My Thoughts in Favor of Financing

[Jason@dvcstore]

Us Buckeyes are a bright bunch.

I am hoping somehow, someway, the Iowa Hawkeyes can pull the upset tomorrow.

Jason

 

[crisi]

just as all drinking is not alcoholism.

But, reading is fundamental.

And I didn't say it was. In fact, that was the point of the paragraph.

 

[crisi]

An absolute incorrect statement. Interest can be throwing money away or it can be a vehicle to increase and amplify wealth, or raise one's standard of living earlier than otherwise possible. Knowing which is which is the issue. My grandfather waited until he could by a house for cash as did many of his generation. Most ended up buying a home in their late 30's(and basically paying the landlords mortgage before that). I owned my first home at age 23. Proper financing worked. It saved me from "throwing money away", to an owner of property that he could use for his mortgage and enhance HIS wealth. See a parallel?

We, however, aren't talking about financing a house. We are talking about financing a luxury want. Financing a house or a car, as I said upthread, may be a necessary thing. Few of us can pay cash for a house. And you are right, in those cases, interest is part of the investment. But in the case of DVC, its just a way to pay more for what you want because you want it now. And maybe you can afford to do that. But if you were really interested in enhancing your wealth, you wouldn't finance luxuries, you'd put off buying luxuries until they could be paid for in cash. Which, yes, might involve a few years of not going to Disney, or not going as often, or staying off property when you do go for fewer days. (The exception being to use very low interest rates on financing that BMW because your Merck stock you'd sell to buy it is paying you an 8% dividend on the money you invested - that's leverage.)

And, to me, one person who bought DVC, financed it, and without it might have been able to hold onto their home for the extra few months it took them to get a job, is one person too many. One of the women on the budget board in that situation had five kids. I really hope she managed to pull it out.

And I promise I won't wave bacon in front of you.....ummm.....bacon... ...meat candy. You really want bacon...... everyone loves bacon..... and its high fat high nitrate content isn't anything to worry about as long as you eat it in moderation.... here have some more.

 

[SSR]

We, however, aren't talking about financing a house. We are talking about financing a luxury want.

I don't think I could have expressed this any better and in any fewer words. Those who say "debt can be good" fail to draw the critical distinction between using debt to make more money (e.g. house purchase, investment property purchase) and using debt to finance a want (e.g. DVC). Well said.

 

[Doctor P]

I don't think I could have expressed this any better and in any fewer words. Those who say "debt can be good" fail to draw the critical distinction between using debt to make more money (e.g. house purchase, investment property purchase) and using debt to finance a want (e.g. DVC). Well said.

I have rarely read something as idiotic in my life. I guess that people are going to have to do a much better job of getting an itemized list of the cost of things in their home. Granite countertop? A luxury, so let's make sure that we don't include the cost of those in our mortgage. Trayed ceilings and chair rails? Really just a luxury. Let's subtract those out, because heaven forbid the responsible thing is to never borrow for any luxury item. Stainless steel or built-in appliances? Merely a luxury. Can't put those on the mortgage either.

I'm not saying that people should be indiscrete in their borrowing, but to argue that the dividing line is luxury or necessity is simpy ill-founded, inefficient, and not an effective decision rule from a financial planning standpoint (though priorities should enter into all financial planning decisions).

 

[logan115]

Can everyone just agree to disagree ? There are good reasons and bad reasons to finance. Some can without difficulty, and some are only asking for trouble. It may work for you, but not for me. Therefore, one size does not fit all.

Don't see either side winning the argument, and not sure that either side COULD win the argument and be right in all cases.

Both sides make good points. Therefore, by the powers vested in me I delcare this a tie, and demand that instead of spending time and effort trying to poke holes in the other sides view, that instead we focus our time and energy on a topic that obviously has a clearcut answer :

Will the upcoming/possible changes to the 2011 point charts be good or bad for every single DVC owner

Chris

 

[SSR]

Can everyone just agree to disagree ?

Yes.

 

[crisi]

I have rarely read something as idiotic in my life. I guess that people are going to have to do a much better job of getting an itemized list of the cost of things in their home. Granite countertop? A luxury, so let's make sure that we don't include the cost of those in our mortgage. Trayed ceilings and chair rails? Really just a luxury. Let's subtract those out, because heaven forbid the responsible thing is to never borrow for any luxury item. Stainless steel or built-in appliances? Merely a luxury. Can't put those on the mortgage either.

I'm not saying that people should be indiscrete in their borrowing, but to argue that the dividing line is luxury or necessity is simpy ill-founded, inefficient, and not an effective decision rule from a financial planning standpoint (though priorities should enter into all financial planning decisions).

