How did you pay for resale?

[mustinjourney]

I have credit cards that give better rates than what you will be charged if you finance...

So that's basically my way of saying that you should pay cash.

The only way I would finance would be with HELOC that was low and I was planning to pay it off within 2 or 3 years -- or if I was expecting a huge amount of money coming my way (bonus, inheritance, illiquid money) in a few months and just needed to bridge the gap until the cash came in.

Otherwise, you're paying a ton of money in interest that will effectively eat away at any potential savings.

As bill said earlier -- if that is the case -- you might be better off financially renting the points.

 

[mustinjourney]

All these calculations are great, but it's the intangible ones that really sell this product. For instance, if you want to take kids over the years, what's it worth to you to have a comfortable 2BR villa onsite every year and not have to cough up the outrageous price for it every year, knowing it'll progressively get more expensive over time? For me, I enjoy the Disney resorts enough to go annually, DW wanted DVC, I looked at the cost of DVC vs. therapy from now until 2042, got a headache, and made an offer. That was my calculation.

YMMV.

you play like you don't like it -- but I know you love you some SAB. That sand bottom is so nice on the feet after a long day in the parks. It's basically a "free" foot massage.

 

[ScubaCat]

you play like you don't like it -- but I know you love you some SAB. That sand bottom is so nice on the feet after a long day in the parks. It's basically a "free" foot massage.

I like it... But I like the actual ocean and about 50 other places too. If up to me I wouldn't keep coming back to BCV. However with DW and her son who is handicapped, it's really the best trip for everyone.

 

[mustinjourney]

When talking about the value obtained by DVC we like to throw in the idea that most are not taking into account the time value of money in their calculations on how much they have saved... Seems we do the same thing when it comes to purchasing DVC. There is an opportunity cost lost even when paying cash. If you pay $10k cash for a contract you have not done so without loss of something. You could have invested the cash. If someone else took 10k at the same time as you and invested it for 5 with a return rate of 8%, then you purchasing DVC (assuming no appreciation on DVC) cost you 8% interest that is $4693. (keeping it simple here)

If you have anything financed including a home, car, education.... you are giving up paying down the principle on that loan in order to pay for DVC with cash, so in effect you are financing the DVC with the money not paid to lower the principle of these other loans.

Basically everyone is giving up something to purchase DVC and most are "financing" it even if they are telling themselves they are not, since very few of us are debit free. For the few that are debit free there is still opportunity cost lost from not investing the money in something with higher yields than DVC. The thing is all that have purchased have decided that the money is better spent on DVC to provide a better quality of live then to use the money to it's "full potential" to create more wealth we can not take with us.

I agree you do not want to get in over your head financing things you can not afford. I agree you need to be aware of the cost involved to finance and how that impacts the overall value of something (DVC in this case). However, if you are in a position to purchase based on your personal financial situation and are comfortable giving up the "opportunity cost" regardless of how you pay for it then it is your decision to make.

Here is another very interesting thread discussing "would you buy again"

https://www.disboards.com/threads/would-you-buy-again.3670850/

People brought up the opportunity cost you give up if you are keeping DVC. Basically if you are keeping your contract you are essentially saying you would buy again because every day you decide not to sell you are deciding to buy more or less (of course you have to ignore transaction cost... but none the less a solid point).

Well -- my opportunity cost the past 6 years in the market was -100%...so by taking money I would have played with day trading, I actually "saved" a ton of money.

In all seriousness -- I kept shorting the market from 2014-2016 and it did not work out well. I then sold off all my LONG positions in early 2016...and then proceeded to watch them all go up 40% since then.

So yeah -- my opportunity costs with DVC are much better than my stock market plays.

 

[mustinjourney]

Maybe it’s because we are a family of 5, but we are not vacationing anywhere for $4000. It costs us over $1000 USD for a couple nights (inclusive) at a close by Great Wolf Lodge.

I can see if you have a family of 4 or less, maybe the value would be less & the upfront outlay would seem more maybe.

totally agree.

