Probably oversimplistic question

[cdurham1]

I know almost nothing so far about DVC, but I love Disney so I am at least learning.

I have noticed that, for a lot of resorts, the maintenance dues seem to be about half the cost of what you can rent out points.

So if I bought twice as many points as I will actually use, and then rented out half of them each year, shouldn't that generate enough cash to pay the dues on all of the points?

So, assuming that logic works, it is kind of like prepaying for lodging?

I assume the points will eventually depreciate to $0 as the expiration approaches. Is that also safe to assume?

 

[davidl81]

You are not too far off on your assumptions. Let’s say you rent your point ms for $16pp and fees are $8, you make $8pp profit. So basically every year you would be taking $8 off of your initial capital cost. So if you bought SSR points at $120 per point you would pay off the capital in 15 years. Now this does not take into account time value of money which changes the math a ton.
As far as what happens when they expire we don’t know for sure since none have expired. The most conservative guess would be that they have $0 in value. Will DVC try to extent current owners when we get within 10 years and resell the point a that expire? We just don’t know any of that yet.

 

[Ronaldo17]

In simplistic terms, Yes. Notwithstanding the point made in the above post about your initial capital outlay.

 

[cdurham1]

You are not too far off on your assumptions. Let’s say you rent your point ms for $16pp and fees are $8, you make $8pp profit. So basically every year you would be taking $8 off of your initial capital cost. So if you bought SSR points at $120 per point you would pay off the capital in 15 years. Now this does not take into account time value of money which changes the math a ton.
As far as what happens when they expire we don’t know for sure since none have expired. The most conservative guess would be that they have $0 in value. Will DVC try to extent current owners when we get within 10 years and resell the point a that expire? We just don’t know any of that yet.

Ok, cool, at least my initial thoughts weren't too far off. With record low interest rates, the discount rate for the cost of capital should be very low, I would think.

I don't have any historical data. I wonder what points on the secondary market were selling for 5 years ago, 10 years ago, etc. Has there been a time when points have actually increased in value?

 

[kilik64]

Ok, cool, at least my initial thoughts weren't too far off. With record low interest rates, the discount rate for the cost of capital should be very low, I would think.

I don't have any historical data. I wonder what points on the secondary market were selling for 5 years ago, 10 years ago, etc. Has there been a time when points have actually increased in value?

I dont know that far back, but in the past year alone prices for SSR for example have went from about 90ish resale to 120+ resale. Granted past year has been different, obviously, but generally they tend to go up. Direct is constantly going up and thanks to ROFR it helps create a floor for pricing and it tends to rise as direct prices rise.

 

[KAT4DISNEY]

You're tying up capital in a timeshare where things could go off the rails and not only does the initial cost to purchase tank but dues sky rocket or points are not rentable. Worse case scenario but then the last year showed that crazy things can happen.

Also remember you'll pay taxes on the income along with having capital tied up and toss in interest on a loan and there's probably safer ways to earn the equivalent income. It probably would work out ok or at least you wouldn't lose money but again, there's other ways to earn money too. And once Disney starts opening up more rooms the rental market starts competing more and more for the $$$'s. It's not necessarily going to go up if Disney can't find a way to keep increasing their prices and also keeping reasons to stay onsite.

 

[BridgetBordeaux]

Ok, cool, at least my initial thoughts weren't too far off. With record low interest rates, the discount rate for the cost of capital should be very low, I would think.

I don't have any historical data. I wonder what points on the secondary market were selling for 5 years ago, 10 years ago, etc. Has there been a time when points have actually increased in value?

Caution........in the most simplistic sense the math seems to follow your logic.

However, the maint fees go up each year and there are other risks associated with your proposal.

Certainly we all love Disney and want to go there frequently.

Before you consider tying up 30-50 thousand dollars in such an endeavor you need to do some serious research.

If borrowing the money, the rates for timeshare loans are much, much higher than for a single family home.

Many have said that the money spent for DVC is with the intention of using it for you and your family. It is not really considered an investment.

If you think you want to construct a somewhat complex financial profit plan over a multiyear period, be sure to talk to both consumers and brokers to ensure the good, bad, and ugly are fully revealed before you dive in for an investment purpose.

 

[MICKIMINI]

Don't forget you pay income taxes on this which lowers that small profit margin even more. After taxes, which might be 25%, it's not a big money maker, more a way to get compensated for points you do not need.

Points purchased resale even recently have risen in value dramatically through prices vary greatly and loaded vs stripped, added fees, closing costs and negotiable MF's can skew the "cost". It's the bottom line that counts.

Good luck!

 

[BridgetBordeaux]

You're tying up capital in a timeshare where things could go off the rails and not only does the initial cost to purchase tank but dues sky rocket or points are not rentable. Worse case scenario but then the last year showed that crazy things can happen.

Also remember you'll pay taxes on the income along with having capital tied up and toss in interest on a loan and there's probably safer ways to earn the equivalent income. It probably would work out ok or at least you wouldn't lose money but again, there's other ways to earn money too. And once Disney starts opening up more rooms the rental market starts competing more and more for the $$$'s. It's not necessarily going to go up if Disney can't find a way to keep increasing their prices and also keeping reasons to stay onsite.

Yep......I have been renting points for 7, 10, and 12 dollars a point this year.

I do recognize things are not normal and the quantity of what I have rented this year may never be duplicated.

My signature tells my DVC stay experience this year.

In total, by the end of July, we will have been down to WDW for around 40 total nights!

