Not drinking the cool aid on resale!!

[Ansky]

Unfortunately you're likely not in the minority, that's why I said normal is broke. I don't feel it's far fetched at all but it might mean driving a clunker for a few years until one can get ahead of the curve. Obviously there are gradients here, some make worse decisions than others.

I don't agree. If one has no debt's at all other than a reasonable mortgage AND an appropriate emergency fund, one will not have to sell right away or likely at all and if they did it would be by choice more than necessity. Obviously it depends on specifics but as a minimum one would be in a much better position than the other.

I guess I shouldn't have said far fetched for buying a car with cash. I have known a handful of people who have done that. I know far more people that are responsible with their money who have car payments though (not that more people doing so makes it right). Obviously paying cash for anything upfront is the best way to go. I have never given a dime to a credit card company in interest. I guess it is just a difference of opinions on the car thing. I just happen to think taking large chunks of your savings in order to save a few hundred dollars and not have that cash available isn't best for me. Everyone is different though. Which none of this really has anything to do with DVC other than things you may take a loan out for so there is no use beating a dead horse.

As for having to sell your DVC points when losing a job, I think each case is going to have too many variables to cast a general judgment. After thinking about it, I guess in my situation we wouldn't have to sell (at least right away). We don't have any debt other than a mortgage, car payment, and a student loan. We do have a emergency savings account also so we would be set there too for a bit and since we have paid out DVC loan off we would only have the yearly dues to which anyone could rent their points out and make the money back in that case. I think it would just come down to whether someone wanted to go through that in order to just keep their contract. I would imagine though that if a job was lost one probably isn't going to Disney World anyway. Most people I would think would trim the fat in that case and get rid of luxury things like DVC even if they had paid for it with cash up front. I could be wrong though. I really have nothing to base that thought on other than it is just probably what I would do. Either way it is all just opinions. There really is no right or wrong (unless you can't afford to buy DVC in the first place and purchase anyway...I think that isn't the correct thing to do, which we both agree on).

 

[Ansky]

I think it would be helpful for you to change some of your preconceptions here. Buying a car with cash is not far fetched and it is possible...for just about everyone. I have a friend who does not make a great living. Nice guy, just doesn't earn a lot. Every car he has owned for the past 10 years has been bought with cash. He consistently saves money every month and when his current car dies, he buys a new one. His average cost per month for his car works out to less than $50. Buying a reliable car with cash (whether it be new or preowned) is an option for most people. And for those for whom it isn't, it is quite likely due to the financial decisions they have made in other aspects of their lives.

Here's the thing...it's not a perfect world scenario to not have a car payment. The problem is that we are so eager to buy things on credit that we accept it as a norm. I used to be that way, and had every kind of consumer debt imaginable. It took a complete change in thinking to get me to behave in a different manner when it came to money. That included saying no to a lot of things that I wanted.

Yours and LisaS's idea of continually putting money away even when not paying on a car is a great idea that I have often thought about. If I were single with no kids I would probably be doing that. In reality though in my case it just isn't that easy. Maybe just saving up a larger down payment in my case would be better and is something I have been trying to do. I just think making a statement like not buying a car unless you have cash is a little extreme. In many cases a car is not always a necessity, but it is much more so than DVC points. Waiting to buy DVC points is one thing, needing a reliable car to get to work is another. Again, just a difference of opinions I guess.

 

[ELMC]

Yours and LisaS's idea of continually putting money away even when not paying on a car is a great idea that I have often thought about. If I were single with no kids I would probably be doing that. In reality though in my case it just isn't that easy. Maybe just saving up a larger down payment in my case would be better and is something I have been trying to do. I just think making a statement like not buying a car unless you have cash is a little extreme. In many cases a car is not always a necessity, but it is much more so than DVC points. Waiting to buy DVC points is one thing, needing a reliable car to get to work is another. Again, just a difference of opinions I guess.

