Rental Rates/Concerns

[Dumbo]

Originally posted by Dean
Early December is a pretty busy time for DVC .......

Then why are the points required for the first two weeks of December the lowest of any season?


Dumbo

 

[Happy Birthday Cat]

Originally posted by Dumbo
Then why are the points required for the first two weeks of December the lowest of any season?


Dumbo

IMHO it is because it is not busy for other parts of WDW. In Disney's efforts to even out the crowds they plan the annual meeting for the resorts in early December and keep the points low to entice DVCers to go to WDW and spend money. It works.

Disney markeying at its best.

HBC

 

[Dean]

Originally posted by Happy Birthday Cat
IMHO it is because it is not busy for other parts of WDW. In Disney's efforts to even out the crowds they plan the annual meeting for the resorts in early December and keep the points low to entice DVCers to go to WDW and spend money. It works.

Disney markeying at its best.

HBC

Plus my guess is they didn't accurately predict the useage. I expect the points to change some day, I'm surprised they haven't already but HBC's reason may be part of it.

 

[anniet]

Originally posted by Dean
So I believe the only two stances one can currently reasonably take are that renting out the number of points one can own is legal or that ANY renting is not legal including DVC. That shuts down ALL the exchange options except II.......
[*]DVC is doing exactly what they are trying to prevent, an obvious double standard.

Okay, I need some education on this one.

I never understood why DVC HAS to comply with the same rules that apply to members- I mean don't THEY actually OWN the property, where we are leasing the property from them, aren't we? Isn't it like a landlord who lives in an apartment in my building who tells me I can not sublet, but he OWNS the building so he can?

 

[Dean]

Originally posted by anniet
Okay, I need some education on this one.

I never understood why DVC HAS to comply with the same rules that apply to members- I mean don't THEY actually OWN the property, where we are leasing the property from them, aren't we? Isn't it like a landlord who lives in an apartment in my building who tells me I can not sublet, but he OWNS the building so he can?

For the points DVD still owns, they are functioning as owners. For the exchange points rentals, that might be a little different but not much, IMO. This is not a lease in the terms you are saying. Think of it as a lease hold home where you OWN the home until a certain date then it reverts back to another person or company. At present, the members own the sold out resorts. The question to me is not why they would have to meet the same standards but rather why woudn't they. The burden of proof would be on DVC/DVD to prove why they should be treated differently and I can think of no reason either within the paperwork or legal framewwork why they should.

 

[ripleysmom]

"That's 3000 points and $15K per year on average. direct dues of around $6000. If you figure return of principle over the life of the contract, that's another $3000 per year. If you depreciated as real estate, it would actually be more until you'd depreciated the entire amount and then it'd be less. That gives you a gross income of approximately $6000 per year. A second phone line is around $600 per year and my cell phone for one person is total about $1200, I'll assume 20% ($240). Say another $200 in mail and long distance charges. Do an SEPP of around $1000, or whatever the maximum is when you get finished. Ignoring the home office directions, that gives you a maximum taxable income of around $4000 realizing there are potentially more deductions like the home office and any defaults or wasted points. Tax of $1000 exactly plus deferred tax on $1000. If the total income was under around $60K, the actual tax would be more in the $600 range, or possibly even less. If there are listings fees or commsions. computer, dsl, ebay, etc; that too would be deductible. Even mileage to the PO, trips to Orlando to the annual meetings including mileage could potentially be deductible if done correctly."

As I said Dean....while your numbers are nice and well thought out, I disagree with your assumptions especially on the SEPP.

Oh and just so you know the IRS does not care how much tax you haven't paid.....just that it was not paid.


"As for defaults, it would depend on the terms and situation. Any lost points could be totally discounted off the top as well as any unpaid rentals where the points were not used. Obviously if the person rented out the points twice with a "cancellation or default", there would be additional potential income dependingon specifics."

You and I both know that experienced renters make sure that points are paid for ahead of time and the chances that they would lose money are slim to none.

 

[Dean]

As I said Dean....while your numbers are nice and well thought out, I disagree with your assumptions especially on the SEPP.

It would be up to the person involved. I know I've done a SEPP every year I had independent income, some would and some wouldn't. It only defers the taxes until the money is taken out at 59.5 or older. Still the point remains that, IMO, the relative income potential is small and the tax risk even smaller. I don't see any assumptions to disagree with. I assumed $10 pp and a principle of about $2 pp per year. I also assumed there would be other expenses that an individual might or might not be able to deduct depending on their circumstances. I used the tax tables for 2003 income. Even on worst case scenario, one is looking at $1500 per year at 25% based on the numbers in the situation posted.

