Has anyone bought resale points to use for renting only?

[Sammie]

You would be better off putting $15.000 plus $1120 every year in a vacation account to cover those expenses than renting.

 

[fairytalelover]

how much tax ? no write off?

 

[mousehockey37]

how much tax ? no write off?

I was googling things and I actually found a thread here on the DIS of all places dealing with this.

https://www.disboards.com/threads/w...come-tax-liability-for-renting-points.809954/

 

[ELMC]

buying points through resale for example at saratoga for about 200 points would be about $15,000 with dues only about $1120 per year. Seems to me that if the $15,000 is paid off in full at time of buying and we are only paying the annual dues, renting them out at about $13 per point would get us about $2600 which is little more than what our average round trip flights cost.

I'm curious, where in your analysis do you account for the fact that you are spending $15,000 up front to put yourself in the position to "profit" about $1,500 a year? I may have missed it, but I don't think I saw your thinking there. Thanks for helping me to understand better.

 

[ELMC]

Seems to me that if we rented it out only once a year then in 5 years we would get ROI. If we rent out twice a year it would be sooner. Again this is based upon buying about 200 points resale at saratoga for the average it's going for of about $15000.

Can you please explain what you mean when you talk about renting out twice a year? You only get 200 points, and you can only use those points once, so I'm not sure where the second rental comes in.

 

[mousehockey37]

I'm curious, where in your analysis do you account for the fact that you are spending $15,000 up front to put yourself in the position to "profit" about $1,500 a year? I may have missed it, but I don't think I saw your thinking there. Thanks for helping me to understand better.

They think they're going to profit 2600.

 

[Wakey]

I just bought my SSR at circa $10500 for 160 point contract after deduction of a 160 point rental I made with banked 2016 points I could not use. This is including closing . I raised $1808 on that first rental, all points gone, money in my account in 22 hours. Dues had already been paid by seller on those 160 banked points. 101 of those points went in 30 minutes, money in my account 4 hours later. In the current market you will very likely rent all points, with minimal effort, very quickly. So now my base cost is $10,500. Dues are $864pa. Yes they will go up, but assume rental prices will go up (I am surprised they are not higher now, as demand is outstripping supply- they will go up shortly I am sure.) So my profit is $944 pa, or a rate of return of 9% which isn't half bad. This assumes that going forward everything stays the same re cost and rent- but any property rental is the same. This also assumes I can get back my $10,500 when I come to sell. That is the question. SSR expires 2054. If I wanted to get rid in 2044 with 10 years left, taking into account nearly 30 years of inflation, will I get back $10,500. I'd suggest that is a very good bet- the points are worth what they are worth against a cash booking, and cash bookings will be much more expensive than they are now.
Of course, I bought my points to use, not rent, and commercial renting is not allowed, so that may cause some difficulties (albeit I have not heard of this being enforced). However, back to the basic question could you buy for an investment- the answer I think can be yes, but there are better investments. Also if you go and buy Copper Creek at $179 a point, the numbers will be nothing like my example, and you will not likely make a profit.

 

[ELMC]

I just bought my SSR at circa $10500 for 160 point contract after deduction of a 160 point rental I made with banked 2016 points I could not use. This is including closing . I raised $1808 on that first rental, all points gone, money in my account in 22 hours. Dues had already been paid by seller on those 160 banked points. 101 of those points went in 30 minutes, money in my account 4 hours later. In the current market you will very likely rent all points, with minimal effort, very quickly. So now my base cost is $10,500. Dues are $864pa. Yes they will go up, but assume rental prices will go up (I am surprised they are not higher now, as demand is outstripping supply- they will go up shortly I am sure.) So my profit is $944 pa, or a rate of return of 9% which isn't half bad. This assumes that going forward everything stays the same re cost and rent- but any property rental is the same. This also assumes I can get back my $10,500 when I come to sell. That is the question. SSR expires 2054. If I wanted to get rid in 2044 with 10 years left, taking into account nearly 30 years of inflation, will I get back $10,500. I'd suggest that is a very good bet- the points are worth what they are worth against a cash booking, and cash bookings will be much more expensive than they are now.
Of course, I bought my points to use, not rent, and commercial renting is not allowed, so that may cause some difficulties (albeit I have not heard of this being enforced). However, back to the basic question could you buy for an investment- the answer I think can be yes, but there are better investments. Also if you go and buy Copper Creek at $179 a point, the numbers will be nothing like my example, and you will not likely make a profit.