I would say that for most people a car is actually a necessity. The problem comes when people make that argument and instead of getting a reliable car like a gently used Civic or Corolla they lease a brand new Accord or Camry because it's "only a few dollars more a month". While technically true, the long term ramifications of a decision like this are staggering, if one actually takes the time to remove the blinders and look at them.

I'm not saying this pertains to you, but we've seen similar arguments made on here followed by ridiculous scenarios like the one I just illustrated above. Yes, you need a car to get to work. But that argument loses credibility when one way overspends what is wise because of an attractive lease deal.

 

[Dean]

(unless you can't afford to buy DVC in the first place and purchase anyway...I think that isn't the correct thing to do, which we both agree on).

Isn't that the point of what we're discussing right now? My definition of being able to afford it is no consumer debt and being able to pay cash but as a minimum we all agree there should be a minimum situation to buy and we've all seen people post here that obviously couldn't afford it.

Yours and LisaS's idea of continually putting money away even when not paying on a car is a great idea that I have often thought about. If I were single with no kids I would probably be doing that. In reality though in my case it just isn't that easy. Maybe just saving up a larger down payment in my case would be better and is something I have been trying to do. I just think making a statement like not buying a car unless you have cash is a little extreme. In many cases a car is not always a necessity, but it is much more so than DVC points. Waiting to buy DVC points is one thing, needing a reliable car to get to work is another. Again, just a difference of opinions I guess.

I agree, with ELMC that people often go over reasonable for their situation when buying a car and feel this is esp true when financing. I've heard that people spend 15% more on CC than they do using cash. I also believe that debt is far more choice and psychology than it is math, about 80/20 most likely. I think there are very few people that can't pay off everything and pay cash for things no matter the income level. They just have to pay attention and plan accordingly. In the more extreme situations it may take tough choices like not eating out at all, no vacations, etc. Still, I'm convinced that most people can't truly move ahead until their both purposeful with their savings (save first, not what's left over) and get out of consumer debt completely and ultimately no mortgage as well.

 

[Friendlyadvice2]

$30,000 x .05 = $1500

Note: No one I have seen has taken fund fees or taxes into account on distributions even if you don't sell the fund. I did and will add it to my analysis.

$1500-$150 (estimate depending on your tax bracket, mutual fund fees, and declared mutual fund distribution.)

Net potential investment loss: $1350

2013 Dues: $1084

Total Opportunity and dues cost: $2434

Mutual funds report their NAV and return information NET of fund fees and distributions. Therefore, if your fund has a 5% annual return, all fees and short/long term capital gains have been factored in. With that being said, if your fund paid a capital gain or dividend, you now have more shares (if you have them automatically reinvested) or cash in your pocket (if you have them paid directly)....this is known as a funds yield or the amount of income it generates. There are many "ultra-conservative" (lower risk) mutual funds recommended for retirees that have a 40-50 year annual return of over 7% and generate over 3% in yield each year. If you are only getting 5% on your money, I strongly suggest you seek advice to optimize your return while balancing your risk tolerance. Also, although federal tax rates do vary, the majority of people having a long term capital gain will fall into the 15% tax bracket for that gain. In your example, that would increase the distribution expense that you tried to calculate from $150 to $225. Then taking into account the yield that the fund generated, would slightly lower the $225 by the yield amount.

You need to factor in the depreciation cost. Your math assumes you could always sell for what you paid for it. Given that you paid retail, that is fairly unlikely. Especially when you consider the 10% commission you would pay.

And if you never plan to sell, not only do you have the investment opportunity cost, but your entire initial investment will be worth $0.

if you sold for $130 in 10 years, that would be $23,400 ($26,000 - 10% commission). That is a loss of $6,600. Amortized over the 10 years, that is $660 per year. In your own example, the correct math would be:

$14 pp x 210 = $2940 (compared to $3094; opportunity cost + dues cost + depreciation).

actually, this should really be x 200 if you want apples to apples. Or else you have to add 5% to your side of the equation to account for the "missing" 10 points:

$14 pp x 200 = $2800 (compared to $3094; opportunity cost + dues cost + depreciation).