 

[RoseGold]

Yes, this is true for all of DVC. This is definitely NOT the case for other timeshares, one of the ways Disney is different than others.

The buy is important, but the dues matter more in the overall math.

There are many reasons I would not buy points to rent, but the most important one is that it doesn't make much money to make it worth the risk. And 2020 has shown there is risk.

https://www.dvcresalemarket.com/blog/best-economical-dvc-resorts-to-purchase-spring-2021/

 

[Heather07438]

Because resorts have different contract lengths I also like to consider the purchase price and years left in contract to come up with purchase price per point per year. Some start around $3 buy-in cost, and resorts that are more expensive like GCV & GFV or have shorter contracts like BWV can be as high as $9 or more. Looking at it this way, OKW direct is sometimes cheaper than resale because most resale contracts expire 2042 while direct is 2057, another 15yrs.

Say you bought 100pts resale at Boardwalk for $160/point.
There's roughly 20 yrs left, so divided among those years is $8 per point.
Then there's the dues, almost $8 a point for 2021.
Average cost per point over the life of the contract is $16 in today's dollars.

Boardwalk has a higher cost because it's one of the best point value rooms in all DVC. Many people avoid the short contracts but I like 'em I don't need DVC forever lol. It's very hard to compare resorts apples to apples. The pros/cons of each aren't the same for everyone.

 

[chalee94]

I have noticed that, for a lot of resorts, the maintenance dues seem to be about half the cost of what you can rent out points.

So if I bought twice as many points as I will actually use, and then rented out half of them each year, shouldn't that generate enough cash to pay the dues on all of the points?

This "seems" like a good idea on the surface. It might even work out. But there are risks and most of us won't recommend pursuing this strategy - just buy what you intend to use yourself.

In addition to the reasons KAT and MICKIMINI listed, Disney already has rules that prohibit "commercial renting." While your plans may not cross the line into a violation at this point, they may change the rules as to what qualifies as "commercial renting" of points down the road. And during the pandemic, renting points turned into a mess and more owners than usual had to let points expire for no benefit at all.

The possible returns just aren't high enough to make it a worthwhile strategy for most people.

 

[cdurham1]

Yep......I have been renting points for 7, 10, and 12 dollars a point this year.

I do recognize things are not normal and the quantity of what I have rented this year may never be duplicated.

My signature tells my DVC stay experience this year.

In total, by the end of July, we will have been down to WDW for around 40 total nights!

You have been renting points for that low this year? Wow. How did you find these deals? I would like to do something like that in order to try out some different places.

 

[BridgetBordeaux]

You have been renting points for that low this year? Wow. How did you find these deals? I would like to do something like that in order to try out some different places.

There are many DVC sales/rental companies that have listings of either points for rent or for reservations that a family has that they can not cancel.

They may be in a use it or lose it situation regarding the points so they sometimes try to rent them out to avoid a total loss. There certainly are others that are trying to do what you suggested.......rent out the points to make a profit.

I have used companies that have had a relationship with these boards, as well as those that do not.

I made sure the company had a phone number so I could talk to an employee when needed......I did not deal with any "web only" agencies.

In a couple of cases I negotiated with the owner through the agency to get a lower price.

We live in GA so we can leave on short notice.

In one case we got a deal and left for WDW the very next day...............we are retired so we can do that.

 

[BridgetBordeaux]

Oh......and nobody has mentioned the sales commission related to selling a DVC contract via an agency.

Off the top of my head I think one of the companies was advertising a fee of about 8.5 percent.

 

[Tiberella626]

If any CPA's are out there chime in if I am incorrect. I think with taxes of rental income you may deduct the cost of the rental. Say you rent 100 points and after commission to the broker you bring in $1500. Dues are $8.00 so $800 and you could attribute your purchase price divided by total points in the life of the contact times your 100 point rental to get the total cost to you of the rented points. My real math example 37,200/1000=3.72*100=372+800=1172. This would be your basis. You would pay income tax on the $328.

 

[AdamsMum]

I don't have any historical data. I wonder what points on the secondary market were selling for 5 years ago, 10 years ago, etc. Has there been a time when points have actually increased in value?

2007 I purchased my first small contract resale at BWV for $87 pp. Within a month or so I purchased an add on direct for $98 pp. Point increases used to be $3 - $5 pp, now they are increasing by ridiculous amounts. Each time they increase the direct price, the resale also goes up.

 

[Bearval]

I dont know that far back, but in the past year alone prices for SSR for example have went from about 90ish resale to 120+ resale. Granted past year has been different, obviously, but generally they tend to go up. Direct is constantly going up and thanks to ROFR it helps create a floor for pricing and it tends to rise as direct prices rise.

I do not think ROFR creates a floor for pricing, competition from resale buyers create the floor since way more contracts are bought by resale buyers. If there was no demand from resale buyers ( think great recession 2006 to 2009) the bottom falls out on pricing. DCV buys resale when they have a direct demand and can make a decent profit.

 

[Tiberella626]

I think it's more psychology. The threat of getting taken makes resale buyers get serious and not low-ball thus keeping the floor higher than a free market.

 

[Bearval]

2007 I purchased my first small contract resale at BWV for $87 pp. Within a month or so I purchased an add on direct for $98 pp. Point increases used to be $3 - $5 pp, now they are increasing by ridiculous amounts. Each time they increase the direct price, the resale also goes up.

Direct prices and resale buyer competition is what creates the floor for pricing not ROFR. What do you think is keeping RIV resale is so high especially since no contracts are being bought back by DVC?