This year was supposed to be our "down" year, and I'm pretty sure we're going to drop $20,000 on trips NOT to WDW. Europe, DSL, SoCal and Summer road trip. Blows my mind.

 

[DVCDisneyRunner]

I was not trying to touch a hot button. We see on the boards each time someone mentions financing, "if you have to finance you can not afford it." I was not advocating one way or the other. I was pointing out that buying a DVC has an opportunity cost associated with it and we all freely forgo the alternatives. In many cases one of the opportunity cost/alternatives is not paying down the principle of another loan.

But there are other factors than opportunity cost - there is the idea of marginal utility. We could sell our DVC and get about $15k for it. We could invest that $15k.....but that $15k would represent less than 1% of my overall stock holdings. The marginal utility of that $15k in the stock market isn't very much - since I have money, I value more money less. This plays out in ways that would be really strange to someone else. For instance, my husband quit a job he hated to become an independent consultant with no income security, knowing that the chances were very good that the company would be sold in less than a year and his stock buyout would be worth nearly six figures. But opportunity cost is more than just money - its value - and the value he placed in not having to go into a soul sucking job every day exceeded the value of the potential buyout (which did happen - and he would have gotten an extra $80k had he stayed six months).

I personally have not heard anyone use marginal utility to describe the "happiness"/"fulfillment" another dollar might bring and how at a certain point the reduction of that "happiness" could lead one to not value the dollar as much as the previous dollar. I have always heard it in terms of goods and services.

However, I do get your point and your happiness can be in spending those "extra" dollars. That does not change the fact that you are making a decision to give up something else each time you spend those dollars, even if that something else is a different luxury item. There is always an opportunity cost with your decisions, not just with money, all decisions require you to give up one thing for another. (if not is it really a decision)

So, I will agree with you that opportunity cost is more than just money, I however would not agree that its "value". You can give up money for "happiness". It is why we go on vacation, buy things that make us feel good.... You can give up time to enjoy a hobby instead of earning money... that is what is meant by opportunity cost.

here are definitions from online:

Opportunity cost refers to a benefit that a person could have received, but gave up, to take another course of action. Stated differently, an opportunity cost represents an alternative given up when a decision is made

Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important economic concept because economists use it to determine how much of an item a consumer will buy.

 

[DVCDisneyRunner]

You are combining unrelated things. Financing a house or car that is a necessity is totally different than financing a vacation which DVC is. I have no issue with a home mortgage of car payments. I don't personally believe that financing a DVC purchase is wise unless you have a dependable income coming in and a well defined plan to get it paid off.

No, I am not combining unrelated things. If one chooses to spend "cash" on a luxury item in lieu of paying down another liability they are essentially trading that liability for the item purchased with cash.

here are a couple examples:

If someone has a $50,000 mortgage on their home and receives a $50k bonus, inheritance... they have options. Let's say they have only two options. Pay off the mortgage or buy DVC. They choose to purchase DVC with the $50k. So, essentially the mortgage is their solely because they choose to purchase the DVC and not pay the mortgage.

another example.

They do pay the $50k on the mortgage and now the house is paid for. They still purchase the DVC, but now they finance the DVC for $50k.

 

[DVCDisneyRunner]

Well -- my opportunity cost the past 6 years in the market was -100%...so by taking money I would have played with day trading, I actually "saved" a ton of money.

In all seriousness -- I kept shorting the market from 2014-2016 and it did not work out well. I then sold off all my LONG positions in early 2016...and then proceeded to watch them all go up 40% since then.

So yeah -- my opportunity costs with DVC are much better than my stock market plays.

you may need to coin the phrase "opportunity gain".

 

[pineapplepalms]

No, I am not combining unrelated things. If one chooses to spend "cash" on a luxury item in lieu of paying down another liability they are essentially trading that liability for the item purchased with cash.

here are a couple examples:

If someone has a $50,000 mortgage on their home and receives a $50k bonus, inheritance... they have options. Let's say they have only two options. Pay off the mortgage or buy DVC. They choose to purchase DVC with the $50k. So, essentially the mortgage is their solely because they choose to purchase the DVC and not pay the mortgage.

another example.

