WWYD -- Advice on DVC purchase - Boardwalk

[CowboyCO]

I personally would not do it, but many people do finance. Our vacations have always been considered a luxury item, not a necessity. We do not finance luxury items, we pay cash.

As to the BW, great resort, but I would recommend staying there before purchase. Things are better experienced than making a decision strickly on looks.

We also pay cash for our vacations, and we have gone to WDW nearly every year since 2004. Since we love WDW, we are likely to vacation there. If we have DVC, then the lodging is taken care of (except for the MF). We have rented DVC twice in the past and have talked about continuing to rent or buying in. That's what we are trying to decide - whether to buy in. I don't have $15,000 sitting around, so borrowing against the 401K would be our only option. I refuse to finance it traditionally.

 

[CarolMN]

We're considering borrowing against our 401K to purchase a DVC at Boardwalk. Questions:

1. Boardwalk owners. Do you love it? We love the location, but have never stayed there. We toured a 1 BR last trip and weren't in love with the rooms as we were with AK, but we really think the location is a bigger deal than the room.

2. Borrowing against 401K. It would take us 2 years to pay off the loan. There is no danger of losing the job and having to pay it back immediately because DW is a teacher and is stable with seniority. Plus, even if she changed jobs within the state, the 401K goes with her (state-run 401K). Our thought is that with the way the market has been and likely will be for the next 2 years, that we aren't likely to lose any interest because the stock market is in a bear mode and likely will remain so under this administration (no politics, just reality). Plus, if we borrow the money from the 401K, at least we will protect that much of the 401K if the market drops. (which is possible if we double-dip in the recession. We feel like it is a short-term win-win, with not much downside.

But... WWYD?

I would never borrow against a 401(k) to finance a luxury. Some things to consider before you do so:

You may think there is no danger of your wife losing her job, but what if you lost yours? Not only would you have to pay back the loan on one income, your family would be living on one income until you could get a new job and on top of that, you would be paying dues for vacations that you may not be able to afford for some time.

The unemployment rolls are filled with people who never even dreamed that they'd be laid off. Remember the school district in Rhode Island that had to fire all the teachers? Then all of them were invited to reapply for a lesser number of jobs? What if your spouse becomes pregnant or disabled?

Reputable financial advisers will tell you it's better to save the amount you would be paying monthly on the loan and then buy the luxury item when you can afford to do without borrowing. And that assumes that you already have a right sized emergency fund, have taken care of other financial goals and have adequately protected your family with life insurance, disability insurance, etc.

You may not agree with me and that's OK. But you did ask for opinions and that's mine.

Good luck!

P,S, We own at the BWV and totally love the location.

 

[meriface11]

How do you figure that? If I pay cash, it's post tax dollars. If I borrow it and pay it back, that's post tax dollars. If I borrow money from a bank, I pay it back with post tax dollars. Am I missing something, or how is this relevant? Whether it is paid back with post-tax dollars or not?

I admit to NOT being a financial guru. I do understand the difference between pre-tax and post-tax dollars (which is why I have set up a Roth IRA).

I moved my 401K to a bond fund at the beginning of the year and so far, it is up about 4.3%, about the same return if I borrow it and pay it back.

after you pay yourself back, you still have to pay taxes on it again when you withdraw it in retirement.

 

[Debi]

Although I can't speak to the second question, I can answer the first question for you. I own at BWV, and I am very happy with the resort. There are some drawbacks (parking, small shower, smallish kitchen), but overall, the pros far outweigh the negatives. The location and the theming are the two reasons why I purchased points there. I wouldn't hesitate to reccommend BWV!

 

[Disney Doc]

How do you figure that? If I pay cash, it's post tax dollars. If I borrow it and pay it back, that's post tax dollars. If I borrow money from a bank, I pay it back with post tax dollars. Am I missing something, or how is this relevant? Whether it is paid back with post-tax dollars or not?

I admit to NOT being a financial guru. I do understand the difference between pre-tax and post-tax dollars (which is why I have set up a Roth IRA).

I moved my 401K to a bond fund at the beginning of the year and so far, it is up about 4.3%, about the same return if I borrow it and pay it back.