This is a more detailed analysis than the original post and I think it highlights the mechanics and potential issues of this situation. I highlighted one great point you made about being able to recapture your initial purchase price. If you can't, it skews all the numbers in a very unfavorable way. Treating a timeshare as an investment vehicle is inherently risky. I think we've seen situations where it has worked in the past. But I can't help but wonder how many times it hasn't worked out that we haven't heard about.

 

[ELMC]

Yes they will go up, but assume rental prices will go up (I am surprised they are not higher now, as demand is outstripping supply- they will go up shortly I am sure.)

I think you may be correct, but I wouldn't go so far as to say that I am "sure". I'm not sure about anything when it comes to DVC.

Rental prices have actually gone up quite a bit in recent years. Back in 2011 when I purchased my first DVC contract, rental points were in the $10-11 range. The real issue is that the price of rental points is dictated by the point brokers. In order for them to start paying more, they have to start charging their customers more, and I'm not so sure they're in a rush to do that. There is a point where that will happen again as it has happened in the past, but in the meantime it appears as if it's preferable to simply try to manage a bulging demand than to tinker with the financial model. As an owner, I am very much looking forward to the next $1pp jump in rental prices.

 

[Wakey]

This is a more detailed analysis than the original post and I think it highlights the mechanics and potential issues of this situation. I highlighted one great point you made about being able to recapture your initial purchase price. If you can't, it skews all the numbers in a very unfavorable way. Treating a timeshare as an investment vehicle is inherently risky. I think we've seen situations where it has worked in the past. But I can't help but wonder how many times it hasn't worked out that we haven't heard about.

Yes of course, that is a key element, but the longer the period of investment the less important getting that original sum back is because of inflation. There will be a sweet spot. If I just kept it and kept renting it out to end of life, then the return would go down, but given the length of investment (20+ years) and the inflationary effect on the original fairly modest purchase price, it probably would not be worth the bother of selling it after a certain point, and if I couldn't use it I'd likely just keep renting to end of life. The rate of return would go down a bit as I don't get my $10,500 back at year 20 but instead have extra profit trickling in over the years instead. However, if we assume a 3% level of inflation over the 37 years the contract has left, that $10,500 would in 37 years be worth circa $750 (I haven't done the exact calculation) at 37 years, so there comes at point it is not worth the hassle of selling and just take the rental until the end of contract. If everything remained the same at say $900 profit a year, it would still be a decent rate of return as you cashed in your last rental in 37 years' time and walked away.

 

[Wakey]

I think you may be correct, but I wouldn't go so far as to say that I am "sure". I'm not sure about anything when it comes to DVC.

Rental prices have actually gone up quite a bit in recent years. Back in 2011 when I purchased my first DVC contract, rental points were in the $10-11 range. The real issue is that the price of rental points is dictated by the point brokers. In order for them to start paying more, they have to start charging their customers more, and I'm not so sure they're in a rush to do that. There is a point where that will happen again as it has happened in the past, but in the meantime it appears as if it's preferable to simply try to manage a bulging demand than to tinker with the financial model. As an owner, I am very much looking forward to the next $1pp jump in rental prices.

Yes agree, there are a lot of variables. I don't think any serious investor would buy DVC, because of those variables. But I think it is nice to think as a DVC owner, that if you cannot use the points, you can rent them out (at least at the moment) at a decent rate of return and 'possibly' you could actually make some profit out of the contract if for some reason you found yourself unable to use it. I also think it is nice to think if you got a good deal resale, there is a good chance after you have had a lot of vacations and got good value, that you maybe possibly be able to realise much of your original expenditure.