They do pay the $50k on the mortgage and now the house is paid for. They still purchase the DVC, but now they finance the DVC for $50k.

This is assuming the interest rates are the same on the mortgage and the DVC loan, but that isn't necessarily the case. If the interest rate is significantly higher for the DVC loan then it can't really be considered a simple trading of liability. Also, this will depend on the area you live in, but $50k in our area is not enough to be a mortgage or down payment on anything. The cost of DVC is a drop in the bucket compared to the cost of housing. It would not make sense for us to wait to pay off our mortgage before buying DVC since our interest rate is low and we would be spending our DVC purchase money on vacations anyway, but with DVC we get to stay in larger accommodations for less than we could otherwise. I would also not consider DVC to be an investment the same way a house can be - the value of homes here has gone up way, way more than a DVC contract ever could.

 

[DVCDisneyRunner]

This is assuming the interest rates are the same on the mortgage and the DVC loan, but that isn't necessarily the case. If the interest rate is significantly higher for the DVC loan then it can't really be considered a simple trading of liability. Also, this will depend on the area you live in, but $50k in our area is not enough to be a mortgage or down payment on anything. The cost of DVC is a drop in the bucket compared to the cost of housing. It would not make sense for us to wait to pay off our mortgage before buying DVC since our interest rate is low and we would be spending our DVC purchase money on vacations anyway, but with DVC we get to stay in larger accommodations for less than we could otherwise. I would also not consider DVC to be an investment the same way a house can be - the value of homes here has gone up way, way more than a DVC contract ever could.

I am not suggesting that someone needs to or should pay off their mortgage. Again this is about opportunity cost. We like to say "only pay cash" but technically if your off setting paying off a mortgage to by DVC or pay down the principle then you are essentially borrowing the to purchase, no judgement from me at all on this matter. I am the one trying to point out that there isn't as big of a gap between financing and paying "cash" for the average buyer as some may think.

As for "$50k in our area is not enough to be a mortgage" this was an arbitrary number and you can use whatever number you like the logic holds (that is the great thing about logic it holds true) . However unless your payment clears more that $50k at some point in the live of the mortgage if paid down it will be $50k even if you start out at $1M+. As for interest rate on DVC verses the home I don't think I mentioned interest rates, but I know some have borrowed against there home to buy DVC and others have said that is a terrible idea. So in that case it would be the interest rate of the home exactly as it is the home loan.

 

[Ben E N]

I am not suggesting that someone needs to or should pay off their mortgage. Again this is about opportunity cost. We like to say "only pay cash" but technically if your off setting paying off a mortgage to by DVC or pay down the principle then you are essentially borrowing the to purchase, no judgement from me at all on this matter. I am the one trying to point out that there isn't as big of a gap between financing and paying "cash" for the average buyer as some may think.

As for "$50k in our area is not enough to be a mortgage" this was an arbitrary number and you can use whatever number you like the logic holds (that is the great thing about logic it holds true) . However unless your payment clears more that $50k at some point in the live of the mortgage if paid down it will be $50k even if you start out at $1M+. As for interest rate on DVC verses the home I don't think I mentioned interest rates, but I know some have borrowed against there home to buy DVC and others have said that is a terrible idea. So in that case it would be the interest rate of the home exactly as it is the home loan.

If I had a friend who was renting an apartment, and then wanted to buy a home, placing no downpayment and a 10% interest rate, I would also recommend to him that he continue renting instead. The risk and cost are not worth the benefit of ownership. That is the home ownership equivalent of purchasing vs. renting DVC.

As for selling off your current mortgage, not only do those have a much lower rate than a timeshare loan, but in the US that interest is tax deductible. It's a bit of a scheme to get the big banks more money, but mortgages should be one of the last loans that you end up paying off due to their tax incentives and low rates.

