why people who felt that were wrong.

This is a perfect example of what I mean by how this podcast is different from "normal" DIS podcasts. Normally, Pete is very careful to always point out that they are presenting one point of view and that other people have differing, equally valid, points of view. In this case, not only did he not say that, but they essentially mocked anyone who would suggest you should not finance DVC. They didn't just offer one perspective. They said "we're right and you're wrong" and then went on to present, in depth, all the different ways to go about financing DVC.
I'm going off of memory here because it was a while ago that I listened to it. I think the rant was less of "you should finance DVC", but more of a rant of "mind your own business. Its fine if you don't finance your own DVC, but don't tell others what they should do", which does make sense to some extent. What I didn't like was that they then proceeded to present one side of the argument, without presenting the other.
 

nkereina

Last chance to lose your keys.
Joined
Feb 11, 2009
High yield savings returns are lower than inflation at this point. It's a fairly good place to park your rainy day money but I would refrain from bragging about your "money making money" in that type of account.
I'm surely not bragging about anything - just explaining why financial advisors often recommend this strategy. The point is that if you have the cash, generally speaking, it should be spent as a last resort. Does that make sense for everyone? No way. But as a 33 year old, if I had a spare $60K laying around, it would work out better in the long term to put it in some kind of savings or retirement fund than it would be to spend it on a timeshare with an expiration date that depreciates in value. If I had to have the timeshare, its generally better to shell out $300 a month in payments (or whatever) than to drop that big lump sum at once when that money can be doing other things for the long-term in an account.

Just to re-confirm, I don't think anyone should finance a timeshare if they couldn't otherwise pay cash for it. The cash will still give them an out if their circumstances change - they can payoff the financing. I also condone true calculation comparisons be done by prospective buyers. As we've said, it will vary for people.
 
  • CanadaDisney05

    DIS Veteran
    Joined
    Mar 20, 2017
    I'm surely not bragging about anything - just explaining why financial advisors often recommend this strategy. The point is that if you have the cash, generally speaking, it should be spent as a last resort. Does that make sense for everyone? No way. But as a 33 year old, if I had a spare $60K laying around, it would work out better in the long term to put it in some kind of savings or retirement fund than it would be to spend it on a timeshare with an expiration date that depreciates in value. If I had to have the timeshare, its generally better to shell out $300 a month in payments (or whatever) than to drop that big lump sum at once when that money can be doing other things for the long-term in an account.

    Just to re-confirm, I don't think anyone should finance a timeshare if they couldn't otherwise pay cash for it. The cash will still give them an out if their circumstances change - they can payoff the financing. I also condone true calculation comparisons be done by prospective buyers. As we've said, it will vary for people.
    Just to re-iterate incase someone else is reading this, but this is only true if the expected rate of return on the "investment" is significantly higher than the interest rate on a loan. If your long term investment will result in a 6 to 7% rate of return, but your paying 12% interest on the loan it makes no sense.

    The problem is, the loans most people are getting on these timeshares have interest rates in the 10 - 15% range.
     

    chicagodisneyguy

    Mouseketeer
    Joined
    Nov 19, 2008
    I really like the DVC show Pete and his crew does. But in my opinion they need to stick to Disney topics and not finance. The financing episode wasn't a balanced look on the pros/cons of financing a luxury timeshare. It was a paid infomercial to try to get customers to finance with zero attempt to educate anyone. I know it's not their job to be financial advisors to Disboards. But I don't think they should be advocating financing without mentioning the costs or risks either. The whole thing felt very irresponsible.
     
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    Starport Seven-Five

    Mouseketeer
    Joined
    Aug 16, 2019
    But as a 33 year old, if I had a spare $60K laying around, it would work out better in the long term to put it in some kind of savings or retirement fund than it would be to spend it on a timeshare with an expiration date that depreciates in value. If I had to have the timeshare, its generally better to shell out $300 a month in payments (or whatever) than to drop that big lump sum at once when that money can be doing other things for the long-term in an account.
    This is not true in a "high interest" savings account as you would be paying 10%+ interest to earn 2% interest.

