DVC Membership used strictly as an investment

[ELMC]

But, the math doesn't work for DVC as an investment. Consider the time value of money, the amount of effort to rent the points, and the length of time to break even, you'd be better off putting your cash into other investments.

I don't think that I necessarily agree with this as there have been certain pockets of time where the math has definitely worked out for DVC as an investment. What I would say is that as far as investments go, even beginning to consider a timeshare as an investment is highly risky. Furthermore, getting the timing right so that the math does work is tricky to say the least. There are definitely those who have treated DVC as an investment and done quite well. However, I think it is safe to say that these people are in the minority. DVC is a vehicle in which to prepay for and possibly upgrade your vacations, first and foremost. If you can buy in and reap some sort of financial rewards, then that's icing on the cake.

 

[Dean]

I don't think that I necessarily agree with this as there have been certain pockets of time where the math has definitely worked out for DVC as an investment. What I would say is that as far as investments go, even beginning to consider a timeshare as an investment is highly risky. Furthermore, getting the timing right so that the math does work is tricky to say the least. There are definitely those who have treated DVC as an investment and done quite well. However, I think it is safe to say that these people are in the minority. DVC is a vehicle in which to prepay for and possibly upgrade your vacations, first and foremost. If you can buy in and reap some sort of financial rewards, then that's icing on the cake.

I would agree that renting can give options to owning and using including having additional points for larger trips at times and multiple home resorts. But as strictly an investment I see it as moderate returns at best for a high risk investment. It's like buying a mobile home for a rental, it has no value and no return at some point. To me I see it as needing return of principle over 10 years and 8% minimum to even start to consider it investment wise. What one gave 8 or 10 years ago isn't the valid comparison for returns, what it cost now is the valid comparison. Otherwise just sell it, take the profits and move to something else if it's JUST an investment if one can't get reasonable returns at todays buy in price. I have bought and sold a few timeshares over the years and made a little money doing so but it's like real estate in general, you make the money with the buy in price. The other issue is it's like buying a rental house in an area with a rogue HOA.

 

[MickeyFan612]

I bought most of my contracts during the so called Great Depression and it has worked out extremely well for me as I've been able to sell off half of my DVC interest at today's prices and reinvest in actual real estate. Even though my remaining contracts would be pure profit I just cannot bring myself to sell, my family loves our Disney trips and I love being able to help friends and family book their Disney accomadations w/ my spare points. It is all about timing, obviously you want to buy low and be fortunate enough to sell high. Back in 2011 and 12 there wasn't anyone on the boards recommending the purchase of DVC as an investment, I've studied these boards for years and the comments have stayed consistant when anyone brings up DVC as an investment.

 

[LAX]

I bought most of my contracts during the so called Great Depression and it has worked out extremely well for me as I've been able to sell off half of my DVC interest at today's prices and reinvest in actual real estate. Even though my remaining contracts would be pure profit I just cannot bring myself to sell, my family loves our Disney trips and I love being able to help friends and family book their Disney accomadations w/ my spare points. It is all about timing, obviously you want to buy low and be fortunate enough to sell high. Back in 2011 and 12 there wasn't anyone on the boards recommending the purchase of DVC as an investment, I've studied these boards for years and the comments have stayed consistant when anyone brings up DVC as an investment.

I know one of the rental brokers has been in business for over 5 years, but the rental market certainly wasn't as robust as today (I have no idea how good private rentals were 5 years ago though). Thus, it probably wasn't a very good idea to load up on DVC contracts even at distressed prices as "investments" since every unused point would have further raised the break even point. Plus, it obviously would have been a very risky bet to hope that timeshares (even DVC) would increase in value with time. Now is different since there is supposedly a really high demand for points to rent. If someone can get DVC contracts at rock bottom prices now, one can likely make money solely by renting out all the points on a yearly basis and not even care when the contracts become worthless as they expire.

LAX

 

[DVC Doctor]

For may years the rental rate was $10pp and now that it has spiked to $14-15 or so, that is a huge difference in return on investment (ROI). Also, when the rental rate was $10pp, the resale rates were in the $60-70 range (lower ROI) and now they are in the $100+ range they have a higher ROI.

The best way to make a great DVC investment is to buy cheap ro rent for a lot of money and both of those are hard to do.

Be careful buying the original DVC as we are past the 1/2 way expiration point and at some point, the prices will come down. It is nice to see BCV sell for so much, but that is not sustainable in the long run.

Buy DVC for what YOU NEED and if you want to rent a few years, then that is cool, but the concept of buying DVC (direct or resale) with the intention of a rental business is not such a good idea.

Bravo to the people that bought during the 2009-2012 recession at low prices, but those days are now gone. Sure there are good and decent deals out there now, but not home-run fantastic deals.

Remember this is a TIMESHARE, and is not intended as an investment. If you made or are making money renting, flipping, reselling DVC then that is great for you, but is clearly much harder to do now than 5 years ago.

 

[Cyberc1978]

Just a question.

If you decide to go this route how much taxes do you need to pay? If the recommendation is not to do it then with the taxes the match would look even worse.

 

[Jbmia13]

It's not a great investment vehicle.... but it can be profitable in the right scenario. There are a couple of factors that can make or break an "investment" dvc:

-Purchase price of contract
-Is the contract LOADED with points or empty? And do you have to pay annual dues on those loaded or banked points?
-how are you renting them? Going though sites like Davids are great. But you could possibly return a bit more if you book a high demand week or weekend (christmas, spring break, etc) and reserve it on your own to rent out. Like finding a renter on this site.
-also what are the maintenance fees annually? A resort such as vero beach, which is high on dues would eat into your investment returns. So pick a resort that gives you priority, but not excessive on dues.
-and lastly, think about how and when you would sell. There are fees to consider when selling....the biggest being commissions. Don't flip it too quick or the commissions could eat up whatever profit you have made.