 

[crisi]

I was not trying to touch a hot button. We see on the boards each time someone mentions financing, "if you have to finance you can not afford it." I was not advocating one way or the other. I was pointing out that buying a DVC has an opportunity cost associated with it and we all freely forgo the alternatives. In many cases one of the opportunity cost/alternatives is not paying down the principle of another loan.



I personally have not heard anyone use marginal utility to describe the "happiness"/"fulfillment" another dollar might bring and how at a certain point the reduction of that "happiness" could lead one to not value the dollar as much as the previous dollar. I have always heard it in terms of goods and services.

However, I do get your point and your happiness can be in spending those "extra" dollars. That does not change the fact that you are making a decision to give up something else each time you spend those dollars, even if that something else is a different luxury item. There is always an opportunity cost with your decisions, not just with money, all decisions require you to give up one thing for another. (if not is it really a decision)

So, I will agree with you that opportunity cost is more than just money, I however would not agree that its "value". You can give up money for "happiness". It is why we go on vacation, buy things that make us feel good.... You can give up time to enjoy a hobby instead of earning money... that is what is meant by opportunity cost.

here are definitions from online:

Opportunity cost refers to a benefit that a person could have received, but gave up, to take another course of action. Stated differently, an opportunity cost represents an alternative given up when a decision is made

Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important economic concept because economists use it to determine how much of an item a consumer will buy.

Remember, economics isn't about money - economics is about value. Usually we measure that in money, its convenient and easy to use as a marker - but that isn't the only measurement of value. (This is one of the points driven home in Freakonomics - which was wildly popular (for an Economics book) several years ago. We talk about cost and benefit - but those are not necessarily terms reflecting money.

The textbook example of marginal utility from most Econ 101 courses is "people will work more if you pay them more" - and that breaks down because at a certain point, people would rather have vacation time than money. i.e. the marginal utility of the extra dollar is worth less than the time.

 

[crisi]

If I had a friend who was renting an apartment, and then wanted to buy a home, placing no downpayment and a 10% interest rate, I would also recommend to him that he continue renting instead. The risk and cost are not worth the benefit of ownership. That is the home ownership equivalent of purchasing vs. renting DVC.

As for selling off your current mortgage, not only do those have a much lower rate than a timeshare loan, but in the US that interest is tax deductible. It's a bit of a scheme to get the big banks more money, but mortgages should be one of the last loans that you end up paying off due to their tax incentives and low rates.

I have a mortgage. I have a mortgage (a small one) because my mortgage is at 4%, the government lets me write off the interest making the effective rate even lower than that, and AT&T pays 5% in dividends (or at least they did when I bought and I just let the money sit there - its a little more diversified than that, but its all in stocks that pay 4% or more in dividends).

Here is a good rule of thumb - your net worth should be positive and should (with some exceptions) increase every year (one exception is when you start paying college tuition for your kids). When you start out as an adult - unless you've been extraordinarily fortunate - your net worth won't be positive - you'll likely have student loans, maybe a car loan, some credit cards, eventually perhaps a mortgage. By the time you retire, you want to have a net worth of something between four and eight times your income. Any time you take out a loan you don't need to take out, paying interest makes it that much harder to get to that point where you'll have a comfortable retirement. Any time you invest in a way that makes you income, it becomes a little easier to get to that point.

Getting there is going to be a two steps forward, one step back process. Build up savings - and then need to replace the shingles on the house or the furnace goes out. Build up savings - the kids need braces. Build up savings - the college tuition bill just arrived. There is going to be fun stuff in there as well - build up savings - go to Disney and buy DVC.

When I was starting out in my own adult financial life, my goal was to increase my net worth each year - and like most people, it started out negative. I pretty quickly learned that paying interest was having a big impact on my ability to increase my net worth - if I didn't NEED it (like somewhere to live) I shouldn't pay interest to get it.