And if you never sold, you would average $600 per year in depreciation ($30,000 / 50).

Bottom line is you are omitting approximately $600 in annual costs in your comparison.

This is the BEST analysis of DVC purchase that I have seen on these forums and the formula I use when someone comes to me to inquire about purchase. The only other cost variable I add, is if they decide they want to finance the purchase (which is never recommended regardless if it is self-financed or institutionally financed). My recommendation from a strictly financial perspective, as you can see from the math, is to always rent, which avoids all "Disney" risk and commitment associated with DVC ownership. Using more realistic opportunity cost figures only hurts the DVC purchase option. Yes, this formula assumes market risk, but I'm much more comfortable with that risk than I am with Disney risk. People often forget why DVC exists....because it makes Disney a ton of money, both directly and indirectly.

 

[DVCMomBLT]

Mutual funds report their NAV and return information NET of fund fees and distributions. Therefore, if your fund has a 5% annual return, all fees and short/long term capital gains have been factored in. With that being said, if your fund paid a capital gain or dividend, you now have more shares (if you have them automatically reinvested) or cash in your pocket (if you have them paid directly)....this is known as a funds yield or the amount of income it generates. There are many "ultra-conservative" (lower risk) mutual funds recommended for retirees that have a 40-50 year annual return of over 7% and generate over 3% in yield each year. If you are only getting 5% on your money, I strongly suggest you seek advice to optimize your return while balancing your risk tolerance. Also, although federal tax rates do vary, the majority of people having a long term capital gain will fall into the 15% tax bracket for that gain. In your example, that would increase the distribution expense that you tried to calculate from $150 to $225. Then taking into account the yield that the fund generated, would slightly lower the $225 by the yield amount.


This is the BEST analysis of DVC purchase that I have seen on these forums and the formula I use when someone comes to me to inquire about purchase. The only other cost variable I add, is if they decide they want to finance the purchase (which is never recommended regardless if it is self-financed or institutionally financed). My recommendation from a strictly financial perspective, as you can see from the math, is to always rent, which avoids all "Disney" risk and commitment associated with DVC ownership. Using more realistic opportunity cost figures only hurts the DVC purchase option. Yes, this formula assumes market risk, but I'm much more comfortable with that risk than I am with Disney risk. People often forget why DVC exists....because it makes Disney a ton of money, both directly and indirectly.

I treat a finance cost the same as an opportunity cost. You basically have one or the other. Most people here are dead set against financing to buy DVC. I am not. Even if you can afford to buy DVC in cash, there are times when borrowing is a better use of your money. If you can borrow at 2.99% and write off the interest, you may be better off investing your 30k on your own. Depends on your risk tolerance.

I agree that renting is the best overall financial bet. However, I own DVC because I put a large value on the ability to control my own reservations. If I want to book a standard view and wait list a savannah view, I don't have to worry if my renter is willing/able to do it. If I want to cancel 31 days out, I can without penalty. I would be willing to pay a PREMIUM for DVC over renting for this flexibility. Here's how I rank the options:

Least Expensive (over 10+ years)
1) Resale DVC
2) Rent points
3) Retail DVC
4) Cash reservation

Most Convenient
1) Cash reservation
2) Retail DVC
3) Resale DVC
4) Rent points

For me, resale DVC provided the best combination of price/convenience.

 

[Ansky]

I would say that for most people a car is actually a necessity. The problem comes when people make that argument and instead of getting a reliable car like a gently used Civic or Corolla they lease a brand new Accord or Camry because it's "only a few dollars more a month". While technically true, the long term ramifications of a decision like this are staggering, if one actually takes the time to remove the blinders and look at them.

I'm not saying this pertains to you, but we've seen similar arguments made on here followed by ridiculous scenarios like the one I just illustrated above. Yes, you need a car to get to work. But that argument loses credibility when one way overspends what is wise because of an attractive lease deal.

