Has anyone thought through this idea?

[Dean]

Not sure what happened to my post but my math is correct.

From a money standpoint look only at the part your renting or like you're only renting and not using it at all. If you do this appropriately you'll see the ROR is very low, no where near double digits.

From an investment standpoint, this is a depreciating asset so one must take that into account. As I stated, I don't believe it's reasonable to look at a timeframe longer than 10 years for return of principal but I know others look at longer periods. For sake of discussion lets assume BWV 100 points at $50 a point resale, a great price including closing. That's $5000 upfront and roughly $500 a year in today's dollars. Assume $10 per point return after other expenses (listing fees, etc). So year one looks something like this.

Invested - $5000
Income-$1000
Expenses
Fees-$500
ROP-$500
Profit-$0
Without accounting for principal it's only 10%.

You can chose to account for the original investment in other ways but to drag it out to the life of the contract is far too risky and not in keeping with general investment practices. The above numbers are used for simplicity. Depending on home resort and reservation choices, one might be able to get up to $13 a point consistently but I slightly underestimated the fees, which are likely to rise as fast as any increases in rental income (total,not just %) related to Brian's point above that rental prices haven't changed much over the years. IMO, the only way to even make this work is to buy at a resort where you can reserve lower cost, higher demand options at 11 months then offer them for rent rather than simply offering points for rent.

Buying DVC simply as a financial investment is an extremely poor choice. Now maybe one finds a great contract and doesn't need the additional points now but does later, buying extra and renting out might be reasonable on a short term basis. Or maybe one already owns but either can't afford the fees now or doesn't need the points but isn't ready to sell for some reason, that is my situation currently.

What are the risks? That fees will go up more than rentals, that of special assessments, that it's worth nothing and you can't even sell it, what if the parks closed, one can go on.

What's the upside? Really none from an investment standpoint other than what we've delineated. No chance of appreciation, no real chance that rentals will increase faster than other options, etc.

 

[logan115]

Not sure what happened to my post but my math is correct.

If the 2nd 200 pts don't have MFs I'd agree

You pay $10K, generate $2K of revenue (rental income), but also have $1K in costs (MFs), leaving you with $1K to apply to the other MFs from the 1st 200 pts. You pay $10K, net $1K from that $10K investment - looks like 10% to me.

The problem is you're not "making" $2K on the 2nd 200 points, you're "making" $1K.

Guess we'll have to agree to disagree on your math.

Chris

 

[DVC Dude]

If the 2nd 200 pts don't have MFs I'd agree

You pay $10K, generate $2K of revenue (rental income), but also have $1K in costs (MFs), leaving you with $1K to apply to the other MFs from the 1st 200 pts. You pay $10K, net $1K from that $10K investment - looks like 10% to me.

The problem is you're not "making" $2K on the 2nd 200 points, you're "making" $1K.

Guess we'll have to agree to disagree on your math.

Chris

I 100% agree with you. I was going to post the same exact answer....they forgot to include (i.e. deduct) the annual dues.

 

[disneyofcourse]

No way I'd buy more DVC points as a financial investment. To many uncertain things to take into account with what could change in the rental market, cost of dues going up, more people renting out points and the possibility of points not getting rented . BTW you forgot to subtract the dues from your math.

 

[Dean]

I 100% agree with you. I was going to post the same exact answer....they forgot to include (i.e. deduct) the annual dues.

Not only that, they didn't account for the initial investment being a depreciating commodity.

 

[BrerNashville]

Not only that, they didn't account for the initial investment being a depreciating commodity.

Wouldn't the depreciation really be the amount by which the value of a point decreases from year to year? Whenever you run numbers for a real estate investment, wouldn't you include the residual value? Now, I know the residual value is ultimately zero for a time share, but that doesn't happen until many more than ten years out. If you are looking at a BLT investment, especially on the resale market, it seems that depreciating it 10% per year is a little steep -- surely those points will have some value after 10 years? After five years, one would think those points would be going for more than $45/pt.

I'm not saying it ultimately makes sense, as to me the biggest risk is that with a stroke of a pen, Disney does something to make rentals (especially multiple rentals) incredibly difficult, if not impossible. That variable is hard to figure into the equation and, along with all the other headaches mentioned above, would keep me from doing it.

 

[Dean]

Wouldn't the depreciation really be the amount by which the value of a point decreases from year to year? Whenever you run numbers for a real estate investment, wouldn't you include the residual value? Now, I know the residual value is ultimately zero for a time share, but that doesn't happen until many more than ten years out. If you are looking at a BLT investment, especially on the resale market, it seems that depreciating it 10% per year is a little steep -- surely those points will have some value after 10 years? After five years, one would think those points would be going for more than $45/pt.

I'm not saying it ultimately makes sense, as to me the biggest risk is that with a stroke of a pen, Disney does something to make rentals (especially multiple rentals) incredibly difficult, if not impossible. That variable is hard to figure into the equation and, along with all the other headaches mentioned above, would keep me from doing it.

The question was essentially about buying 200 points as an investment. One of the reasons I would chose a 10 year period and no longer is you really don't know that they will be worth anything down the line, there is simply too much risk and too many variables. Regardless of the timeframe you chose, the principles still hold, best case scenario is you "depreciate" it over the life of the contract. As pointed out, rental rates haven't kept up with maint fees from a % basis and have been about break even on an actual dollar basis.

Interesting you should chose BLT, which has a much higher cost than other WDW options, one the lower fees (which won't stay that much lower) will never make up for. So the numbers are even less favorable if you run it on BCV and BLT.

 

[BrerNashville]

One of the reasons I would chose a 10 year period and no longer is you really don't know that they will be worth anything down the line, there is simply too much risk and too many variables.

Well, unless you think the points will be worth zero ten years from now, you shouldn't depreciate your points to zero -- you should depreciate them to whatever you think they will be worth 10 years from now. My only point in choosing BLT was that while it was more expensive today, its residual should be proportionately higher, perhaps disproportionately higher, than some of the other properties.

 

[Dean]

Well, unless you think the points will be worth zero ten years from now, you shouldn't depreciate your points to zero -- you should depreciate them to whatever you think they will be worth 10 years from now. My only point in choosing BLT was that while it was more expensive today, its residual should be proportionately higher, perhaps disproportionately higher, than some of the other properties.

IMO, assuming any cash value beyond a 10 year period is beyond that level of risk I'd like to incur if I were doing this as an investment in a timeshare, which was the question. They will be worth zero at some point and likely far sooner than the end of the contract from a sales standpoint. What if the parks close for example. My point about BLT is that while it will likely be worth more in 10 years, it will never make up the extra buy in price at todays prices even assuming for lower dues. IF one were going to do this as an investment (again the actual question), the best value and ROI is BWV standard view for higher demand lower cost times reserving at 11 months out. Isn't the bankruptcy thread about just that, someone who bought a lot of points to do rentals?

Still, lets take your assumption of depreciating over the life of the contract rather than 10 years combined with my numbers above. If you do that, you get a ROP of $167 and a return around 6 2/3% best case scenario assuming no issues or negatives along the way with a LOT of inherent risk. It's kind of like financing a car for 7-10 years in my book. YMMV.

 

[HokieGCC]

My calculation did assume that the value remained the same and I could get back that $10K anytime I wanted which I agree is incorrect by definition and only becomes a small error when projected over several years. I also assumed that the rental tracks the MF's which is probably a so-so assumption.