    10k purchase financed for 5 years:
    2% savings account compounding monthly - $11,050.79
    10% financed loan - $12,748.23
    Net cost of this strategy - $11,697.44 (actually more because you have to pay taxes on the 2% you earn in a savings account but I'm just showing it's more than 10k)

    Any financial adviser that thinks the above is a good strategy should be walked away from.

    As CanadaDisney05 said above, for this strategy to work you have to earn a higher return on your investment than the interest cost. For example, there is a good argument for contributing to a retirement account (9.8% annual return over the last 30 years in the S&P500) instead of paying down a mortgage at 4%. That return on the S&P is not guaranteed though so it's a risk that has to be considered within a person's personal situation.
     

    andyman8

    DIS Veteran and WDW Passholder
    Joined
    Mar 17, 2011
    I don't usually add my two cents on these sorts of topics. As a disclaimer, I'm not at all a financial expert nor would I consider myself to be an expert on DVC. I've researched it for quite a while (and enjoyed the shows) but do not feel it's for me. That said, as a young millennial, I was disappointed by the recent episode. I've never been of the belief that people should never finance DVC. Everyone has their own decision-making process and, especially as someone who lacks expertise in this field, I am not one to judge.

    But, I worry a young millennial in an entry-level job (like myself) with student debt and a lot of uncertainty in his or her near future might see this episode and come to the conclusion that you can just buy DVC through a (ridiculously high) loan like Sean's and rent out your points the first few years. Regardless of your opinions on financing or DVC in general, I think most would agree that DVC would not necessarily be a responsible asset to take on for someone in my shoes. And renting out points is a big "if" on which to base a purchase of thousands of dollars. Yet, Fiasco and Sean made it seem like there's no reason not to buy DVC if you're a millennial. Look, they're grown adults and can make their own personal choices, but when you start giving advice to others in a public forum, you are perceived as something of an authority on the matter. You have a responsibility to be thoughtful (like the team is on virtually every show) in your presentation of your perspective and careful to not mislead your audience or omit important considerations.

    I suppose my biggest source of frustration was the complete lack of nuance or consideration the panel provided for any of their suggestions. Sean's suggestion to buy with friends: what are the potential drawbacks or financial risks you undertake? Sean's "workaround" to get approved for a loan that no traditional bank would approve: what are the drawbacks and why would this company. offer you a loan when most wouldn't? What do they stand to gain? Even something as seemingly benign as the suggestion to put your children on the deed, had @OKW Lover not mentioned the potential drawbacks/risks on here, I would have never been aware or considered them.

    I understand that the show is sponsored by the DVC Store but as part of a network that bills itself as a unbiased and unofficial resource for all things Disney, I still believe this topic should've been held to the same standards that they hold every other topic discussed on other shows to. Whether they intended to or not, they clearly did not. Again, everyone is entitled to make their own personal decisions but when you start giving advice on a platform this large, you lose that benefit of the doubt. You have to be careful and consider the ramifications and misinterpretations of what you're saying. It was deeply disappointing for a team I care for and trust so much.
     
  • Tom P.

    Mouseketeer
    Joined
    May 11, 2015
    I'm surely not bragging about anything - just explaining why financial advisors often recommend this strategy. The point is that if you have the cash, generally speaking, it should be spent as a last resort. Does that make sense for everyone? No way. But as a 33 year old, if I had a spare $60K laying around, it would work out better in the long term to put it in some kind of savings or retirement fund than it would be to spend it on a timeshare with an expiration date that depreciates in value. If I had to have the timeshare, its generally better to shell out $300 a month in payments (or whatever) than to drop that big lump sum at once when that money can be doing other things for the long-term in an account.

    Just to re-confirm, I don't think anyone should finance a timeshare if they couldn't otherwise pay cash for it. The cash will still give them an out if their circumstances change - they can payoff the financing. I also condone true calculation comparisons be done by prospective buyers. As we've said, it will vary for people.
    Again, this is not a mortgage at 4% that we're talking about here. We're talking about people financing DVC contracts at 10-15% interest. There is simply no way that a savings account or retirement fund, even a very good one, is going to offset that. There is no way that financing DVC in order to use cash to invest makes sense.
     