I agree 100% with you here. Personally I always go with a newer used car because having a brand new car just isn't important to me. I have never owned a brand new car myself and I am not sure if I ever will. Just isn't worth the extra money to me. Now if I become wealthy then maybe it will be another story. Which is back to the point of the entire discussion...not overspending beyond your means. I guess we were just misunderstanding each other.

 

[Ansky]

Isn't that the point of what we're discussing right now? My definition of being able to afford it is no consumer debt and being able to pay cash but as a minimum we all agree there should be a minimum situation to buy and we've all seen people post here that obviously couldn't afford it.

I agree, with ELMC that people often go over reasonable for their situation when buying a car and feel this is esp true when financing. I've heard that people spend 15% more on CC than they do using cash. I also believe that debt is far more choice and psychology than it is math, about 80/20 most likely. I think there are very few people that can't pay off everything and pay cash for things no matter the income level. They just have to pay attention and plan accordingly. In the more extreme situations it may take tough choices like not eating out at all, no vacations, etc. Still, I'm convinced that most people can't truly move ahead until their both purposeful with their savings (save first, not what's left over) and get out of consumer debt completely and ultimately no mortgage as well.

I do agree with you about not spending beyond your means like I said in the previous post and that many people do purchase DVC and stretch themselves too far. Where I was in slight disagreement with you was the whole paying cash upfront. While I agree you should have the money before buying, like myself and a few other posters have stated, we were more comfortable not taking such a large chunk out of our savings and having that readily available instead of buying the DVC points upfront and having to slowly replenish our savings. In our cases (or at least in my case) I think that taking out a loan was not a bad idea for DVC. Yes we paid a little in interest over a few years, but our family thought that having that cash in the bank in case something else came up was more important. I know it is just a matter of how comfortable someone is with depleting their savings, but I just felt like you and many others that I have seen on these boards have a mindset that there is never a reason you should finance DVC points and should only pay cash no matter what. I may be misunderstanding your stance on this or maybe I am not. Like I said before, of course if I had unlimited funds paying cash would be best, I do think there are a few exceptions where getting a loan isn't such a bad idea. I do understand though that in most cases people probably are not getting a loan out for it with the cash to back it up. In those cases I wouldn't recommend getting a loan either. Maybe we just have to agree to disagree.

 

[Friendlyadvice2]

I treat a finance cost the same as an opportunity cost. You basically have one or the other. Most people here are dead set against financing to buy DVC. I am not. Even if you can afford to buy DVC in cash, there are times when borrowing is a better use of your money. If you can borrow at 2.99% and write off the interest, you may be better off investing your 30k on your own. Depends on your risk tolerance.

I agree that renting is the best overall financial bet. However, I own DVC because I put a large value on the ability to control my own reservations. If I want to book a standard view and wait list a savannah view, I don't have to worry if my renter is willing/able to do it. If I want to cancel 31 days out, I can without penalty. I would be willing to pay a PREMIUM for DVC over renting for this flexibility. Here's how I rank the options:

Least Expensive (over 10+ years)
1) Resale DVC
2) Rent points
3) Retail DVC
4) Cash reservation

Most Convenient
1) Cash reservation
2) Retail DVC
3) Resale DVC
4) Rent points

For me, resale DVC provided the best combination of price/convenience.

We're on the same exact page . There is obviously other "value" that is added for many people by DVC ownership and I support that 100%. My needs have always been met and we've experienced no control issues with our reservations over the years. Even at our 7 month mark this year, we could have picked any option on our list and obviously we opted for our first option. Renting obviously works for us financially and hasn't negatively impacted us in the other "value".

I also completely agree on leveraging funds with lower interest rates and keeping your money working for you at much higher rates. I most often use this approach with vehicles and within the last 10 years, not paying down my mortgage faster and keeping the pay-off money invested at much higher rates. However, if you have a loan at 2.99% where the interest can be written off, it must be tied to your residence, and I just can't advocate that here for a timeshare purchase; but if that 2.99% is in lieu of a significantly higher rate loan where the interest can't be written off, then by all means!