 

[Lynne M]

I'm curious, where in your analysis do you account for the fact that you are spending $15,000 up front to put yourself in the position to "profit" about $1,500 a year? I may have missed it, but I don't think I saw your thinking there. Thanks for helping me to understand better.

To me, this is the big flaw in the OP's assumptions. You don't actually start "saving money" until you make back that original investment of $15K. Which would take what, about 10 years? Until then, the money you make from renting is just paying you back for the initial expenditure. In short, you're spending a whole lot of money to make a little bit of money.

 

[frank808]

Seems to me that if we rented it out only once a year then in 5 years we would get ROI. If we rent out twice a year it would be sooner. Again this is based upon buying about 200 points resale at saratoga for the average it's going for of about $15000.

I think you have better sit down and think this through thoroughly. Your roi in math does not take into account dues. Also you cannot get 400 points every year with a 200 point contract. You can borrow in the first year to get 400 points but it will still take 8 years to get the 2000 points you need If you buy a contract with banked points. Glad you asked first for some advice.

 

[frank808]

To me, this is the big flaw in the OP's assumptions. You don't actually start "saving money" until you make back that original investment of $15K. Which would take what, about 10 years? Until then, the money you make from renting is just paying you back for the initial expenditure. In short, you're spending a whole lot of money to make a little bit of money.

I figure its about 14 years if you account for time value of money since you are paying $15000 up front. For 14 years payback it was a conservative index fund. A more aggressive fund would make the payback even longer.

So yes people have bought to rent. Although i see better ways to earn money rather safely than in buying points to rent.

 

[DVCcurious]

I had this question backwards: I already own, so should I sell my VWL or rent in perpetuity?

You could probably search that thread out. I decided to sell and pay down my HELOC. Renting takes effort and the potential return didn't justify the effort. I am happier with the guaranteed, effortless 4.25% I am getting by not paying interest on the $15,000 I paid down on the heloc after selling.

To quote trading places: "get back in there and sell, sell, sell!"

 

[supersnoop]

If I just kept it and kept renting it out to end of life, then the return would go down,

This seems to be another flaw in logic. You have to think of it in annuity terms. The current price is the present value of future payments. Holding it to maturity should actually increase your return because of the risk premium. You can't sell it for more than it's worth.

 

[Wakey]

This seems to be another flaw in logic. You have to think of it in annuity terms. The current price is the present value of future payments. Holding it to maturity should actually increase your return because of the risk premium. You can't sell it for more than it's worth.

OK, I'll take your word for that one!

 

[mustinjourney]

I was googling things and I actually found a thread here on the DIS of all places dealing with this.

https://www.disboards.com/threads/w...come-tax-liability-for-renting-points.809954/

There are many threads on the DIS about this topic. I'm pretty sure I've seen at least three others in the last two months.

 

[TexasChick123]

This seems to be another flaw in logic. You have to think of it in annuity terms. The current price is the present value of future payments. Holding it to maturity should actually increase your return because of the risk premium. You can't sell it for more than it's worth.

I wholeheartedly agree. It needs to be looked at as an annuity payment. Compare it to a bond which will make more sense. Obviously, there is more risk than in a traditional bond, thus the higher ROR (rate of return) than what is being offered in the bond market currently. The ROR will depend on what you paid for the points, what you can rent them out for, and your MF's. Also, there is work involved with renting as opposed to a bond where you just get money sent to you because you purchased the bond. I have a finance background. It does yield a decent return if you mostly rent, but it is risky because Disney can change the rules at any time or start more strictly enforcing the "no commercial renting allowed" clause. Certainly don't go and buy a bunch of points counting on this. Some people do, but that is incredibly risky because of the aforementioned reasons.

 

[fairytalelover]

That was a mistake on my part. As soon as I posted it I thought about and realized I couldn't do that. All of this had me so confused.