Renting out points??

[Deb & Bill]

I bought about 2-3x the points I need each year and rent them out. In about 30 yrs, I will have paid for the initial investment and all the dues with my rentals meaning my own DVC trips to Disney every year for 40-50 yrs will have been free. You have to spreadsheet out the " profit" you need to make each year to pay for the initial investment & the dues. See if it is worth it for you. It isn't a way to get rich though, profit is small, lots of work and some risk. Although after a few years, I have a core group of 10 people I generally rent to repeatedly so risk lowers dramatically.

What about your tax liabilities?

 

[luckyman_apd]

Here's my 2 cents.....Buying DVC points just to rent is a SERIOUS mistake. If you are interested in Buying DVC, and you envision a year here and there where you might not use it....then sure, rent the points out. But I would seriously question why anyone would buy extra points, to rent them out.....just to help cover dues. Let's say you wanted just 100 points for yourself. You'd have to buy double and rent out the points at double the dues just to pay for All the dues. And with it, you are now paying DOUBLE the upfront cost. The amount of time to get back that upfront cost will take a long time.

If you are buying say 150 points and you envision some years only using 125, you are better off buying 125, and borrowing 25 points the years you need more. Eventually you will get to a point where you run out of points for a year, but then you could rent them yourself for that year. You will not have the upfront cost involved or the maintenance fees involved with more points. If you are worried about dues, buying more points to cover them makes so much less sense than just buying less points initially.

Lets not even talk about financing. If you finance, then not only are you trying to make up the initial cost AND dues with your rental....you'll be trying to make up interests charges on the financing as well. It's just not good math. Don't ever mix the phrases "investment" and "DVC". It's a prepaid vacation plan. You can do much better "investing" in something else.

 

[ACJT]

This is a great discussion. I think the concept of
Buying double points to rent depends on your outlook. If you see your initial purchase price on an additional contract as a depreciating asset that will take over let's say 40 years to write down to zero. And you buy those extra points from SSR at $70.00/point you'd need $1.75 per point in rent over the life of contract to cover depreciation. You'd need roughly $4.80 per point to cover annual dues. The total needed to cover depreciation and dues today is $6.55. If you can easily get $11.00 per point it means you have $4.45 profit which is almost enough to cover dues on points of the contract you actually plan to use while at the same time cover all the cost on the rental contract. ?????
Make any sense ?

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[Deb & Bill]

I wonder how many members who contact David to help rent out their points, don't rent out their points. Either because they don't have the desireable location that some renters want at eleven months out or at seven months out they can't get what the renters want. Or do they all rent out their point?

 

[ACJT]

I wonder how many members who contact David to help rent out their points, don't rent out their points. Either because they don't have the desireable location that some renters want at eleven months out or at seven months out they can't get what the renters want. Or do they all rent out their point?

Good question. Be interesting to know the success rate.

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[crisi]

This is a great discussion. I think the concept of
Buying double points to rent depends on your outlook. If you see your initial purchase price on an additional contract as a depreciating asset that will take over let's say 40 years to write down to zero. And you buy those extra points from SSR at $70.00/point you'd need $1.75 per point in rent over the life of contract to cover depreciation. You'd need roughly $4.80 per point to cover annual dues. The total needed to cover depreciation and dues today is $6.55. If you can easily get $11.00 per point it means you have $4.45 profit which is almost enough to cover dues on points of the contract you actually plan to use while at the same time cover all the cost on the rental contract. ?????
Make any sense ?

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You need to pay taxes on the $11 - you don't get to write off expenses, if I remember tax class, if you are a private individual renting out points, that will eat into that profit. Also, I get 5% in just my dividend investments, I haven't invested in anything that is much less than that (unless its growth stocks) for years. That will eat further into the profit (although I pay taxes on those dividends as well, but only on the profit, I get to take the loss, if there would be one).

Those SSR points are the ones that are at the most risk of being non-rentable if there is a glut on the market. There isn't now, right now every point gets rented, but there was in 2009 and 2010. I wouldn't worry about not being able to rent out BCV points, but I wouldn't want to be stuck with SSR points to rent if we have another recession.