    Heather07438

    WDW Apprentice
    Joined
    Oct 20, 2015
    The problem I have with financing is it's negating one of the top reasons to buy DVC for myself.

    We'd probably visit WDW at least once every 9-18 months for the next 20+ plus years and pay to stay onsite at either Mods/Deluxes. If we're going and spending anyway, why not commit to receive the resort savings? Plus I'd get whatever perks come along. Sounds good.

    But financed, would we even save any money over renting points or getting package offers? We're already reeled into WDW and it's a never-ending journey of upgrades :D DVC will escalate that. We enjoy WDW so to us it's worth spending the money, but it is very expensive. I don't want to pay interest on it too!
     

    Starport Seven-Five

    Mouseketeer
    Joined
    Aug 16, 2019
    Ok, so I ran the numbers on the scenario laid out at 6:14 in the show.

    Scenario presented:
    120 point contract at $116 per point at Animal Kingdom Lodge.
    7 year loan
    $1,000-$1,500 down
    "Payment a little over $200/month"
    Rent first 3 years out instead of using it, it will cover about 9 months of payments.
    "After those 3 years, my contract is almost paid off. I only paid about 1 year of the payments and for the next 30 years it's mine" (paraphrase)

    Assumptions:
    120 points. $116/point
    $608 closing costs bringing total cost of contract to $14,528
    7 year loan
    $1500 down
    10% interest rate
    Animal Kingdom Lodge, $7.44/dues without increases
    Rental income $14.50/point
    Payment $216.28

    After 3 years, you would have paid $7,786.08 in payments, $2,678.40 in dues, and $1,500 down payment for a total of $11,964.48. Your rental income over that time period would be $5,220 assuming you rent out every point. Balance remaining on loan would be $8,527.54.

    My takeaway would be that he paid $6,744.48 out of pocket and now owes $6,270.46 less in principle than the original purchase price which is a $474.02 loss. Renting out the points covered almost all of the interest over those 3 years but didn't touch the principle. You would have had a better result (assuming DVC prices stay flat) stuffing money under your mattress until you had the cash to purchase the contract.

    This result gets much much worse with a higher interest rate btw.
     
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    disneyland_is_magic

    DIS Veteran
    Joined
    Aug 16, 2016
    Wait a second help me out. $14.50(rental) - $7.44 (dues) is $7.06 x 120 = $847.20 net income per year. So that’s actually only covers about 4 payments instead of 9?! So the other 8 payments for 3 years are out of pocket?!

    So you make 24 payments, a down payment, plus closing costs and literally haven’t even gotten one single night? And you still have four years of payments?!

    ETA: Sean may have assumed you rent them privately (which can be done on the boards) so let’s do $17 a point to be fair.
    $17-7.44 = $9.56 x120 points = $1147.20
    That‘s still only covers 5 payments and change so you are still paying out of pocket the other half. I still can’t figure out how he was coming up with 9.
     
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  • wariokartel

    Earning My Ears
    Joined
    Oct 24, 2018
    You got it exactly. You would be better off socking away the $1552.80 every year and putting roughly $4,500 (not including interest from things like CD accounts) more on the down payment. The saving would be significant and you don’t miss out on a single DVC night.

    The only possible basis i can think of that one could argue for Sean’s suggestion is that you think the price of buying points will increase significantly in that time. That could happen. In 2015, DVC Store prices for AKL were $80 for example, and today are about $112-120. Also consider in 2009 AKL was $100 a point and eventually plummeted to around $63-65 by 2012. It took almost a decade for the prices to recover to where they were. Something to think about when someone thinks they want this long term.
     

    nkereina

    Last chance to lose your keys.
    Joined
    Feb 11, 2009
    Just to re-iterate incase someone else is reading this, but this is only true if the expected rate of return on the "investment" is significantly higher than the interest rate on a loan. If your long term investment will result in a 6 to 7% rate of return, but your paying 12% interest on the loan it makes no sense.