I think you are being simplistic, but at the same time, it probably isn't wise to buy a home for $500k with granite countertops and trayed ceilings with no downpayment when you can buy one for $250k that doesn't have those things. When the one for $250k is paid off - which you will do quickly, you can trade up.

(Substitute in your local real estate prices).

 

[logan115]

I think you are being simplistic, but at the same time, it probably isn't wise to buy a home for $500k with granite countertops and trayed ceilings with no downpayment when you can buy one for $250k that doesn't have those things. When the one for $250k is paid off - which you will do quickly, you can trade up.

(Substitute in your local real estate prices).

Ok - since i gave myself the power to end this, I'm now using it to keep it alive

I don't see the above example making sense. If you buy a $500K house or $250k house with no money down and have to sell you're screwed either way. If you can pay off the $250K one quickly, that implies that had you bought the $500K one you'd have built up $250k of equity at roughly the same point in time.

If your assumption was that even in the event of a job loss you'd be able to afford the $250k house that's one thing (but still debatable), but I don't think that's the point you were making. Am I wrong ?

Chris

 

[crisi]

Ok - since i gave myself the power to end this, I'm now using it to keep it alive

I don't see the above example making sense. If you buy a $500K house or $250k house with no money down and have to sell you're screwed either way. If you can pay off the $250K one quickly, that implies that had you bought the $500K one you'd have built up $250k of equity at roughly the same point in time.

If your assumption was that even in the event of a job loss you'd be able to afford the $250k house that's one thing (but still debatable), but I don't think that's the point you were making. Am I wrong ?

Chris

Actually, I was thinking about the housing market diving.

A lot of people went and bought a lot of house with little money down. When the market dove, they were then upside down in loans.

Let's not even make it bad news.....lets say you get great news - a great job has opened up in a city you enjoy several years after you bought the house you are in - you'd love to take the job. But being 20% upside down in a $500k house means you are going to have to come up with $100k at closing to get out.

And if you were stretching to afford that $500k, you probably didn't overpay your mortgage or set aside savings - where with the same income in a house with a cheaper mortgage - you'd have either saved money or paid down the mortgate (well, hopefully, maybe you'd have bought DVC points - but lets say you were doing this with the plan of a bigger home with granite countertops in ten years). You'd still be out money if you moved - but less - and it wouldn't be money you had to show up with at closing.

Having as little debt as possible maximizes flexibility and reduces risk.

 

[Doctor P]

Having as little debt as possible maximizes flexibility and reduces risk.

This will hopefully be my last post on this topic, LOL. One of the principles of economics and finance is that borrowers gain and creditors lose during inflationary times. Let's take a simple example. Assume that an individual has $100,000 with which to buy an asset. They can either buy the asset with cash on day 1, or borrow $100,000 to buy the asset and pay over time. To make the example easy, let's assume that inflation drives the asset value up to $200,000 after 10 years and that interest rates keep pace. You borrow at a fixed rate of 7% per year (simple interest), with the entire balance on the loan due at the end of the ten years.

The person who pays cash for the asset has a $200,000 asset at the end of ten years. The person who borrows has a $200,000 asset at the end of ten years and pays $100,000 for the asset plus $70,000 in interest. They also have another $30,000 in interest income. The individual who borrowed ends up with the same asset and another $30,000 in their pocket as compared with the individual who chose to pay cash. If you pay cash for a durable asset, you are betting against inflation--a pretty risky bet in most economic times.

 

[babster462]

I am a nurse and I have seen on a daily basis for the last 34 years how the future is never guaranteed to anyone. In the blink of an eye, your whole life can change and all your careful plans for the future change. I firmly believe in living for today and not for tomorrow because sometimes tomorrow never comes. Life can be too short. Buy into DVC and enjoy the vacations with your family and friends while you can. I go 3-4 times a year because that is what I bought into DVC for. Owning DVC makes you take the vacations you need and enjoy the time with family while you are still able to enjoy!!

 

[ohtarabell]

I don't think I could have expressed this any better and in any fewer words. Those who say "debt can be good" fail to draw the critical distinction between using debt to make more money (e.g. house purchase, investment property purchase) and using debt to finance a want (e.g. DVC). Well said.

Uh okay, but what about the tens of thousands who have used debt to finance dvc and saved thousands of dollars over ten years on vacations AND ended up with an asset. Yes they wanted it. But they may have WANTED it just as much on an annual basis and bought those vacations at a higher cost. Doesn't expense savings equate to higher wealth.

