Sell or rent out points in perpetuity WWYD

[DVCcurious]

It's looking like we won't need all of our points for future trips. We have two contracts (blt 250 and vwl 200). We used to bring my mom and get a 2 bedroom, but she's a little older and not really interested in more WDW trips. We also have gone twice per year (including Spring Break) and now will probably cut back to once per year during summer since Spring break is so many more points.

So.....do we sell one of the contracts, and if so which one, or do we rent the extra points until they expire in 25+ years?

Variables:
We don't need the money, so there's no "need" to sell.
We could always decide to do a long weekend (president's day) every couple years like we've done up until now, but right now we're not planning on it.
We're reducing our trips currently to save money (only pay for 1 flight per year instead of two) but moreso because my wife wants to do something other than WDW for awhile
Doesn't Disney have a rule against renting over and over? Would we get "busted"?

So I guess this comes down to which is more valuable, selling at today's prices or renting points. Renting is $13 per point for both VWL and BLT.

I have rented before using a reputable website and I have no problem doing so again and again.

 

[jerseyduke]

I believe that the MFs at BLT are lower (at least currently) for BLT than for VWL. Ergo, you would net a little more renting out those points.

Assuming you sold VWL for 90 per point that would be 18000 - 8.5% commission leaves you with about 16,500


4% on that per year is about 660.
6% is 990.

Clearing 6$ per point renting is 1200 per year.

May not be a bad idea for a few years. It is less liquid. It is a form of diversity. However, in 2042, your principal is $0, which is why I would not do it in perpetuity.

Your BLT contract is worth a lot more and would alter the above numbers.

 

[disneynutz]

It's all about your needs and the numbers. If selling makes life easier and you aren't making money by renting, sell. Dues will continue to increase and the sales price might decrease.

Bill

 

[JimMIA]

So.....do we sell one of the contracts, and if so which one, or do we rent the extra points until they expire in 25+ years?

Variables:
We don't need the money, so there's no "need" to sell.
We could always decide to do a long weekend (president's day) every couple years like we've done up until now, but right now we're not planning on it.
We're reducing our trips currently to save money (only pay for 1 flight per year instead of two) but moreso because my wife wants to do something other than WDW for awhile

Based on your first three variables, I personally would sell one of the contracts. You could then use the proceeds of that sale and the annual dues savings to:

• Pay for the occasional long weekend trip
• Pay for other vacations away from Disney
• If you like timesharing and do a LOT of due diligence, you might pick up a contract with another system that would give you more options than DVC. Those contracts can be bought resale for pennies on the dollar in many cases -- and I'm talking about fine systems like Hilton, Marriott, Wyndham, etc.

Doesn't Disney have a rule against renting over and over? Would we get "busted"?

No and no. They have a rarely-enforced rule against "commercial use" but if you're renting a couple hundred points a year, you have nothing to worry about.

 

[CraigInPA]

It's fairly easy to do the math on this. I'll use VWL as my example, because right now it's under renovation and it's going to expire in 2042, so it would be the logical one to sell. Using BLT, you'd have to use a different sale price and extend the expire date to 2057.

Let's assume you can net $18,000 for VWL ($90 per point). Let's further assume you net 1% investing that sale price each year until 2042 (yes, I know that's less than one might expect by investing in stocks, but it's greatly more than you'd get just putting it into a bank savings account.) The total you'd have after the next 25 years would be $20,400.

Now, let's rent those points for $13 per point. Your gross revenue on 200 points per year is $2600. Let's assume that the rental price and the maintenance fees grow at the same rate. Your current maintenance fees are about $1200 (rounded down from $1205.02). Your yearly net is $1400. Multiply that by 25 years, and you'll have $35,000.

But wait... You will be paying taxes on the rental income. Figuring you're in the 28% bracket overall, you're down to $25,200 net from renting.

But wait again... When you sell VWL, you may realize a gain on your sale price. Let's assume you paid $50 per point. Your gain when you sell at $90 per point is $40 per point. So, $8,000 becomes taxable. Likewise, the gain by interest income of $2,400 is also taxable. So, you have $10,400 in taxable income. At the 28% bracket used earlier, you're going to lose $2900 to taxes.

The bottom line by numbers is that your sale, and subsequent interest income net $17,500 after taxes. If you rent it out every year, your net would be $25,200 after taxes.

While it seems obvious that it might be better to rent every year, there are some assumptions I've made that could significantly change the calculations. The first big assumption is that you will successfully rent every year. Missing a few years would have a significant effect on the results. The second big assumption is that you're not a financial wizard who can make more than 1% on invested money each and every year. If you could make 5% or more on your investments each year, you're better off selling now. The next assumption is that rental prices will go up at the same rate as the growth of maintenance fees. That's actually unlikely. Maintenance fees will rise, but the rental price is going to be dictated by how much a Disney hotel room costs. If Disney crashes the price of hotel rooms for some reason, you may not be able to even cover your maintenance fees. If Disney's hotel prices continue to rise, they will bring the DVC rental price up.

