Am I Making a Foolish Purchase?

[ILoveTreasurePlanet]

Hello all! New member and first post. I know there is a good chance this has probably been asked before in the past. I'm sorry for the repost if so.

My question: Is it worthwhile to make a DVC purchase if you plan on only using it, on average, once every 5 years? This assumes you rent out the entirety of your points during the years you don't use it.

From my perspective, it makes sense still. For example, if you purchase 225 points for Riviera you pay an upfront cost of $42,913.36 as of today. This contract has a life of 49 years. Historically the maintenance fees and the value for each point have appreciated more or less at the same rate (technically the points themselves appreciate slightly more then the maintenance fee but the difference is small). So, if you assume you rent each point for $16 year-over-year, and pay a $8.50 maintenance fee, that provides a return of $1,687 annually. That means you would "pay off" the value through rentals alone in 26 years (25.44 rounded up). So you essentially lock in 23 years of free hotel stays (length of stay for each year obviously depending on your room). This is still worth it for someone looking to provide the occasional free hotel stays for his family once every few years, right?

Even from an investment standpoint a $1,687 annual return is still a 4% return YoY on investment. Not a great return, but not bad. And yes, I know you should not treat a timeshare like an investment, but it doesn't change the fact that this statement is true.

Obviously there are additional risks which include:

-Disney folding
-Being unable to rent for a year (i.e. coronavirus) -- but then you just double up the next year
-Family coming to hate Disney

But I view these risks as being pretty low/negligible. Definitely not any more risky (likely less) then simply just throwing $43,000 into stocks.

Anyway, what do you all think? Curious to hear from existing owners on what they think about my logic.

Thanks!

 

[fixerupper]

Someone can correct me, but I think there might be rules against doing this. Also, figure in taxes on the income.

 

[Marionnette]

I would not count on being able to rent points out as a means of income. Disney can always undercut you, which is what happened after things began to open up this year. Lots of points in the DVC system but Disney's room discounts (in addition to cancellation policies and inherent risks) made renting points unattractive.

 

[DVC Doctor]

My question: Is it worthwhile to make a DVC purchase if you plan on only using it, on average, once every 5 years? This assumes you rent out the entirety of your points during the years you don't use it.

So, if you assume you rent each point for $16 year-over-year, and pay a $8.50 maintenance fee, that provides a return of $1,687 annually. That means you would "pay off" the value through rentals alone in 26 years (25.44 rounded up).

Even from an investment standpoint a $1,687 annual return is still a 4% return YoY on investment. Not a great return, but not bad.

Do not buy if you are planning on once every 5 years.

Take your $43,000 and invest it into something better like stocks, bonds, down payment on investment property, etc.

Alternatively, if you really want to buy, then get SSR for around $100pp (save $22,000) and simply avoid Riviera as the premium is not worth the expense in your situation. Of course, if you planned on going every year and love RIV more than anything else, then buy RIV.

 

[Meglen]

Are you factoring in the dues costs? Seems like a waste for someone only going every 5 years. Paying dues and renting points will not cover the cost every year if you broke it up.

 

[ILoveTreasurePlanet]

Someone can correct me, but I think there might be rules against doing this. Also, figure in taxes on the income.

What rules would this be against?

 

[davidl81]

What rules would this be against?

You cannot own DVC and just rent out points as a way to make a consistent profit/business out of it. What OP is describing IMO would not fall under this restriction.

 

[MICKIMINI]

Okay, 26 year DVC veteran here... I'm not sure where to start, but you are thinking big and I like that! Our friends don't even think we're crazy anymore as we've done really well with DVC and it is now a family tradition with three generations (hopefully four soon). We bought DVC fairly early on as we saw the value but before the internet, so we learned the hard way...by reading our binder and paper work we took home in two DVC tote bags.

Now, you've already had two good points made by OP's. Income tax can eat up quite a bit of your "profit". Rentals are not a given. Brokers charge a lot. Private rentals can be a bit more profitable but you have to invest some time finding and dealing with renters. Disboard rent/trade board is worth studying. There are pitfalls and you need to know what they are.

You might do well if you start with one or several resale contracts that are fully loaded and build on your success. IMHO I would not jump into this in such a big way initially. I hope you plan to stay at the different resorts and enjoy your purchase too. More study on the subject is recommended. Hang out here on disboards and read, read, read. Follow the ROFR thread closely and look at historic price changes. It's like learning a new language. Good luck!

 

[mustinjourney]

You cannot own DVC and just rent out points as a way to make a consistent profit/business out of it. What OP is describing IMO would not fall under this restriction.

