The Economics and Value of Renting Your DVC Points

[pkrieger2287]

Value is something we talk about often when it comes to renting Disney Vacation Club points. Guests looking to stay at a Deluxe Disney resort receive the value of up to 65% off the regular room rates – But what about the value for DVC Members themselves?

Join us as we explore the economics and value of renting your DVC points and how to maximize your investment as a Disney Vacation Club owner!

The Economics and Value of Renting Your DVC Points

 

[happythoughts & pixiedust]

Good article! Assuming you can sell your contract and get your money back you can indeed make a decent return on investment by renting your DVC points! Very much in line with non-leveraged income-producing real estate @ 5-7% per year and no need to worry about your residents calling you to fix a clogged toilet! If you pick the right DVC property that will have strong resale value and hold it for 10-15 years, you just might be able to tack on an extra 2-3% appreciation on top of the 5-7% cash flow per year. But beware, all contracts are not created equal. The best performer has been VGC @ 6+% per year in appreciation and the worst are the off-park properties somewhere in the (negative) 1 to 4% range per year.

A couple thoughts on the presentation of the data: the second chart is a little confusing. The article says, "To better illustrate this, we’ve compared the cost of each Disney Vacation Club Resort to its maximum rental payout per point to determine the return on investment you could receive by renting your DVC points."

You're not taking the difference between rental rate per point and total cost per point per year in order to find the ROI. You'd need to take the difference between rental rate per point and annual dues, then divide by the upfront cost per point to purchase the contract. I'm guessing this is what was done since Vero beach has a 4.8% annualized return despite having only a 3 cent difference between cost per point per year and rental rate per point. This is why the chart is confusing, because it looks like you're comparing rental rate vs. total cost per point per year instead of just annual dues.

"A resort’s cost per point per year represents the minimum return you would want to receive when renting your Disney Vacation Club points to essentially break-even and cover your annual dues and purchase cost." This is correct, in a very simplified sense (since it ignores the time value of money), if you are assuming that you are holding your contract to expiration. This is also where the DVC as investment argument breaks down - renting your points while holding the contract until expiration turns this into a very bad deal because you lose all your principal. This only works if you hold for a medium term and can sell your contract before it reaches a point where it starts to depreciate. At some magical point in the life of a DVC contract it will begin to lose value as it nears its expiration date. So far we haven't seen when that happens....Beach Club and the other 21 yr. remaining properties continue to appreciate!

 

[Eldon32]

The one thing I don't understand (I'm a pretty simple person, not a professional) is the collection and payment of FL sales tax on rentals.

From my understanding of FL tax law (https://floridarevenue.com/Forms_library/current/gt800034.pdf)...

If you collect or receive rental charges or room rates for living quarters or sleeping or housekeeping accommodations for rental periods six months or less (transient rental accommodations), you must register with the Department to collect, report and remit sales tax and surtax, plus any local option transient rental tax that is collected by the Department. (Transient rental tax collected by the county is reported to the county.) Each transient rental accommodation is required to be separately registered by the owner or the owner’s agent who collects and receives rental payments on behalf of the owner.

Checking the tax FAQ, timeshares are specifically included:
https://floridarevenue.com/taxes/taxesfees/Pages/sales_tax.aspx

• Rentals of short-term living accommodations (for example: motel/hotel rooms, beach houses, condominiums, timeshare resorts, vacation houses, or travel parks)

Per the intermediary agreement with DVC Rental Store (and this isn't targeted at them, it's the same everywhere: https://dvcrentalstore.com/wp-content/uploads/2020/07/Intermediary-Agreement.pdf)

The DVC Rental Store does not collect sales or any other Local or State taxes for the DVC Member for remittance to applicable taxing authorities in the State where a Disney Vacation Club rental may take place. The DVC Member is responsible for remitting applicable taxes to the appropriate taxing jurisdictions. The DVC Rental Store acts only as an intermediary to the Rental Agreement between the DVC Member and the Guest. The DVC Rental Store does not act as a co-vendor with the DVC Member

So it would seem to me you would need to:
1. For every resort that you may rent at (regardless if you own it), register for a Tax ID with Florida (using form DR-1): $5 each
2. Register with the county for any ancillary / tourism taxes.
3. Pay between 12.5% and 13.5% of your "top line" rental income (what the customer was charged). Since tax is not a separate line item for most rentals through a broker, it does not appear you can discount your top line to compensate it.

So, if the customer was charged $19 a point, you would pay between $2.375 and $2.565 per point off of the $16 a point you collect after commission from most rental companies leaving you with $13.435 per point - and you still haven't paid the IRS for income - which your basis may not be deductible unless you do not use any points at that resort for the year due to the dwelling requirements (https://www.irs.gov/taxtopics/tc415). In this case, if your tax-rate was 22% you'd reduce your net income to $9.40 without the possibility to deduct your maintenance fees.