 

[skier_pete]

You know, I was thinking a bit over the weekend about this thread - a dangerous pasttime, I know.

The suggestion being made by several people here is that it is much wiser to save of the cash for a DVC purchase, than to borrow the money for it. Well, I realized that I already DID that comparison, so let me present it.


Option 1 (the path I chose): Purchase 160 DVC points in 2014 to travel to WDW every year for 10 days. Cost is about $12,500, with a 10-year $12,000 HELOC loan at 4 % interest, or a monthly payment of $120 - equalling $14,900 over 10 years. In addition, annual dues starting at $950 in 2015. Assuming dues increase 4% per year on average, 10 years of monthly dues would be $11,900. Total out of pocket $26,800 through the end of 2024, or $2,680 a year. In year 11, my payout to stay at WDW is now just my dues, which amount to $1470 a year in 2025.

Option 2 (the path being recommended): I start saving money to buy into DVC, but at the same time go to Disney by renting DVC points until I can pay cash. Let's assume I rent the same # of points, 160, starting next year at $13 a point or $2080 for me to stay at Disney. Let's also assume a 4 % increase in the cost of renting points over the next 10 years. (The assumption is basically that as the dues go up, so will the cost of renting points.) The cost of renting those points over the next 10 years: $24,972. Assuming that I don't have extra money to save versus Option 1 -> that allows me to save over the next 10 years a whopping total of $1,828 towards my DVC purchase. And since I still can't afford to buy DVC, my 2025 points rental costs me $2,960, which is $1,500 more than I would be paying for the same thing in Option 1.

Option 3 (other recommended path): OK, so you say in order to save that money I shouldn't rent points, I should just stay at a moderate. After all, that's where we usually stay, and I don't NEED a DVC/Deluxe stay. Now let's assume 10 nights at a moderate during non-peak season is running $189 a night - throw in a 20% discount off rack rate (a typical mod discount), but add 12.5 % tax, and we are talking $1701 for 10 nights in 2015. Again, let's assume hotel rates go up by 4 % over the next 10 years. This means I will spend $20,422 on moderate hotel stays. Hey, at least this time, I save $6,400 over those 10 years,and including compound interest, maybe a little bit more. I'm halfway to my goal! But hold on, that's my 2014 goal. Can I still but into DVC for $12000 now? Also, now in 2025, I am paying $2,517 to stay at that moderate hotel, versus $1,470 I'd be paying for DVC under Option 1.

Needless to say, beyond year 11, the amount of money I'm now saving having bought DVC in 2014 becomes huge, starting at $1000 a year and growing from there as the 4 % interest compounds the cost of the hotel rooms/point rentals at a much greater absolute rate than my dues. And that doesn't even take into account that after 10 years, my DVC purchase will retain some value - whether its more or less than I paid is irrelevant, since all my hotel stays have zero value whatsoever. It doesn't take into account the tax write-off on my loan, nor the fact that I can get discounted APs by being in DVC to save additional money on my trips.

(A fourth option, I suppose, would to not go on vacation for the next 3-4 years and put that money aside for my DVC purchase, but I don't really want to make that comparison, because it doesn't give me an equal level of pleasure. I also could choose to stay at a value or off-site for the next 6-8 years - but I just don't want to.)

This circles back around the original topic of this thread - sure, if I could go back in time and buy into DVC 10 years ago direct from Disney, that would make really good financial sense versus buying re-sale today. The same argument could be said that I should go back in time and tell the 35 year old me to start saving $100 a week because you are going to want to buy DVC in 2014. (I can tell you right now the 2004 me would not have believed the 2014 me that we would be going to Disney every year.)

In reality, we can only look at what is available going forward. And going forward, I cannot remotely accept the argument that taking out a (low-interest) loan to buy DVC now does NOT make more sense than trying to bank our way to buying DVC in the future. The numbers don't lie.