I agree that one should pay taxes, that's why I've reported it to my CPA as income every year I've had any. I'm the type person that keeps a written mileage log sitting in my car and I keep up with everything. I'd bet that even on the numbers quoted, I'd pay less than $1000 per year any year you would want to look at. Since I don't rent nearly that much, maybe about once a year on average, I don't have to worry about it.

You and I both know that experienced renters make sure that points are paid for ahead of time and the chances that they would lose money are slim to none.

That is definitely not true. I've had two people out of maybe 10 rentals that had something happen at the last minute and most of the points were lost. The things were unavoidable.

 

[ripleysmom]

"It would be up to the person involved. I know I've done a SEPP every year I had independent income, some would and some wouldn't. It only defers the taxes until the money is taken out at 59.5 or older. Still the point remains that, IMO, the relative income potential is small and the tax risk even smaller."

The important point there being tax risk...I would be willing to bet that the people doing that renting are taking those risks. Also you may not feel as though the risk is high, the IRS takes a different view. The IRS does not take the view that it was only XXX amount in taxes so we won't charge penalties and interest.


"I don't see any assumptions to disagree with."

Well since we know that the people who are most likely be the commercial renters are currently receiving more than $10 pp, we could start with that assumption.


"I assumed $10 pp and a principle of about $2 pp per year. I also assumed there would be other expenses that an individual might or might not be able to deduct depending on their circumstances. I used the tax tables for 2003 income. Even on worst case scenario, one is looking at $1500 per year at 25% based on the numbers in the situation posted."

Most people who invest in commercial real estate look for a 10% return on their investment. The numbers you outlined would give a 10% return so they are being successful otherwise they would no longer be doing it. That 10% is after taxes BTW.


"That is definitely not true. I've had two people out of maybe 10 rentals that had something happen at the last minute and most of the points were lost. The things were unavoidable."

So you lost money on those transactions did you?

 

[Dean]

The important point there being tax risk...I would be willing to bet that the people doing that renting are taking those risks. Also you may not feel as though the risk is high, the IRS takes a different view. The IRS does not take the view that it was only XXX amount in taxes so we won't charge penalties and interest.

No one argued that the IRS shouldn't be paid what they're due, I think I agreed to that principle some time ago.

Well since we know that the people who are most likely be the commercial renters are currently receiving more than $10 pp, we could start with that assumption.

Labeling as commercial based on the price quoted is bogus.

Most people who invest in commercial real estate look for a 10% return on their investment. The numbers you outlined would give a 10% return so they are being successful otherwise they would no longer be doing it. That 10% is after taxes BTW.

If my reason for owning were to rent, I'd be behind, that's true. I'm glad you agree that the dollars aren't there to justify owning with the purpose of renting.

o you lost money on those transactions did you?

A little, but mostly the other parties. What I did have to do was scramble to take care of the points I could salvage.

 

[ripleysmom]

"Labeling as commercial based on the price quoted is bogus."

Where did I do that? What I said was that the people that are most likely the "commerical" renters are probably charging more than $10. Where did I say that all renters who charge more than $10 are commercial?


"If my reason for owning were to rent, I'd be behind, that's true. I'm glad you agree that the dollars aren't there to justify owning with the purpose of renting."

Where would you be behind? I disagree with your numbers and think that the return is at least 10% otherwise the renter wouldn't keep doing it. That is what commercial real estate is all about. If the property is not making 10% then the investor sells it.


"A little, but mostly the other parties. What I did have to do was scramble to take care of the points I could salvage."

Ah but you were paid for those points so even if you couldn't salvage them you haven't lost anything right?

 

[Dean]

Where did I do that? What I said was that the people that are most likely the "commerical" renters are probably charging more than $10. Where did I say that all renters who charge more than $10 are commercial?

Sorry, must have misunderstood, my apologies. I thought you were using the price charged to designate commercial vs NOT. The price per point has nothing to do with commercial vs non commercial.

Where would you be behind? I disagree with your numbers and think that the return is at least 10% otherwise the renter wouldn't keep doing it. That is what commercial real estate is all about. If the property is not making 10% then the investor sells it.

We can disagree, that's OK. But I'd like to see your numbers where the return is 10%. Guidelines include using the current resale value or the price paid, whichever is higher, dues and return of principle as a minimum.