 

[DVC Dude]

Those SSR points are the ones that are at the most risk of being non-rentable if there is a glut on the market. There isn't now, right now every point gets rented, but there was in 2009 and 2010. I wouldn't worry about not being able to rent out BCV points, but I wouldn't want to be stuck with SSR points to rent if we have another recession.

Not everyone books their vacations at the 11 month mark and all DVC points are equal at 7 months --- SSR = VGF + BCV at that timeframe

The real question is how high can VGF and DVC Poly go ???
Will they hit $200pp

How will VGF and Poly owners like it when inexpensive SSR points grab all their units at the 7 month mark

 

[Sammie]

So they have no hard and fast rule then so long as it's not an annual occurrence ?

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They have them, they just do not publicize them.

 

[crisi]

Not everyone books their vacations at the 11 month mark and all DVC points are equal at 7 months --- SSR = VGF + BCV at that timeframe

The real question is how high can VGF and DVC Poly go ???
Will they hit $200pp

How will VGF and Poly owners like it when inexpensive SSR points grab all their units at the 7 month mark

VGF and Poly owners will have to do what BCV owners do now if they really want to stay "home," book before seven months. So there will be very few rooms available at those resorts when the seven month window opens - and fewer at six and a half. And then SSR owners will have the same problem in renting we were talking about above, people who want rooms that will be difficult to get. If your renter right now only wants a BLT standard view room, you have got to be willing to be online eleven months out, and from the renters point of view, they learn to make reservations before seven months - and they have an advantage over us owners - they can find an owner with the right points. They have another advantage, if they can't get what they want, they aren't tied to DVC - they can book a CRO room for cash, usually with a discount, they can stay offsite.

The real question to me is "how do other DVC owners feel when the Poly is booked up with renters?" There have been times when this board has had a lot of anti-renter sentiment on it - particularly over rooms at the Epcot resorts over F&W. I rented my BWV points this year at eleven months for a standard view - its is, I think, the first weekend of F&W - but it might be right before it starts. I have every right to do so (I rented mine because I wanted HH in the Summer, and that is as hard a reservation to get as the standard view at F&W I "traded." But that room won't be available when the seven month window opens for someone who doesn't own BWV.) It was at the peak of that anti-renter sentiment here that Disney put in what policies we have now to control renting - one transfer in or out and a rumored limit of twenty reservations not in your name a year and a limit on associates.

There are lots of renters who have done it before, and are pretty savvy about it. Those renters will find an owner who owns the resort they want and book before seven months.

 

[Daddio]

I wonder how many members who contact David to help rent out their points, don't rent out their points. Either because they don't have the desireable location that some renters want at eleven months out or at seven months out they can't get what the renters want. Or do they all rent out their point?

I've been asked to get over here and answer this question.

And it's a good question. I can't give you a specific answer because that's proprietary information. But I will say this; If you have an extra 5 or 6 thousand SSR points that you'd like rented, please contact me today .

~ David

 

[Dean]

You need to pay taxes on the $11 - you don't get to write off expenses, if I remember tax class, if you are a private individual renting out points, that will eat into that profit. Also, I get 5% in just my dividend investments, I haven't invested in anything that is much less than that (unless its growth stocks) for years. That will eat further into the profit (although I pay taxes on those dividends as well, but only on the profit, I get to take the loss, if there would be one).

Those SSR points are the ones that are at the most risk of being non-rentable if there is a glut on the market. There isn't now, right now every point gets rented, but there was in 2009 and 2010. I wouldn't worry about not being able to rent out BCV points, but I wouldn't want to be stuck with SSR points to rent if we have another recession.

You pay taxes on the profit, not the full amount. In this case Maint fees plus any direct expenses. You may be confusing with the preclusion on deducting donations where you can't write off anything.

 

[crisi]

You pay taxes on the profit, not the full amount. In this case Maint fees plus any direct expenses. You may be confusing with the preclusion on deducting donations where you can't write off anything.

I'm not thinking about donations, but my tax class was a few years ago, and I don't have access to IRS rulings. Unless you file as a business, I didn't think you could write off expenses, PARTICULARLY timeshares that have special IRS letters around them. My tax prof and a client of his had recently lost in an audit on timeshares - and I THINK it was this. Its one where I'd talk to a CPA for sure, and ask them to review the rulings, before you commit to this as a for profit enterprise.