 

[DVCMomBLT]

We're on the same exact page . There is obviously other "value" that is added for many people by DVC ownership and I support that 100%. My needs have always been met and we've experienced no control issues with our reservations over the years. Even at our 7 month mark this year, we could have picked any option on our list and obviously we opted for our first option. Renting obviously works for us financially and hasn't negatively impacted us in the other "value".

I also completely agree on leveraging funds with lower interest rates and keeping your money working for you at much higher rates. I most often use this approach with vehicles and within the last 10 years, not paying down my mortgage faster and keeping the pay-off money invested at much higher rates. However, if you have a loan at 2.99% where the interest can be written off, it must be tied to your residence, and I just can't advocate that here for a timeshare purchase; but if that 2.99% is in lieu of a significantly higher rate loan where the interest can't be written off, then by all means!

Yes, I was referring to a HEL. But I would ONLY advocate that if you already have the cash to buy DVC. Let's say you had 50k in the bank, and wanted to buy DVC for 30k. You could either use 30k of that cash which will "cost" you 5% in opp cost. Or you could invest it and pay for the DVC with a HEL. The idea being you could always pay off that HEL at any given time with your investment. If you don't have the money, and are borrowing from your house to buy DVC, then that is a bad idea IMO.

 

[ELMC]

You know, I was thinking a bit over the weekend about this thread - a dangerous pasttime, I know.

The suggestion being made by several people here is that it is much wiser to save of the cash for a DVC purchase, than to borrow the money for it. Well, I realized that I already DID that comparison, so let me present it.


Option 1 (the path I chose): Purchase 160 DVC points in 2014 to travel to WDW every year for 10 days. Cost is about $12,500, with a 10-year $12,000 HELOC loan at 4 % interest, or a monthly payment of $120 - equalling $14,900 over 10 years. In addition, annual dues starting at $950 in 2015. Assuming dues increase 4% per year on average, 10 years of monthly dues would be $11,900. Total out of pocket $26,800 through the end of 2024, or $2,680 a year. In year 11, my payout to stay at WDW is now just my dues, which amount to $1470 a year in 2025.

Option 2 (the path being recommended): I start saving money to buy into DVC, but at the same time go to Disney by renting DVC points until I can pay cash. Let's assume I rent the same # of points, 160, starting next year at $13 a point or $2080 for me to stay at Disney. Let's also assume a 4 % increase in the cost of renting points over the next 10 years. (The assumption is basically that as the dues go up, so will the cost of renting points.) The cost of renting those points over the next 10 years: $24,972. Assuming that I don't have extra money to save versus Option 1 -> that allows me to save over the next 10 years a whopping total of $1,828 towards my DVC purchase. And since I still can't afford to buy DVC, my 2025 points rental costs me $2,960, which is $1,500 more than I would be paying for the same thing in Option 1.

Option 3 (other recommended path): OK, so you say in order to save that money I shouldn't rent points, I should just stay at a moderate. After all, that's where we usually stay, and I don't NEED a DVC/Deluxe stay. Now let's assume 10 nights at a moderate during non-peak season is running $189 a night - throw in a 20% discount off rack rate (a typical mod discount), but add 12.5 % tax, and we are talking $1701 for 10 nights in 2015. Again, let's assume hotel rates go up by 4 % over the next 10 years. This means I will spend $20,422 on moderate hotel stays. Hey, at least this time, I save $6,400 over those 10 years,and including compound interest, maybe a little bit more. I'm halfway to my goal! But hold on, that's my 2014 goal. Can I still but into DVC for $12000 now? Also, now in 2025, I am paying $2,517 to stay at that moderate hotel, versus $1,470 I'd be paying for DVC under Option 1.

Needless to say, beyond year 11, the amount of money I'm now saving having bought DVC in 2014 becomes huge, starting at $1000 a year and growing from there as the 4 % interest compounds the cost of the hotel rooms/point rentals at a much greater absolute rate than my dues. And that doesn't even take into account that after 10 years, my DVC purchase will retain some value - whether its more or less than I paid is irrelevant, since all my hotel stays have zero value whatsoever. It doesn't take into account the tax write-off on my loan, nor the fact that I can get discounted APs by being in DVC to save additional money on my trips.