In the end, you'll have to consider whether you think you will ever need those points. I know in my case, my wife and I reached a point where we were "Disney'ed out" at 2 trips per year. Cutting back to one made each trip more "special". When we retire in 10-12 years, we may feel differently, and might want to have 2 trips (especially since we live in the frozen north and like to escape to Florida during the winter).

 

[bumbershoot]

Doesn't Disney have a rule against renting over and over? Would we get "busted"?

I don't think you'd hit anywhere near a commercial mark with those points.

 

[DVCcurious]

But wait... You will be paying taxes on the rental income. Figuring you're in the 28% bracket overall, you're down to $25,200 net from renting.

Do you have to pay taxes? I mean it's not like the IRS is gonna know I rented my points.

I don't think you'd hit anywhere near a commercial mark with those points.

Even so, if renting in perpetuity is against the rules I'd like to know. I always believe in following the rules.

 

[jerseyduke]

Do you have to pay taxes? I mean it's not like the IRS is gonna know I rented my points.



Even so, if renting in perpetuity is against the rules I'd like to know. I always believe in following the rules.

Is it me, or are those two statements a total contradiction??

 

[JimMIA]

Do you have to pay taxes? I mean it's not like the IRS is gonna know I rented my points.

Even so, if renting in perpetuity is against the rules I'd like to know. I always believe in following the rules.

You realize there is a teeny, weenie conflict between those statements...right?

Yes, rental income (like almost all income) is taxable.

With regard to renting, in their rare attempts to discourage commercial renting, I believe Disney only singled out people making more than 20 reservations per year. So you would not be meeting their definition of "commercial purposes."

 

[jerseyduke]

It's fairly easy to do the math on this. I'll use VWL as my example, because right now it's under renovation and it's going to expire in 2042, so it would be the logical one to sell. Using BLT, you'd have to use a different sale price and extend the expire date to 2057.

Let's assume you can net $18,000 for VWL ($90 per point). Let's further assume you net 1% investing that sale price each year until 2042 (yes, I know that's less than one might expect by investing in stocks, but it's greatly more than you'd get just putting it into a bank savings account.) The total you'd have after the next 25 years would be $20,400.

.

If you are going to assume a 1% annual return, you might as well burn the money. You would be losing money every year. I doubt there is a 25 year period in history that averaged less than 1% inflation. Secondly, there is probably no 25 year period in history where the S&P returned 1% annually.

The approach to your math is spot on. The 1% makes it totally unrealistic. You can get a stable dividend stock that yields double that (and dividends are taxed at 15%)

 

[DougEMG]

Compare selling and investing the proceeds to contract termination against renting and investing those rental proceeds till contract termination. See which one is better. With holding and renting you have more RISK because you have to make assumptions about MF and rental rates over a long period of time.

I went through this exercise myself last year after seeing the huge jump in resale prices. In the end I decided to keep my extra points to rent out instead of selling, because while there is more risk, there is also the potential to come out further ahead with renting. Now one of the benefits for me as a Canadian is that the rental income is in US$ which is kind of nice and makes paying the annual MF that much easier. If I had of sold I would of ended up converting the US$ into CDN$ and then cried as the CDN$ crashed against the US$, making those MF payments very painful.

My assumptions though were that rental rates would continue to increase along with MF because Disney would continue to increase hotel rates and that they need high hotel rates to be able to market and sell DVC points.

 

[jmmess]

Is it me, or are those two statements a total contradiction??

I thought it was just me!

 

[jmmess]

Do you have to pay taxes? I mean it's not like the IRS is gonna know I rented my points.

If you go through a rental company/broker, they are now required to send a 1099. I think it is above $600, but don't quote me on the last part.

 

[Snurk71]

If you are going to assume a 1% annual return, you might as well burn the money. You would be losing money every year. I doubt there is a 25 year period in history that averaged less than 1% inflation. Secondly, there is probably no 25 year period in history where the S&P returned 1% annually.

The approach to your math is spot on. The 1% makes it totally unrealistic. You can get a stable dividend stock that yields double that (and dividends are taxed at 15%)

I don't think the interest rate assumption makes much difference. Whatever rate you use for an assumption on the 'sell now' math (say 5%), you should use the same on the 'rent' math. If the proceeds from the sale or the rental aren't going to be touched and will be invested - you should assume earnings on the rental income/spread too. If you clear $1,000 renting in year one - that turns into $9,000 in 2060 at a 5% return (and then each subsequent rental year's proceeds earn over time to a lesser extent from year one to 2060 as each year goes by).

I'm with others that say the real risk on renting is that the "rental spread" (rental fee - MFs) will stay constant. I'm clearing $8/pt today, but who knows if I'll be clearing $8 in 10-20 years.

 

[jerseyduke]

I don't think the interest rate assumption makes much difference. Whatever rate you use for an assumption on the 'sell now' math (say 5%), you should use the same on the 'rent' math. If the proceeds from the sale or the rental aren't going to be touched and will be invested - you should assume earnings on the rental income/spread too. If you clear $1,000 renting in year one - that turns into $9,000 in 2060 at a 5% return (and then each subsequent rental year's proceeds earn over time to a lesser extent from year one to 2060 as each year goes by).