Can someone offer a better analysis? This is why I've been more comfortable with transferring my points to RCI than renting due to the sheer paperwork and cost. Maybe I'm overthinking this!

 

[Brian Noble]

It looks like dvcrentalstore.com is ignoring the time value of money to overstate the value to the owner of renting---which is convenient, given that they make money by acting as a middleman in rental transactions.

I know that every time I bring this up, I am met with a chorus of "It doesn't matter." If it doesn't matter, then I have a deal for you: You give me $1000 today, and I will give you back $100 at the end of every year for the next ten years.

 

[DVC Doctor]

This also assumes that you NEVER waste any DVC points and use 100% of them every year without fail.

 

[eMoneyBug]

Great article. I pride myself on value so not surprised that back in 2012 it came down to AKL or SSR for me and I picked SSR and recently when I wanted to add points I picked AUL as per point was such a great deal imo

 

[Starport Seven-Five]

I've done similar math in the past because I wanted to justify buying a larger resale contract (easier to find and less $ per point). The fact that the returns trail so far behind basic index fund investing before factoring in the numerous risks that would decrease returns further meant we are only pursuing a contract we will use for vacations.

 

[CastAStone]

I get that there’s a product to sell here but this is the absolute best case scenario, and assumes there’s no inflation, that an alternate place to put your money will yield 0% returns, and that nothing will ever cause the amount of money you can get for renting out your points to suddenly fall off a cliff, like it has for the past 8 months.

The risk with DVC is much higher than most other places to keep your money. No matter what, you have to put more money in every year, even if you can’t rent your points out for whatever reason. And if the point rental market collapses, you can be sure that the money you will get for your contract by selling at that point will collapse too.

If you are renting your vacation points out occasionally, whatever, but if you find yourself doing it with any regularity, you will greatly reduce your exposure to a finicky and expensive investment vehicle by selling some points.

 

[CarolMN]

As one of the commentators pointed out, the article also ignores taxes, both income, and Florida sales tax. While I doubt that very many actually self-report and pay those, they are still legally owed. That's another reason I don't think buying more points than you need for personal use is a good idea.

 

[gisele2]

As one of the commentators pointed out, the article also ignores taxes, both income, and Florida sales tax. While I doubt that very many actually self-report and pay those, they are still legally owed. That's another reason I don't think buying more points than you need for personal use is a good idea.

I agree. Renting and transferring should be the exception not the norm .

 

[DougEMG]

One other thing to consider is that there are a lot of people that bought at the $50-60 range and they can afford to rent out for a lot cheaper than people buying at today's price in case there was ever to a drop in demand for rentals, like say a pandemic hit and people couldn't or weren't allowed to travel.

Buying to rent out today is a very risky option in my opinion.

 

[crisi]

So:

Taxes
Risk of rental market crashing
Possibility of getting undercut by older owners and Disney
Refunds during a pandemic (or whatever happens next)
Your renter paying 1/2 up front and 1/2 30 days out - and the 1/2 30 days out never arrives.
Slight possibility of getting stuck with room bills or damage

Yeah, I'm going to stick to short selling GameStop.

 

[DVCSunDevil]

So:

Taxes
Risk of rental market crashing
Possibility of getting undercut by older owners and Disney
Refunds during a pandemic (or whatever happens next)
Your renter paying 1/2 up front and 1/2 30 days out - and the 1/2 30 days out never arrives.
Slight possibility of getting stuck with room bills or damage

Yeah, I'm going to stick to short selling GameStop.

Yeah, there are much better investment options than buying DVC to rent out the points. Doing it once in a while is one thing. But if you’re strictly buying DVC as an investment option, you may want to seek better investment advice.

 

[crisi]

Yeah, there are much better investment options than buying DVC to rent out the points. Doing it once in a while is one thing. But if you’re strictly buying DVC as an investment option, you may want to seek better investment advice.

(Which is not to engage in short selling GameStop, btw. Buy and hold low fee index funds. Balance it with cash, so you don't need to take money out of the market when its down. There.)

 

[Boosterman]

Good article and discussions. I will stick to investing in the basic index fund and only use DVC as a vacation tool.

 

[DanCali]

Interesting article. Without going too much into accuracy and whether things may be over- or under-stated (I'll just say that I wouldn't rent points for "Max $16/pt"), there's the issue of how "rental mentality" can affect enjoyment of the ownership.

If I think of my Aulani subsidized points costing me $7.34/pt/yr then I may be happy to splurge 80-85 points ($600) per night on a 2BR in peak summer (it's probably an extra $3/pt if you use the article's methodology and add upfront cost). If I think of those points as costing me $20/pt/yr in foregone rental value, those 80-85 points per night ($1600-$1700) now seem costly for that same room. Maybe I'll book a 1BR instead and rent some of the points? Maybe I skip Hawaii this year and rent all the points?