(A fourth option, I suppose, would to not go on vacation for the next 3-4 years and put that money aside for my DVC purchase, but I don't really want to make that comparison, because it doesn't give me an equal level of pleasure. I also could choose to stay at a value or off-site for the next 6-8 years - but I just don't want to.)

This circles back around the original topic of this thread - sure, if I could go back in time and buy into DVC 10 years ago direct from Disney, that would make really good financial sense versus buying re-sale today. The same argument could be said that I should go back in time and tell the 35 year old me to start saving $100 a week because you are going to want to buy DVC in 2014. (I can tell you right now the 2004 me would not have believed the 2014 me that we would be going to Disney every year.)

In reality, we can only look at what is available going forward. And going forward, I cannot remotely accept the argument that taking out a (low-interest) loan to buy DVC now does NOT make more sense than trying to bank our way to buying DVC in the future. The numbers don't lie.

You're missing the bigger picture here, and that is the general principle that people accumulate wealth by earning interest, not paying it. The wonderful thing about numbers is that you can make them say anything you want. But what your analysis fails to account for is the fact that if you constantly finance the things you want, you will forever be stuck in a "buy now, pay later" mode. Once you break that cycle you will accumulate the wealth that is needed to see something you want (like DVC) and just go buy it without financing and without depleting your savings. The problem is that requires delayed gratification, something many of us are not good at.

I'm not trying to be judgmental, and I lived for decades in buy now, pay later mode. It wasn't until I broke that cycle that I was able to truly "afford" things like DVC.

 

[Friendlyadvice2]

If one has made the decision to definitely purchase DVC versus renting, as you have, citing the other many positives of DVC ownership for your family that add value to you and outweigh the financial and commitment aspects, then I completely agree with your theory and support it 100%. Leveraging lower cost funds to accomplish your goals while allowing your money to work for you is a major component of every business. Unfortunately, I don't think that many people who are financing their purchase in some form are in the same healthy financial situation that you are; and in my experience, this leads to problems for many.

 

[DVCMomBLT]

If one has made the decision to definitely purchase DVC versus renting, as you have, citing the other many positives of DVC ownership for your family that add value to you and outweigh the financial and commitment aspects, then I completely agree with your theory and support it 100%. Leveraging lower cost funds to accomplish your goals while allowing your money to work for you is a major component of every business. Unfortunately, I don't think that many people who are financing their purchase in some form are in the same healthy financial situation that you are; and in my experience, this leads to problems for many.

Agree 100%.

 

[Friendlyadvice2]

Yes, I was referring to a HEL. But I would ONLY advocate that if you already have the cash to buy DVC. Let's say you had 50k in the bank, and wanted to buy DVC for 30k. You could either use 30k of that cash which will "cost" you 5% in opp cost. Or you could invest it and pay for the DVC with a HEL. The idea being you could always pay off that HEL at any given time with your investment. If you don't have the money, and are borrowing from your house to buy DVC, then that is a bad idea IMO.

I just wanted to point out that I'm utilizing this same theory by not paying off my mortgage (which has an after-tax effective interest rate in the low 2% range) and leaving the funds invested, which has worked out quite well over the past few years I might add. Sure, I could take those funds and purchase DVC, but I find it financially better for me to leave them invested, not pay-off my mortgage, and rent points for my Disney trips.

If you look at DVC or any timeshare model, in general terms, it is the same theory. The company either pays cash to build the resort, secures financing, or a combination of both. Then they have clients pre-pay 50 years worth of vacations (at a steep discount of course!) and utilize the funds to further their business goals, which may include paying down their original financing, building further infrastructure, increasing their cash position, investing the funds, etc. Disney does this very very well and it's the reason more and more DVC resorts are being built. Any time you can bring future revenue into the present, it's a win win

 

[chitwndan]

But what your analysis fails to account for is the fact that if you constantly finance the things you want, you will forever be stuck in a "buy now, pay later" mode.