I'm with others that say the real risk on renting is that the "rental spread" (rental fee - MFs) will stay constant. I'm clearing $8/pt today, but who knows if I'll be clearing $8 in 10-20 years.

It can make a pretty big difference. Remember, selling you are starting with a interest bearing principle of about 17K. At 5% that is 850$ in interest the first year. If you clear 1000 from the rental, that is only 50$ in interest. So, the difference is 800$ in year 1. So next year it is 17,850 and 1050 yielding 5% - 892.50 and 52.50 - difference of 840$. The spread gets bigger! Remember compound interest is the 8th wonder of the world

As with anything assumptions have to be made, and that in part is what makes the debates/discussions interesting.

The rental spread is interesting. It is certainly a risk. More and more points get added to the system every year, so (potential) supply rises. Does demand?
I need three days in late sept, early october (thursday - sunday) @14 per point, that is 518. (For OKW) I can barely get those 3 nights at a value resort for that price!
So in my eyes, points are kind of cheap.

Then again, I Zombie apocalypse could render this a moot point.

 

[Snurk71]

It can make a pretty big difference. Remember, selling you are starting with a interest bearing principle of about 17K. At 5% that is 850$ in interest the first year. If you clear 1000 from the rental, that is only 50$ in interest. So, the difference is 800$ in year 1. So next year it is 17,850 and 1050 yielding 5% - 892.50 and 52.50 - difference of 840$. The spread gets bigger! Remember compound interest is the 8th wonder of the world

You're right - there will be a difference with larger changes in the rate (and longer period of time). It seems like when I see some of these analyses people include the compounding effect on the 'sell' scenario, but not the 'rent' scenario. You're going to have a compounding effect on your rental spread income too. That's the point I was trying to make (maybe poorly).

Using a BLT example of 100 pts selling at $120/pt compared to a $8/pt rental spread, I get a rate breakpoint of around 6.75% (not making things more complicated with tax impacts - just pure compounding). If the rate is under 6.75%, you'll make more renting over the long term - if your actual rate is above 6.75%, you'll make more selling today in the end. Change any of the assumptions (spread, sale price) and the rate breakpoint changes too.

 

[DVCcurious]

Using a BLT example of 100 pts selling at $120/pt compared to a $8/pt rental spread, I get a rate breakpoint of around 6.75% (not making things more complicated with tax impacts - just pure compounding). If the rate is under 6.75%, you'll make more renting over the long term - if your actual rate is above 6.75%, you'll make more selling today in the end. Change any of the assumptions (spread, sale price) and the rate breakpoint changes too.

Oh I like this a lot. Then the question becomes "what rate can you get" and you focus on the rate instead of guessing at a rate and then trying to figure out which is better (rent or sell).

Let's suppose I could sell the 200 VWL at $90 per point. That would get me like $80 after selling fees. If I can rent those points for $7 net (13 rental fee - 6 in dues) then we have to do a forecast of $7 per year for the next 25 years.

So the question is: at what interest rate is $80 today = $7 per year for 25 years? And also, would I earn more or less than that amount? I have a HELOC at 3.75% so I'd probably use the money to pay some of that off.

 

[DisDadDVC]

If you sold now and made 4% annually for 25 years, your $16,500 would turn into ~44k

If you rented each year and netted $1200 per year and invested that $1200 at 4%, you would have ~52k in 25 years.

 

[Dean]

It's looking like we won't need all of our points for future trips. We have two contracts (blt 250 and vwl 200). We used to bring my mom and get a 2 bedroom, but she's a little older and not really interested in more WDW trips. We also have gone twice per year (including Spring Break) and now will probably cut back to once per year during summer since Spring break is so many more points.

So.....do we sell one of the contracts, and if so which one, or do we rent the extra points until they expire in 25+ years?

Variables:
We don't need the money, so there's no "need" to sell.
We could always decide to do a long weekend (president's day) every couple years like we've done up until now, but right now we're not planning on it.
We're reducing our trips currently to save money (only pay for 1 flight per year instead of two) but moreso because my wife wants to do something other than WDW for awhile
Doesn't Disney have a rule against renting over and over? Would we get "busted"?

So I guess this comes down to which is more valuable, selling at today's prices or renting points. Renting is $13 per point for both VWL and BLT.

I have rented before using a reputable website and I have no problem doing so again and again.

To me it depends on other factors that include how many points we're talking about routinely and how much you want/need to book each at 11 months out. Assuming you only need 200 or so points, I'd likely sell VWL but I think you could easily make the case to keep both and just rent out the extra points. You're WELL within the rules even if you rented all 450 every year. The other part is what would you do if you sold it. If you'd do a true investment or have consumer debt (or even a mortgage), I'd be more likely to sell and put it toward that. Good luck, nice problem.

 

[jerseyduke]

If you sold now and made 4% annually for 25 years, your $16,500 would turn into ~44k

If you rented each year and netted $1200 per year and invested that $1200 at 4%, you would have ~52k in 25 years.

At it's most basic level, doing this 2016-2042, those two values meet at a 6.2% ROI on both cash from the sale, and the rental ; both yielding 78,800.