Be honest about measuring your net worth. My house would probably sell for $300k. But I'll have 7% real estate fees to sell it, and I have a mortgage on it - so its not $300k of net worth. Likewise, my 150 BWV points are worth $16000 or so, but I'll pay a broker to sell them - so its probably more like $14k - and I'll be paying some capital gains tax on that one - maybe more like $12k (and now you start to see why once you own, you might not sell even if you wouldn't buy again).

If your net worth is currently negative, I would look really hard before taking out a loan for DVC. There are exceptions - someone here bought to celebrate the end of their medical residency with tons of student loan debt - but going into a secure, high paying field. If you are thirty years old and already have five times your income saved - then do whatever you want, you are in a great place financially and you should be giving the advice.

 

[kniquy]

Financing a house or car that is a necessity is totally different than financing a vacation which DVC is.

Not necessarily true -- how many people purchase homes far larger than what they need -- could you live in a 1000sq ft home that is 1/3 the cost of what you payed for your 3000 sq ft home? -- is the larger home a necessity or just another luxury? I choose to live in a modest home, which we improve to make it what we want -- could we buy a larger more expensive home -sure but do i want that mortgage payment - nope. Do the majority of people finance these expensive properties - most likely.

Peoples car purchases are often luxury purchases as well - how many people are spending $60,000 on a luxury SUV when their family of 4 would fit fine in a sedan or a smaller SUV that is 1/2 the cost -- is that more expensive car a luxury -- yup, is it necessary, nope. A cars purpose is to get you from point A to point B safely. And that car is going to depreciate year after year, but (at least for now) DVC is seeing some growth in resale prices. Will people finance their car purchases -- many people do and think nothing of financing although traditionally at lower rates than what a timeshare loan would be. .

DVC is just another aspect of life and living that people choose to spend their money on. If someone wants to finance it is their personal choice, just as it is someones personal choice to purchase that more expensive home or more expensive car. As long as they can manage their daily bills and save some money for retirement - it may not be a poor choice to finance (but pay off quickly) if they are vested in taking yearly or biyearly Disney vacations.

 

[zavandor]

Thanks for all the input! We have half of the money saved and would not take out a high interest loan. The max amount I would take any loan out would be a couple of years. I was going to buy enough points for a week in March and 4 days the week before Thanksgiving. We would have enough cash to buy 100 points now and get another 100 in a year or two. Is there a downside to doing it that way? I just hate to spend thousands of dollars on renting points when that could go towards my own. I am probably over thinking all of this but I really do not want to stay off property or skip a year. I am also concerned that when they are done with all the parks and resorts the prices will go up. Thanks again.

When AKV went on sale I believe the minimum purchase for new members was 160 points, so it's not easy to find one or two 100 points contracts and they tend to cost a bit more. Since there are more contracts available and since smaller contracts cost more, it's very possible you could save 10% buying a bigger contract, which would means that if you repay the loan within 2 years you'd probably be better off (and you save also on the double closing costs).
However, having said this, I would still not finance a timeshare purchase.

 

[KAT4DISNEY]

When AKV went on sale I believe the minimum purchase for new members was 160 points, so it's not easy to find one or two 100 points contracts and they tend to cost a bit more. Since there are more contracts available and since smaller contracts cost more, it's very possible you could save 10% buying a bigger contract, which would means that if you repay the loan within 2 years you'd probably be better off (and you save also on the double closing costs).
However, having said this, I would still not finance a timeshare purchase.

Originally that is correct but AKV was in sales for a long time and it was during that time when minimums were lowered. It also was the time frame when people started recommending splitting up contracts with a vengence.

 

[DVCDisneyRunner]

Remember, economics isn't about money - economics is about value. Usually we measure that in money, its convenient and easy to use as a marker - but that isn't the only measurement of value. (This is one of the points driven home in Freakonomics - which was wildly popular (for an Economics book) several years ago. We talk about cost and benefit - but those are not necessarily terms reflecting money.

The textbook example of marginal utility from most Econ 101 courses is "people will work more if you pay them more" - and that breaks down because at a certain point, people would rather have vacation time than money. i.e. the marginal utility of the extra dollar is worth less than the time.