The money you originally put into the 401K was pre-tax dollars (lets say $10K of wages.) The money you pay it off with will be post-tax dollars ($15K of wages if you were in a hypothetical 33% tax-bracket...) That's a far worse interest rate than even Disney financing. Paying yourself 4.5% mitigates only a small percentage of the huge hit you are really taking.

 

[TLSnell1981]

We love the BWV!! We can walk or boat to EPCOT and HS. You also have the option to walk through EPCOT and take the monorail to MK. We love the action on the Boardwalk at night and watching it "come alive" in the morning. The villas were recently refurbished and are very nice.

We've purchased 3 contracts via resale and paid cash. Many choose to buy and finance through Disney, although a bit more expensive (Disney prices PLUS interest).

 

[gkrykewy]

The money you originally put into the 401K was pre-tax dollars (lets say $10K of wages.) The money you pay it off with will be post-tax dollars ($15K of wages if you were in a hypothetical 33% tax-bracket...) That's a far worse interest rate than even Disney financing. Paying yourself 4.5% mitigates only a small percentage of the huge hit you are really taking.

Yes, this is what I meant.

 

[Nikisha421]

Im no financial expert and take risk all the time...I say go for it...if that is what makes you feel good ...then it's your money....do what you want!!!

 

[sweetdana]

1) No finance person will ever tell you to liquidate a retirement for a lux ahead of retirement. .. AND it is a luxury, it is enjoying today instead of tommorrow.. Is it a terrible idea.. if you regularly have too many toys today, and nothing for tommorrow. ..

2) There is always a money market option in retirement 401K planning. Speak with your adviser, if someone has told you know. They need to have a very low risk option. Could be a bond fund, but it is more likely they have a money market option.

It would be more logical to save the 2 years of payments you have and then buy it.. but then again... it is not a logical purchase. .. It is an emotional one. Some say.. I would save so much now because prices are going up... Even if the price goes up 15$ in 2 years per point, you probably paid that in dues and interest.


With that being said..
2) If you have your home paid off below 50% equity where you can borrow an equity loan if you need too, and you have 6 months liquid in the bank JUST in case, and you have no car payments with more than 6 months on them.. .. do it.. Everyone deserves to enjoy some luxuries..

AND

If you do not have a liquid account with 6 months "in case". (This is not in retirement) and/or you are over 80% of your home value. IE you owe 200K and it is worth 280K.. and/or you have 1 or 2 car loans with 2-4 years left on them...
.. then no this is not an ideal move. Save it up, and if you cannot wait use Disney financing, so that if you have to give it back you can. (If you wait 1 year, save 1/2 (with your 2 year plan) up, you will not regret it, but sometimes people cannot wait.)

 

[Disneypubgal]

1) No finance person will ever tell you to liquidate a retirement for a lux ahead of retirement. .. AND it is a luxury, it is enjoying today instead of tommorrow.. Is it a terrible idea.. if you regularly have too many toys today, and nothing for tommorrow. ..

I don't think they are looking to liquidate but rather to take a loan against retirement savings... I am a finance person and liquidating would definitely be a bad idea... If I am misunderstanding please correct me.. Thanks

 

[CowboyCO]

The money you originally put into the 401K was pre-tax dollars (lets say $10K of wages.) The money you pay it off with will be post-tax dollars ($15K of wages if you were in a hypothetical 33% tax-bracket...) That's a far worse interest rate than even Disney financing. Paying yourself 4.5% mitigates only a small percentage of the huge hit you are really taking.

But that comparison is apples to oranges. Unless you can show me a way to buy a DVC with pre-tax dollars, the money spent on a DVC will always be post-tax dollars, right?

Example 401K loan ($10,000 x 4.5%) - anticipated return(10,000 x 5%) = net loss of $50 in 401K

regular unsecured loan (10,000 x 8.0%) - anticipated 401K return(10,000 x 5%) = net loss of $300 in interest.

Both loans are paid off in post tax dollars. That's $300 I could put into a Roth IRA rather than give to a bank.

In 20 years, that $50 would have returned $200 with earnings at 7%

In 18 years, that $300 would return $2000 at 7% (20 years - 2 years to pay off loan)

 

[CowboyCO]

Well, we decided to pass at this time. Even though we have a 2011 trip planned, we decided to put aside what we had planned as a payment and then if we see the market moving, we'll buy then and borrow less...