The unofficial rule is that as long as you stay under 20 rentals a year, you'll be fine. In this case -- I doubt they'd have any issues given the number of points they were looking at purchasing.

 

[mustinjourney]

As someone else mentioned -- you'd likely be better off buying into SSR via resale. while they don't rent out for quite the premium as some of the others -- the premium paid by the rental companies doesn't really make up for the difference in costs vs SSR. And if you want to stay at RIV when you go -- well...just keep renting those SSR points out and use the money to rent or transfer some RIV points when you do want to go. yes -- it's a hassle to do the extra rental -- but if you're planning on renting 4 out of 5 years -- it probably won't be that much more of a hassle.

many will tell you not to do this -- but there are people that do buy contracts with the sole purpose of renting out the points -- or even stripping them and then flipping them. So it can be done -- but resale is where you'd need to do it for it to make the most sense.

 

[KAT4DISNEY]

I wouldn't buy DVC for usage every 5 years. Not ever.

 

[princesscinderella]

I think your plan could work, but I have a feeling once you buy and start going and that every five years trip turns into every three years because you are banking and borrowing to stay at bigger rooms. That’s how we all started in DVC, now I own at 8 resorts

 

[ILoveTreasurePlanet]

As someone else mentioned -- you'd likely be better off buying into SSR via resale. while they don't rent out for quite the premium as some of the others -- the premium paid by the rental companies doesn't really make up for the difference in costs vs SSR. And if you want to stay at RIV when you go -- well...just keep renting those SSR points out and use the money to rent or transfer some RIV points when you do want to go. yes -- it's a hassle to do the extra rental -- but if you're planning on renting 4 out of 5 years -- it probably won't be that much more of a hassle.

many will tell you not to do this -- but there are people that do buy contracts with the sole purpose of renting out the points -- or even stripping them and then flipping them. So it can be done -- but resale is where you'd need to do it for it to make the most sense.

This is a good point. Thank you.

 

[RoseGold]

This is a lot of risk and hassle for less than the return on an index fund. 2020 has shown that this can be a whole lot of risk.

This is a time-fixed contract. Unlike a mutual fund, its value must go to zero.

Historically, DVC has gone up in value, but that's if you started buying resale. We have no idea how long that will last. You might be renting out a used car dropping like a rock, and you have nothing left at the end. This could do much, much worse than a mutual fund. We have no idea what RIV resale will do in the future, with the restrictions. That's a painful way to lose 43K. Buying direct for this strategy makes even less sense to me, as the premium to rent is minimal for direct points.

Just rent points for your family every five years. Done!

 

[gisele2]

I think your plan could work, but I have a feeling once you buy and start going and that every five years trip turns into every three years because you are banking and borrowing to stay at bigger rooms. That’s how we all started in DVC, now I own at 8 resorts

This is what I was thinking !

 

[MouseOfCards]

I think your plan could work, but I have a feeling once you buy and start going and that every five years trip turns into every three years because you are banking and borrowing to stay at bigger rooms. That’s how we all started in DVC, now I own at 8 resorts

Same here. We bought planning to go once every 3 years. But we really enjoyed DVC and addonitis took over. Now, we average 3 trips a year.

 

[supersnoop]

A 26 year ROI is terrible for an investment property. You can do so much better by putting your money in other investments. And I think 26 years is optimistic.

 

[starry_solo]

If you only plan to go once every 5 years, no, it's not worth it

 

[Brian Noble]

Is it worthwhile to make a DVC purchase if you plan on only using it, on average, once every 5 years? This assumes you rent out the entirety of your points during the years you don't use it.

No. Every time I look, the ROI on DVC as a rental business is comparable to (and sometimes worse than) the long term expected rate of return on a low-cost SP500 index fund---and that's before taxes. Earnings in the rental business is taxed at your highest marginal rate, while the index fund will quickly be taxed at the lower capital gains rate. Renting takes work. Index funds are "set and forget".

And that's an ROI on a resale purchase with a lower cost basis. On a direct purchase? Even worse.

In other words...

Take your $43,000 and invest it into something better like stocks, bonds, down payment on investment property, etc.

 

[CarolMN]

As one of the DIS Rent/Trade Board moderators since 2005, I can tell you that renting your points can be a hassle, can be risky and is not as easy as some here make it sound, especially for new DVC Members.

IMO, given your plan for limited personal use, you would be MUCH better off renting someone else's points for the times you want to visit and investing that "extra" cash elsewhere. With renting, you have no commitment, no tax issues, much less risk and virtual 11 month booking priority for all of the DVC resorts.