    The problem is, the loans most people are getting on these timeshares have interest rates in the 10 - 15% range.
    This is not true in a "high interest" savings account as you would be paying 10%+ interest to earn 2% interest.

    10k purchase financed for 5 years:
    2% savings account compounding monthly - $11,050.79
    10% financed loan - $12,748.23
    Net cost of this strategy - $11,697.44 (actually more because you have to pay taxes on the 2% you earn in a savings account but I'm just showing it's more than 10k)

    Any financial adviser that thinks the above is a good strategy should be walked away from.

    As CanadaDisney05 said above, for this strategy to work you have to earn a higher return on your investment than the interest cost. For example, there is a good argument for contributing to a retirement account (9.8% annual return over the last 30 years in the S&P500) instead of paying down a mortgage at 4%. That return on the S&P is not guaranteed though so it's a risk that has to be considered within a person's personal situation.
    Again, this is not a mortgage at 4% that we're talking about here. We're talking about people financing DVC contracts at 10-15% interest. There is simply no way that a savings account or retirement fund, even a very good one, is going to offset that. There is no way that financing DVC in order to use cash to invest makes sense.
    I've never disagreed that financing at a high interest rate is a bad idea. If someone is financing a timeshare at a high interest rate, that's a larger and different problem. But I still stand behind my point that in many cases, financing can make sense - as mentioned, every person will need to calculate it from their exact circumstances to understand if that's the case.

    After the calculation is done, and its determined the difference is negligible (to the purchaser), they are gainfully employed, and their monthly budget can afford a the payment, I would still lean towards financing rather than giving up that amount of cash up front.
     

    Starport Seven-Five

    Mouseketeer
    Joined
    Aug 16, 2019
    Wait a second help me out. $14.50(rental) - $7.44 (dues) is $7.06 x 120 = $847.20 net income per year. So that’s actually only covers about 4 payments instead of 9?! So the other 8 payments for 3 years are out of pocket?!

    So you make 24 payments, a down payment, plus closing costs and literally haven’t even gotten one single night? And you still have four years of payments?!

    ETA: Sean may have assumed you rent them privately (which can be done on the boards) so let’s do $17 a point to be fair.
    $17-7.44 = $9.56 x120 points = $1147.20
    That‘s still only covers 5 payments and change so you are still paying out of pocket the other half. I still can’t figure out how he was coming up with 9.
    The only thing I can figure is he's not taking the annual dues out of it. $16.22/point covers 9 payments if you don't do that.

    We can split hairs a bunch of different ways but the bottom line is the way it was presented was WAY off. :-)
     

    Jax1023

    DIS Veteran
    Joined
    Nov 30, 2008
    You got it exactly. You would be better off socking away the $1552.80 every year and putting roughly $4,500 (not including interest from things like CD accounts) more on the down payment. The saving would be significant and you don’t miss out on a single DVC night.

    The only possible basis i can think of that one could argue for Sean’s suggestion is that you think the price of buying points will increase significantly in that time. That could happen. In 2015, DVC Store prices for AKL were $80 for example, and today are about $112-120. Also consider in 2009 AKL was $100 a point and eventually plummeted to around $63-65 by 2012. It took almost a decade for the prices to recover to where they were. Something to think about when someone thinks they want this long term.
    It’s like people forget the years 2007-2011ish existed. I’m a millennial, among the oldest, but I remember looking at dvc resale in 2009ish when the market was flooded and you could buy basically anything you wanted.

    Sure prices have steadily risen in recent years, but the economy cannot continue to climb endlessly. It will slow at some point and luxuries like expensive time shares are the first dead weight people look to shed.
     

    Jax1023

    DIS Veteran
    Joined
    Nov 30, 2008
    It’s like people forget the years 2007-2011ish existed. I’m a millennial, among the oldest, but I remember looking at dvc resale in 2009ish when the market was flooded and you could buy basically anything you wanted.