Here is the part of the code I'm thinking of:

http://www.law.cornell.edu/uscode/text/26/280A

 

[Dean]

I'm not thinking about donations, but my tax class was a few years ago, and I don't have access to IRS rulings. Unless you file as a business, I didn't think you could write off expenses, PARTICULARLY timeshares that have special IRS letters around them. My tax prof and a client of his had recently lost in an audit on timeshares - and I THINK it was this. Its one where I'd talk to a CPA for sure, and ask them to review the rulings, before you commit to this as a for profit enterprise.

Here is the part of the code I'm thinking of:

http://www.law.cornell.edu/uscode/text/26/280A

Here's a quote from a TUG advice article written by a CPA who's very experienced in timeshares and who is a major contributor both to TUG and Timeshare Today, Dave McClintock.

If you rent your timeshare, you can deduct all current expenses, including depreciation, advertising, rental commission and maintenance fees against the rental income.

Here is a link to the ARTICLE. It may be our terminology. As I understand it you cannot deduct losses for such an option if the typical period is 1 week or less, this includes full use condo's not just timeshares. What you can do is reduce your taxable component for the type of items mentioned even to zero and if I understand it correctly, you can carry losses forward to reduce future profits as well.

 

[conandrob240]

Yes, you are right. I did not factor in possible interest/ earnings on my original investment into my calculations. Because of that, it is probably not quite a break-even situation. Basically, if you make a $50,000 initial investment = 400 pts. And my annual dues are $2000. If I rent enough pts to cover my annual dues plus $1000 (So, rent 250 pts at $12 pp.), I am "even" after 50 years. I still have 150 pts to use each year. If you want to cover lost earnings on your initial investment, you need to rent out say 275-300 pts a year. Still leaving you 100 pts a year to enjoy.

 

[Dean]

Yes, you are right. I did not factor in possible interest/ earnings on my original investment into my calculations. Because of that, it is probably not quite a break-even situation. Basically, if you make a $50,000 initial investment = 400 pts. And my annual dues are $2000. If I rent enough pts to cover my annual dues plus $1000 (So, rent 250 pts at $12 pp.), I am "even" after 50 years. I still have 150 pts to use each year. If you want to cover lost earnings on your initial investment, you need to rent out say 275-300 pts a year. Still leaving you 100 pts a year to enjoy.

But if you invested the extra lump sum in a good mutual fund you'd have dramatically more money at the end of the time even if you paid the yearly dues out of the money. From a return standpoint alone there is no way to make the numbers work to buy from a rental return alone standpoint.

 

[conandrob240]

I am satisfied if I would rent the additional points to cover what would amount to a $30k return on my $50k investment. The bottom line is that that $50k would not have sat in a mutual fund for 20 yrs, it would have gone towards trips. If I can rent enough to cover the entire capital investment plus each year's annual dues plus a little more to " realize" lost interest and I get to also go to Disney every year as part of that calculation, it is all good with me.

 

[Dean]

I am satisfied if I would rent the additional points to cover what would amount to a $30k return on my $50k investment. The bottom line is that that $50k would not have sat in a mutual fund for 20 yrs, it would have gone towards trips. If I can rent enough to cover the entire capital investment plus each year's annual dues plus a little more to " realize" lost interest and I get to also go to Disney every year as part of that calculation, it is all good with me.

If I'm understanding your proposal, I don't agree. You're talking buying EXTRA points for the purpose of renting them as an investment. One can easily separate out the ownership and investment portion in this scenario. That's why I used $30K allotting the other $20K to the purchase and vacations. At the end of 50 years (or whatever RTU) you'll have nothing with DVC from a financial perspective. If you want to pay the dues out of the earnings and include taxes, that's fair but you'll still have dramatically more at the end. Inflation happens either direction on the dues so that's a wash. Of course you'll have other expenses for vacations either way so that does not come into play. But what you'll also have by investing is considerably less risk.

Doing an annuity type calculation assuming 8% before taxes, 15% taxes, fees of $100 a month ($1200/yr) and a 3% yearly increase, you'd have around $65K left once a 50 yr RTU were done. No matter what you decide to cover out of the in initial allotment, the numbers still run the same you just need a higher number to cover all expenses vs just dues alone. One would have to buy in somewhere in the range of less than half the current prices to even have a chance of "breaking even" in this type of scenario. Even then you'd need to get top dollar renting. Also don't forget you'll have to pay taxes on the profits of the rented amount as well which is not reduced by the vacations you're suggesting it be used on but only by real costs like maint fees and advertising costs.