How come those of you arguing the other side only use gross generalizations and anecdotes? The long term default rate on dvc loans is minimal. This FACT says that most people (long term probably higher than 90%) have paid their bills and ended up with an asset. On top of that, their ten year cost of vacations at disney (assuming they were going anyway) were less costly than they otherwise might have been. For some of them, it meant their children could have great vacations that they otherwise might not have been privy to. Personally, that means almost as much to me as any house. It's interesting to me that people view borrowing to buy "experiences and memories" as less valuable than buying material things. I would be willing to make a bet however: Your children value their trips to disney more than they valued a big house. Mine tell me that every year when we go to Disney. They are now 21 and 18. Wish to hell I had financed Dvc when I was young. Instead, I spent cash rates at BWV and other deluxe properties for almost 18 years. I could have bought my 350 pts and saved myself probably 30k over the years after financing. Oh, and in retrospect (this is the part that kills me), I would have had NO PROBLEM at any stage of my life paying it back. Live and learn.

 

[ohtarabell]

Us Buckeyes are a bright bunch.


There is no way to misuse bacon. It's impossible to consume too much. If you are a cook, here's a tip you'll love. Strain your bacon grease through a paper towel and store in the fridge and use to cook with....amazing.

Marynvince:

Uh oh, you have now gotten us into trouble. I think your second statement completely renders your first statement null and void.

 

[ohtarabell]

Anyone out there that financed your points when they cost about $60 many years ago? I would love to know how that worked out for you.

 

[crisi]

This will hopefully be my last post on this topic, LOL. One of the principles of economics and finance is that borrowers gain and creditors lose during inflationary times. Let's take a simple example. Assume that an individual has $100,000 with which to buy an asset. They can either buy the asset with cash on day 1, or borrow $100,000 to buy the asset and pay over time. To make the example easy, let's assume that inflation drives the asset value up to $200,000 after 10 years and that interest rates keep pace. You borrow at a fixed rate of 7% per year (simple interest), with the entire balance on the loan due at the end of the ten years.

The person who pays cash for the asset has a $200,000 asset at the end of ten years. The person who borrows has a $200,000 asset at the end of ten years and pays $100,000 for the asset plus $70,000 in interest. They also have another $30,000 in interest income. The individual who borrowed ends up with the same asset and another $30,000 in their pocket as compared with the individual who chose to pay cash. If you pay cash for a durable asset, you are betting against inflation--a pretty risky bet in most economic times.

And perhaps in the future that will be a good bet. For the past 20 years, inflation has been pretty low. Economists are saying that is a good bet right now, to borrow due to inflationary pressure. But inflationary pressure could also send the economy into another spiral - creating another period of high unemployment and loss of real income. I don't want to be carrying a negative net worth if that happens.

Once again, leverage against a positive net worth is a different discussion.

 

[crisi]

I am a nurse and I have seen on a daily basis for the last 34 years how the future is never guaranteed to anyone. In the blink of an eye, your whole life can change and all your careful plans for the future change. I firmly believe in living for today and not for tomorrow because sometimes tomorrow never comes. Life can be too short. Buy into DVC and enjoy the vacations with your family and friends while you can. I go 3-4 times a year because that is what I bought into DVC for. Owning DVC makes you take the vacations you need and enjoy the time with family while you are still able to enjoy!!

My grandmother died when my mother was young. Her final illness bankrupted the family. The financial pressures - as well as the emotional pressures - created three out of five not well children and had a negative impact on the last 40 years of my grandfather's life. My sister is a stage IIB breast cancer survivor who just went through her second radical mastectomy this fall. My other sister nearly died two years ago from alcoholism.

We enjoy our time with our vacations and our family. But DVC is not the least expensive way to vacation. This is, frankly, a justification for DVC that makes me pity you. Its a shame that only spending money you don't have lets you enjoy time with your family.

 

[crisi]

Uh okay, but what about the tens of thousands who have used debt to finance dvc and saved thousands of dollars over ten years on vacations AND ended up with an asset. Yes they wanted it. But they may have WANTED it just as much on an annual basis and bought those vacations at a higher cost. Doesn't expense savings equate to higher wealth.

They would have done financially better to save the interest, take cheaper vacations or no vacations while they saved to pay cash. A 5 year loan of $15k at 10% has you paying almost $4400 in interest. That's 30% over the purchase price.

I have a hard time believing that people who can't manage to save $15k to pay cash have $4400 to throw away.

 

[ohtarabell]

My grandmother died when my mother was young. Her final illness bankrupted the family. The financial pressures - as well as the emotional pressures - created three out of five not well children and had a negative impact on the last 40 years of my grandfather's life. My sister is a stage IIB breast cancer survivor who just went through her second radical mastectomy this fall. My other sister nearly died two years ago from alcoholism.

We enjoy our time with our vacations and our family. But DVC is not the least expensive way to vacation. This is, frankly, a justification for DVC that makes me pity you. Its a shame that only spending money you don't have lets you enjoy time with your family.

I'm bowing out. You have just taken a debate on the merits vs detriments of financing and turned it personal. You pity the poster. Wow. Feel superior often?

 

[ohtarabell]

deleted