    Sure prices have steadily risen in recent years, but the economy cannot continue to climb endlessly. It will slow at some point and luxuries like expensive time shares are the first dead weight people look to shed.
    Also I love that us millennials are just kids. I’m 37. I have a 7 year old child. I have friends my age who have teenagers. Some of us millennials are hardly kids at this point.
     

    sethschroeder

    DIS Veteran
    Joined
    Feb 24, 2013
    I just feel like there were some fair counterpoints that’s were somewhat glazed over.
    Ahh. Thanks. Did anybody mention the drawbacks of this?
    What actual discussion on these shows? Its starting to be repetitive more and more. Let's go out on a limb with advice, not talk about pitfalls, and not have anyone challenge our random thoughts.

    Pete I think said at one point Sean did his math as he is an accountant and realized how affordable it could be.

    So why not discuss this? Sean might be great at showing the numbers as they are instead of spinning them but there is an old question "What do you call a doctor that finishes last in their class at medical school?" Answer: a Doctor (Hence an explanation instead of a title impresses me more.

    But I guess the point is everyone has a pool of money earmarked for entertainment and whether one uses that cash for DVC or lattes, it's going to be spent anyway, one way or another.
    Just want to say its hard to cut out lattes (or any random small splurge). Someone might have the intentions of cutting something out but end up back on it in 6 months time. "It's only $2/$5/$10". I think everyone has used that logic at some point and failed right? hahaha

    I'm going thru this right now. We have the cash to comfortably buy a smaller contract, DH would like to double the points by financing the other half. I'm just not comfortable financing more than 1/4 of it. Part of buying DVC is receiving some cost savings in return for committing (alongside the rainbows where your life is happier and more content doing what you enjoy).
    The way we had planned it was to do a smaller contract to start and then purchase more points over time. We targeted a loaded contract which gave us more points to use. Example (Purchase 100 but want 200 points) So you have year 1 covered with 200 points and then in year 2 you borrow from year 3 to have 200 points. Finally in year 3 you purchase the other half of the points (again loaded) to have 2x the points.

    FINALLY.....someone who I can 100% agree with!!!
    ....
    Lol. DH swooped in and wrote this while the screen was up. Guess we know how he feels 😂
    Just tell your DH there is a difference between "people should make up their own minds" and "you don't know what you are talking about people should really consider ____" Basically this thread started out of a show where they basically state you are dumb if you don't think financing is a good idea.

    I'm going off of memory here because it was a while ago that I listened to it. I think the rant was less of "you should finance DVC", but more of a rant of "mind your own business.
    Not the way I or some others took that episode at all it was basically "you are dumb if you don't think others should finance" then outlandish reasons why. You can read my original response back on page 1 I think. I can care less if you finance or not. That being said they need to give two sides to the story.

    it's a never-ending journey of upgrades :D DVC will escalate that.
    I will say I find DVC to be an escape from the upgrades personally. No temptation to change hotels, add nights (you have set points), or splurge since you might not be back for a while. Its different for everyone though.

    ...So that’s actually only covers about 4 payments instead of 9?! So the other 8 payments for 3 years are out of pocket?!

    So you make 24 payments, a down payment, plus closing costs and literally haven’t even gotten one single night? And you still have four years of payments?!
    .....
    They can at least do math you would think.
     

    sethschroeder

    DIS Veteran
    Joined
    Feb 24, 2013
    So my own thoughts on the show. Its way to one sided and is more similar to the candle ads than a typical show.

    I can care less if they disagree with my thoughts but at least give truthful information and address the opposition. Its like trying to state "WDW is better than Universal" as a fact and not even talking about why someone might think Universal is better.

    These shows would be way more helpful if they actually walked people through how to do their own "math". I also think they slightly lose their ability to poke fun at DVC Guides (at least those Guides are likely clueless I suspect the DIS team is simply ignoring the other side).
     

    zakdavid

    Mouseketeer
    Joined
    Nov 7, 2019
    In this case it does impact other owners. A large chunk of bankrupt-cheap contracts hitting the market hurts other owners in the time"share".

    I don't think anyone means financial advice as an insult. If you think you got it figured out, then go for it. Just know there is a legitimate threat there.

    Is that not the point of ROFR though? Disney makes sure that price stays where they want it.
     

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