I guess it depends on what we think the returns are. IMO, it's more like $4 pp at the MAX. And I'd compare to what it's currently worth, not what I paid for it, unless I paid more than it's worth on the open market, like SSR. That puts the return at about 6% at the tops. if you only include the dues and return of principle. And if I were doing it for a "commercial venture", I'd want return of principle over 20 years, not 39 or 50 to justify the risk and expense. We do agree that DVC would be a considered a VERY high risk venture if used for the purpose of income return. As such, it'd require a return of 10% to justify the the venture and it's not there.

Ah but you were paid for those points so even if you couldn't salvage them you haven't lost anything right?

When I have rented, my standard terms are 25% when you see the confirmation in your name and the rest at 90 days out. I am not sitting around looking at the calendar for 89 days then cancelling them. So I try to give anyone who has rented a fair chance to make sure they don't lose out on their deposit. So unless I can't get in touch with them after multiple attempts or they tell me to move on, I'd give them every opportunity. So if I have banked or borrowed points, or it's late in the use year, it might be hard to use all of the points personally or possibly with another rental. I've lost points that were not paid for, but only a few. The idea that the rentee is taking all the risk is baloney, there is significant risk for both parties but also things that can be done to minimize the risk for each side. So if someone is doing multiple rentals things are bound to happen. They may come out ahead or behind, it just depends on what happens and how they've structured the deal.

 

[ripleysmom]

"Sorry, must have misunderstood, my apologies. I thought you were using the price charged to designate commercial vs NOT. The price per point has nothing to do with commercial vs non commercial."

Accepted.


"We can disagree, that's OK. But I'd like to see your numbers where the return is 10%. Guidelines include using the current resale value or the price paid, whichever is higher, dues and return of principle as a minimum."

Actually Dean those guidelines are wrong. That may be what some commercial renters look at as a way to justify increasing their rental price but they are not valid.

How can you use the current resale price as a measure when that is not what you paid for it? Someone looking to sell a property is not looking to make current markey plus 10%, they are looking to make 10% on their original investment.


"I guess it depends on what we think the returns are."

Yep


"IMO, it's more like $4 pp at the MAX."

More like $3 after tax.


"And I'd compare to what it's currently worth, not what I paid for it, unless I paid more than it's worth on the open market, like SSR."

And that would be wrong. ROI would be return on your investment, not what you think you could sell it for.


"That puts the return at about 6% at the tops. if you only include the dues and return of principle. And if I were doing it for a "commercial venture""

I think you better redo that math. $3 out of $10 is a 30% profit as far as I can see.


"I'd want return of principle over 20 years, not 39 or 50 to justify the risk and expense."

Well that is a different thing. However, GAAP requires you to depreciate your lease costs over the entire period, not whatever period you want.


"We do agree that DVC would be a considered a VERY high risk venture if used for the purpose of income return. As such, it'd require a return of 10% to justify the the venture and it's not there."

Better tell the commercial renters that then because they are more than making their 10%. At least according to the posts that I have seen.


"When I have rented, my standard terms are 25% when you see the confirmation in your name and the rest at 90 days out. I am not sitting around looking at the calendar for 89 days then cancelling them. So I try to give anyone who has rented a fair chance to make sure they don't lose out on their deposit. So unless I can't get in touch with them after multiple attempts or they tell me to move on, I'd give them every opportunity. So if I have banked or borrowed points, or it's late in the use year, it might be hard to use all of the points personally or possibly with another rental. I've lost points that were not paid for, but only a few. The idea that the rentee is taking all the risk is baloney, there is significant risk for both parties but also things that can be done to minimize the risk for each side. So if someone is doing multiple rentals things are bound to happen. They may come out ahead or behind, it just depends on what happens and how they've structured the deal."

In other words, most of the time you do not have a loss. To pretend otherwise for the sake of your argument over ROI is misleading at best.

 

[Dean]

I'd use the current value because I could sell it at that if I were doing this as an investment. Anyone with a liquid investment should compare to what they could get out for, not just what they paid for it. That's why I'd use the higher of price paid or current value. When calculating return, one would need to compare to the "investment" in a each point, not to the price obtained. The price charged of each point would have to be looked at as dues, return of principle, "profit" plus any other expenses of which there are many possibilities many of which I've noted but I'm sure there are others. $3 is a 4.5% return on a value of $68 pp, even if you used $50 pp as the basis, it's only a 6% return.

Better tell the commercial renters that then because they are more than making their 10%. At least according to the posts that I have seen.

I certainly haven't seen that. While I do know some of them at times rent for more than $10 pp, I don't think that's at all consistent in spite of what they say. And when they do, they tend to have additional expenses like ebay selling fees, square deal certification fees, paypal fees in addition to the myriad of possible expenses we've already talked about. As I invited previously, I'd love to see a breakdown of numbers that would suggest a return of 10% consistently net of ALL fees and expenses.