I don't think I have once said economics is about money.

Freakonomics was a really good read and everyone should read it at least once (maybe twice). I like to say economics is the study of common sense (logic).

I do not think marginal utility was presented that way in my Econ 101 course, but I have no problem with it being used that way. The principal is basically the same. I personally have not heard it used that way prior to your post (not to say I wont borrow it in the future).


I liked your last post (not quoted) referencing using net worth as a better indicator if one can "afford" a luxury purchase versus just the battle cry of "if you finance you can't afford it".

If I had a friend who was renting an apartment, and then wanted to buy a home, placing no downpayment and a 10% interest rate, I would also recommend to him that he continue renting instead. The risk and cost are not worth the benefit of ownership. That is the home ownership equivalent of purchasing vs. renting DVC.

As for selling off your current mortgage, not only do those have a much lower rate than a timeshare loan, but in the US that interest is tax deductible. It's a bit of a scheme to get the big banks more money, but mortgages should be one of the last loans that you end up paying off due to their tax incentives and low rates.

It is my understanding as of this year (not sure about the future with the tax law changes) the interest on TS are also deductible. Now I could be wrong here so please don't quote me.

I would need a lot more information on the reason for the 10% interest rate and the cost of the rent before I could make a recommendations to a friend. Perhaps in the area credit is checked for renters and with bad credit they can only live in bad areas with high rent and the home would provide a better neighborhood and cost less per month than the apartment. I think you would do the same and that was just a short response and you are just wanting to say you would not recommend buying a home to a friend who could not afford one. Again this is why I think a blank statement "if you finance you can't afford it" is a bad approach.

Also not everyone is getting a high interest loan.

Example:

To answer OPs original question, good idea or bad idea, we took out a personal loan from my credit union for the very reasonable interest rate of 4% for 5 years. So that may be an option for you if you decide that financing is in your best interest.

 

[crisi]

It is my understanding as of this year (not sure about the future with the tax law changes) the interest on TS are also deductible. Now I could be wrong here so please don't quote me.

It depends on how you finance and what your personal situation is. Its one of the things to review with a tax professional - even with a standard mortgage there are rules about a second home deduction - and if you finance through an unsecured loan, it is not tax deductible (IIRC, its been a few years). Of course, if you finance through a HELOC, it is tax deductible - but you increase the risk on your primary residence - so you should be in a secure place to do that.

 

[Dean]

It depends on how you finance and what your personal situation is. Its one of the things to review with a tax professional - even with a standard mortgage there are rules about a second home deduction - and if you finance through an unsecured loan, it is not tax deductible (IIRC, its been a few years). Of course, if you finance through a HELOC, it is tax deductible - but you increase the risk on your primary residence - so you should be in a secure place to do that.

Actually it isn't tax deductible under the new rules if it's not for the home itself. If one gets a HELOC for home improvements it is but even if they got a HELOC on a primary residence to pay for a vacation home or anything else, the interest wouldn't be tax deductible. In addition most (roughly 70%) haven't itemized the last few years, I suspect the number that will benefit from itemizing going forward will be less than 10%. If one gets a mortgage and doesn't have a second deductible mortgage and the financed amount total is less than $750K then it may be tax deductible.

 

[frank808]

I can tell you my experience as I asked the same question thirteen years ago.... the pay cash or nothing advice almost won out. Tide turned when I realized my family and I was a Disney addict LOL... My family at the time was going 2-3 times a year, I live in Syracuse NY, so it wasn't cheap but I never missed the trip. I realized three things: I was going to Disney no matter what ,I wanted to own at Animal Kingdom Villas and prices will always go up. Disney is not like other timeshares as its always in demand ,easy to rent and easy to sale.
Since I knew I would never have all of the money at one time and I knew I would pay off the loan early financing Disney wasn't a hard choice at all. I say Go for it
I would say that I am a money value to time type. The only regret I have about DVC was I did not own sooner

Did you buy at another resort before AKV? I dont think AKV was open in 2005, didnt sales start in 2006?