I've rented occasionally for 18 years and I've always gotten top dollar even when those here were getting far less routinely. While I've enjoyed it and I've made a ton of friends doing so, financially it's a waste of time with work and risk.

 

[DVC Dude]

But if you invested the extra lump sum in a good mutual fund you'd have dramatically more money at the end of the time even if you paid the yearly dues out of the money. From a return standpoint alone there is no way to make the numbers work to buy from a rental return alone standpoint.

If the buy in price is low enought and rental rates are high enough it works well.

If you buy SSR resale for $40pp and rent for $12pp then you will pay off your investment in 6 years and the rest of the RTU rental (rent - dues) is pure profit.

The bottom line is that that $50k would not have sat in a mutual fund for 20 yrs, it would have gone towards trips.

Not true, read Dean's post. You need to compare apples to apples. If you are planning on buying 2x points, that is a heck of an investment that should or could be used elsewhere. If you have $100k just sitting in a bank paying less than 1%, well then you are better off buying DVC, but MOST people like to invest their money into something with a better return than 1%. historically, 5% is the yardstick. If you are the type of person that spends their free cash on lifestyle upgrades, then perhaps it is fine to buy 2x DVC points, but if it is your GOAL to treat this as an investment, you would probably be better off buying a SIPA (single payment immediate annuity) as they will pay you 5% on day one for life.

I've rented occasionally for 18 years and I've always gotten top dollar even when those here were getting far less routinely. While I've enjoyed it and I've made a ton of friends doing so, financially it's a waste of time with work and risk.

While, the ROI may not be significant, I would argue that it was not a waste of time, but that all depends on what you value your time as worth and what expectations you have for your other investments.

 

[Dean]

If the buy in price is low enought and rental rates are high enough it works well.

If you buy SSR resale for $40pp and rent for $12pp then you will pay off your investment in 6 years and the rest of the RTU rental (rent - dues) is pure profit.

That's just it, it's not pure profit there are costs and risks. In this situation we're talking investing real dollars in DVC for money reasons alone, this is not a buy and use vs invest question as being discussed. I used 8% ROR and 15% taxes in the assumptions and a lump sum investment. Personally I think 8% long term is conservative but given that I know many here don't see it that way, I wanted to be fair. I did acknowledge that buy in price also affected the situation, for SSR to be competitive, you'd have to get get the buy in down to roughly $25 pp on a purchase now to be competitive. Even then that assumes status quo and if that's the case, one would be better off selling for instant profit than renting. Even when the numbers even out, DVC is far more risky than a well chosen mutual fund. Even then you likely have to book high demand options up front then offer them for rent secondarily.

While, the ROI may not be significant, I would argue that it was not a waste of time, but that all depends on what you value your time as worth and what expectations you have for your other investments.

My statement applied to my situation but on a more general note, one needs to be at a minimum financial situation to make buying or owning DVC a reasonable proposition and even more so to make investing in DVC for financial return which is really what is being discussed. Plus you need an economy of scale to make any numbers applicable which means thousands of points in play likely at multiple home resorts. Thus I think financially we could easily broaden my statement.

Since the numbers don't justify DVC as a real investment, I think the only situations this scenario makes any sense is where there are other factors. Such as when there's a good chance you'll need more points later or you can't find what you need otherwise or maybe if the price difference between a smaller and modestly larger contract is dramatic.

 

[conandrob240]

I did not necessarily buy DVC as an investment. I bought a lot of points at a good price in resale. I made an initial investment in cash of around $60k. The way I calculate it, and this is based very conservatively on $12 pp rental and renting 1/2 of my each year, at the end of the DVC ownership, my rental fees will have 100% covered my initial investment, all the maint fees plus yielded around $25k in my pocket. On top of that, I will have used or gifted to my family 1-2 Disney trips per year. To me, that math works out pretty good and I am satisfied with it. And it will probably work out to be more $ as I already have been renting at more like $13 pp lately and that will only go up.

Again, I am not getting rich off of this but I am happy with those figures.