In other words, most of the time you do not have a loss. To pretend otherwise for the sake of your argument over ROI is misleading at best.

That's not what I said and you know it. What I said was there are other possible expenses and risks that could offset any "profits" and would need to be taken into account for anyone wanting to rent DVC as a business. And these include the risk of losing points for one reason or another, not only a real riks but a likely riks for a "commercial renter". And it's also possible one would end up getting to rent points two times, this would be less likely but still could be considered.

At this point, I'm trying to figure out your contention other than you don't like renting. I don't really understand your overall position other than you want to argue with me, maybe I'm missing something.

 

[MikDor]

-

 

[Desperado]

Originally posted by Dean
That's not what I said and you know it.

At this point, I'm trying to figure out your contention other than you don't like renting. I don't really understand your overall position other than you want to argue with me, maybe I'm missing something.

But who will have the last word?

Besides all this hyper-technical discussion, I've got to say that personally, I don't have a problem with renting. I've rented a few extra points to extend my vacation stays. My problem is with a handful of owners auctioning off hard to get holiday times on auction sites on a regular basis for the greatest profit. If this is done by an owner regularly, in my opinion, it could be considered to fall within commercial renting practices, which is restricted by the agreement we signed. Occasional renting is OK with me. I don't think occasional renting hurts DVC owners, except that perhaps renters are less considerate of the wear and tear issues, given the absence of a long term commitment. I hate to see those of us who have a concern with a small miniority of renters who are abusing the system, painted with a broad brush as being against all renting. For me, that just isn't the case. I'm glad the occasional renting option is available to us.

 

[mickeymouse710]

My problem is with a handful of owners auctioning off hard to get holiday times on auction sites on a regular basis for the greatest profit. If this is done by an owner regularly, in my opinion, it could be considered to fall within commercial renting practices, which is restricted by the agreement we signed.

ITA.

 

[Robert P]

Desperado,

You have said it very well. I agree completely.

Robert P

 

[idratherbeinwdw]

I concur wholeheartedly with the last three posters. There is an auction on EBay right now which has as the Headline "Boardwalk Timeshare--Easter". The auction came out 11 months in advance, so you know it's not someone who made a ressie and had a change of plans. And it's for 5 nights at BWV, in a studio with a guaranteed Boardwalk view--price is $2000!! The points needed for this are 95. This is the kind of thing I (and evidently many others here on the DIS Boards) object to.

 

[Dean]

But who will have the last word?

You will of course.

Besides all this hyper-technical discussion, I've got to say that personally, I don't have a problem with renting. I've rented a few extra points to extend my vacation stays. My problem is with a handful of owners auctioning off hard to get holiday times on auction sites on a regular basis for the greatest profit. If this is done by an owner regularly, in my opinion, it could be considered to fall within commercial renting practices, which is restricted by the agreement we signed. Occasional renting is OK with me. I don't think occasional renting hurts DVC owners, except that perhaps renters are less considerate of the wear and tear issues, given the absence of a long term commitment. I hate to see those of us who have a concern with a small miniority of renters who are abusing the system, painted with a broad brush as being against all renting. For me, that just isn't the case. I'm glad the occasional renting option is available to us.

There is no legal or POS rule that would limit the season rented or the price paid as having an impact on the rental approval by DVC. I understand a lot of people don't like it, but that's a totally different discussion. From DVC's standpoint, one rental is and has to be, the same as another. Any rule DVC could even try to come up with to define "commercial" renting would not include time or year, season or price rented as long as it was a rental available to all who owned at that resort. It would have to be an objective measure like number of points or number of rentals. It'd also have to be something that happened over time, not just one or two years.

People need to figure out the difference in what they approve of and what's technical under the rules and legal within the state of FL, they are two different things.

 

[idratherbeinwdw]

Originally posted by Dean


People need to figure out the difference in what they approve of and what's technical under the rules and legal within the state of FL, they are two different things.

Wait a minute, isn't that why we were discussing ethics a few posts back? The objections for the most part in this thread have not been regarding what is legal and technical, but rather what is right and wrong.

Maybe no official rules are broken when people rent out highly desirable times for the sole intention of auctioning them on a regular basis, but that doesn't make it right.

And I am pretty sure those abusing the system know darn well that they are doing something underhanded, but justify it by saying "I am not breaking any rules". I repeat what I said in an earlier post--Just because you aren't doing something illegal it doesn't mean you're a good person. It just means you aren't a criminal.