The problem with this is you assume that every person who takes any form of loan are doomed to be in debt in perpetuity.

No one debating your point is suggesting that permanent long term debt is a good thing.

This transaction is an isolated event, and does not sentence someone to financial servitude for ever as you are suggesting.

 

[skier_pete]

I'm not trying to be judgmental, and I lived for decades in buy now, pay later mode. It wasn't until I broke that cycle that I was able to truly "afford" things like DVC.

For not trying it feels like you are succeeding. I don't know why I feel like I have to defend myself to you. I just don't like being lumped in with a group of people being called financially irresponsible. I was going to write more, but I think I've told you enough of my financial life. I'll just say we have very little debt compared to our assets. I feel this loan makes sense and I explained my reasoning.

Your life goals may be different from mine, but one of my major goals is to be able to afford to do the things I want to do when I retire. I bought DVC for that purpose. To make Disney trips less expensive 15 years from now. If that requires a short-term loan that I can pay off while I have money coming in, so be-it.

I just wanted to point out that I'm utilizing this same theory by not paying off my mortgage (which has an after-tax effective interest rate in the low 2% range) and leaving the funds invested, which has worked out quite well over the past few years I might add. Sure, I could take those funds and purchase DVC, but I find it financially better for me to leave them invested, not pay-off my mortgage, and rent points for my Disney trips.

Exactly my point as well. There's risk involved, but there would be risk in selling your strong investments to pay off a low-interest loan.

The problem with this is you assume that every person who takes any form of loan are doomed to be in debt in perpetuity.

No one debating your point is suggesting that permanent long term debt is a good thing.

You and I have been of the same mind, and what you say here is spot on again. If I chose to never take a loan I wouldn't have gone to college, wouldn't own a house, wouldn't have reliable vehicles.

 

[ELMC]

The problem with this is you assume that every person who takes any form of loan are doomed to be in debt in perpetuity.

No one debating your point is suggesting that permanent long term debt is a good thing.

This transaction is an isolated event, and does not sentence someone to financial servitude for ever as you are suggesting.

Maybe not for you, but many people on here have openly shared that they finance DVC, their mortgage, cars and carry monthly balances on their credit cards. So when the DVC transaction is part of a larger portfolio of debt based purchasing, it actually does sentence someone to financial servitude. Just not you.

 

[ELMC]

For not trying it feels like you are succeeding. I don't know why I feel like I have to defend myself to you. I just don't like being lumped in with a group of people being called financially irresponsible. I was going to write more, but I think I've told you enough of my financial life. I'll just say we have very little debt compared to our assets. I feel this loan makes sense and I explained my reasoning.

You don't have to defend yourself to me. I'm sorry that you felt I was lumping you in, or even that I was calling people irresponsible. What I'm doing is speaking in broad generalizations, and without an in depth look at your finances (which I don't want) I can't have an opinion one way or another about any individual situation. I do however, stand by my statement that there are things that one should take loans for (houses, college, cars) and things that one shouldn't (timeshares, jewelry, vacations). Feel free to disagree.

Your life goals may be different from mine, but one of my major goals is to be able to afford to do the things I want to do when I retire. I bought DVC for that purpose. To make Disney trips less expensive 15 years from now. If that requires a short-term loan that I can pay off while I have money coming in, so be-it.

One might suggest that if you want to have money for things when you retire, you should be investing money now for that purpose, not spending it.

 

[dcfromva]

I realize that most dvc members on this site, and many others, think resale is the only way to go and give that advice to all that inquire about the process. I agree that resale is great option, but believe there is an important fact overlooked.

BLT 2009 $112-$5 (incentive) $107 pp 2014 resale around $ 95pp


It seems right now people are happy to be picking up 2042 to 2054 end date contracts for more or the same money then they were sold for 10 to 20 years ago, and are pounding there chest about the resale market. A little confusing.

I think BLT is one of those for which resales have been more favorable...