One should be aware of the option to rent, and even take advantage once in a while, but enjoying the ownership should come first. You can't take it with you, and an occasional stay with people you love in a Grand Villa, CCV Cabin, Treehouse Villa, Poly bungalow etc can be memorable for a lifetime...

 

[AstroBlasters]

Interesting article. Without going too much into accuracy and whether things may be over- or under-stated (I'll just say that I wouldn't rent points for "Max $16/pt"), there's the issue of how "rental mentality" can affect enjoyment of the ownership.

If I think of my Aulani subsidized points costing me $7.34/pt/yr then I may be happy to splurge 80-85 points ($600) per night on a 2BR in peak summer (it's probably an extra $3/pt if you use the article's methodology and add upfront cost). If I think of those points as costing me $20/pt/yr in foregone rental value, those 80-85 points per night ($1600-$1700) now seem costly for that same room. Maybe I'll book a 1BR instead and rent some of the points? Maybe I skip Hawaii this year and rent all the points?

One should be aware of the option to rent, and even take advantage once in a while, but enjoying the ownership should come first. You can't take it with you, and an occasional stay with people you love in a Grand Villa, CCV Cabin, Treehouse Villa, Poly bungalow etc can be memorable for a lifetime...

This is such a good take, IMO.

I started running the difference between room sizes and categories and multiplying it by $18-$20pp and the dollar amounts could be substantial.

However, I reminded myself that I purchased DVC to have more enjoyable vacations in larger accommodations and settled on something inbetween.

So, yes to going from Beach Club 2BD to Boardwalk GV…. no to going from Grand Floridian 2BD to Grand Floridian GV.

Stick with Ocean View rooms at Aulani.

 

[Brian Noble]

the issue of how "rental mentality" can affect enjoyment of the ownership.

I have a consulting business on the side, and for a long time it was hard not to think of every hour as being "worth $X" where $X was my hourly rate.

 

[Mouseforward]

The one thing I don't understand (I'm a pretty simple person, not a professional) is the collection and payment of FL sales tax on rentals.

From my understanding of FL tax law (https://floridarevenue.com/Forms_library/current/gt800034.pdf)...

If you collect or receive rental charges or room rates for living quarters or sleeping or housekeeping accommodations for rental periods six months or less (transient rental accommodations), you must register with the Department to collect, report and remit sales tax and surtax, plus any local option transient rental tax that is collected by the Department. (Transient rental tax collected by the county is reported to the county.) Each transient rental accommodation is required to be separately registered by the owner or the owner’s agent who collects and receives rental payments on behalf of the owner.

Checking the tax FAQ, timeshares are specifically included:
[URL]https://floridarevenue.com/taxes/taxesfees/Pages/sales_tax.aspx[/URL]

• Rentals of short-term living accommodations (for example: motel/hotel rooms, beach houses, condominiums, timeshare resorts, vacation houses, or travel parks)

Per the intermediary agreement with DVC Rental Store (and this isn't targeted at them, it's the same everywhere: https://dvcrentalstore.com/wp-content/uploads/2020/07/Intermediary-Agreement.pdf)

The DVC Rental Store does not collect sales or any other Local or State taxes for the DVC Member for remittance to applicable taxing authorities in the State where a Disney Vacation Club rental may take place. The DVC Member is responsible for remitting applicable taxes to the appropriate taxing jurisdictions. The DVC Rental Store acts only as an intermediary to the Rental Agreement between the DVC Member and the Guest. The DVC Rental Store does not act as a co-vendor with the DVC Member

So it would seem to me you would need to:
1. For every resort that you may rent at (regardless if you own it), register for a Tax ID with Florida (using form DR-1): $5 each
2. Register with the county for any ancillary / tourism taxes.
3. Pay between 12.5% and 13.5% of your "top line" rental income (what the customer was charged). Since tax is not a separate line item for most rentals through a broker, it does not appear you can discount your top line to compensate it.

So, if the customer was charged $19 a point, you would pay between $2.375 and $2.565 per point off of the $16 a point you collect after commission from most rental companies leaving you with $13.435 per point - and you still haven't paid the IRS for income - which your basis may not be deductible unless you do not use any points at that resort for the year due to the dwelling requirements (https://www.irs.gov/taxtopics/tc415). In this case, if your tax-rate was 22% you'd reduce your net income to $9.40 without the possibility to deduct your maintenance fees.

Can someone offer a better analysis? This is why I've been more comfortable with transferring my points to RCI than renting due to the sheer paperwork and cost. Maybe I'm overthinking this!

Yeah , you do owe FL and Federal tax , but mentioning this on forums makes everyone run and hide.

 

[Noodlez]

I'm curious why this has just come up? This article (and thread) is well over 3 years old! I hope they're not still only paying $16 for BCV? It easily rents for a lot more than that, despite the contracts being far cheaper than they suggest!

(Edited to remove specifics)