Good luck!

 

[Ben E N]

I agree that purchasing DVC strictly as an investment is both risky and not as profitable as other investment options. I was wondering what other people thought about a specific sort of scenario, though.
What if someone was interested in purchasing something like 100 points on the resale market, and found that most contracts that small were listed for something like $120/point, but found larger contracts, such as 150 point ones, listed for $100/point, and ended up purchasing one of those instead? They would end up paying $3000 more upfront, but would be able to rent out their other 50 points at a profit of at least $8 per point. This would bring in about $400 a year, paying off the extra investment and leading to profits within 8 years.
Also, those points would be available if ever needed, eliminating the need to spend money on OTU points.

I could see this strategy being especially useful when someone is looking to add on to an existing contract, as they could also flip the add on contract for a profit if prices continue to rise.

Do you think over buying DVC this way is a good use of money? Mostly as a way to recoup costs than as a way of making a profit.

 

[DVC Doctor]

...larger contracts, such as 150 point ones, listed for $100/point, and ended up purchasing one of those instead? They would end up paying $3000 more upfront, but would be able to rent out their other 50 points at a profit of at least $8 per point. This would bring in about $400 a year, paying off the extra investment and leading to profits within 8 years.
Also, those points would be available if ever needed, eliminating the need to spend money on OTU points.

Do you think over buying DVC this way is a good use of money? Mostly as a way to recoup costs than as a way of making a profit.

Good use of money is debatable, but this is not a bad strategy at all, but think about this, 50 points really doesn't go very far with DVC unless you borrow from next year to boost the rental to 100 points every other year. It may be better to over rent the 50 points (51-100 points) so you do not waste any points. For example, if you only rent 40 or 45 points and do not bank, then that is a loss of 5 or 10 points and will destroy any ROI investment values.

 

[Dean]

I agree that purchasing DVC strictly as an investment is both risky and not as profitable as other investment options. I was wondering what other people thought about a specific sort of scenario, though.
What if someone was interested in purchasing something like 100 points on the resale market, and found that most contracts that small were listed for something like $120/point, but found larger contracts, such as 150 point ones, listed for $100/point, and ended up purchasing one of those instead? They would end up paying $3000 more upfront, but would be able to rent out their other 50 points at a profit of at least $8 per point. This would bring in about $400 a year, paying off the extra investment and leading to profits within 8 years.
Also, those points would be available if ever needed, eliminating the need to spend money on OTU points.

I could see this strategy being especially useful when someone is looking to add on to an existing contract, as they could also flip the add on contract for a profit if prices continue to rise.

Do you think over buying DVC this way is a good use of money? Mostly as a way to recoup costs than as a way of making a profit.

I wouldn't consider this the investment angle. I've often suggested that for most new buyers they should either go at least to 150 or not buy in. While I think the spread you used for an example is a bit skewed for a price PP difference, the principles hold. Not only can you get a modestly larger contract cheaper per point, it gives you a LOT more options to chose from in terms of likely contracts on the market AND the qualify of those contracts. Larger contracts are also less likely to be stripped and more likely to be fully loaded. Since fully loaded contracts tend to be significantly cheaper in the final analysis than a stripped one, your price difference example could actually be real or even low in some cases. It also gives you flexibility in usage and the cushion that so many new buyers need and don't account for which should normally be iat least in the 20% range as a new buyer if one judges they need around 100. Even for a current owner, most of those same principles apply, esp if it's a new home resort. Does renting make sense in buying a modestly larger contract, the answer for a new buyer is very often YES.

 

[CraigInPA]

I agree that purchasing DVC strictly as an investment is both risky and not as profitable as other investment options. I was wondering what other people thought about a specific sort of scenario, though.
What if someone was interested in purchasing something like 100 points on the resale market, and found that most contracts that small were listed for something like $120/point, but found larger contracts, such as 150 point ones, listed for $100/point, and ended up purchasing one of those instead? They would end up paying $3000 more upfront, but would be able to rent out their other 50 points at a profit of at least $8 per point. This would bring in about $400 a year, paying off the extra investment and leading to profits within 8 years.

Realistically, 50 points won't be that sellable in the rental market because, effectively, it's a 2-3 day stay at many properties. Also, I believe David requires a minimum of 100 points for his rental customers, so you may have to deal with renting the points yourself. If you're thinking along those lines, you should be thinking about buying one of the 300 point contracts, using the 150 you need to have a decently long vacation each year, and renting the other 150 to pay for your maintenance fees. Of course, you're not really going to make any money this way, because you're ignoring the cost to buy the points in the first place, but you're getting a nice vacation every year to compensate for that.

 

[Dean]

Realistically, 50 points won't be that sellable in the rental market because, effectively, it's a 2-3 day stay at many properties. Also, I believe David requires a minimum of 100 points for his rental customers, so you may have to deal with renting the points yourself. If you're thinking along those lines, you should be thinking about buying one of the 300 point contracts, using the 150 you need to have a decently long vacation each year, and renting the other 150 to pay for your maintenance fees. Of course, you're not really going to make any money this way, because you're ignoring the cost to buy the points in the first place, but you're getting a nice vacation every year to compensate for that.

More realistically you could rent once every few years but trying to discard of exactly 50 pts per year each year would be unworkable. Most in this situation will likely find they really don't have points they need to rent anyway.

 

[Ben E N]

After some thought, I need only three words to tear my own argument apart: time in market. I was actually looking at an even greater spread in cost than my listed example. I could see the benefit of adding another 25 points on to what I already own, but hate the idea of spending another $185 per point buying direct to get there when I could buy a resale contract of 50 points for only $130 a point. After closing costs, thats a difference of only $2000.
Assuming I could rent those extra points out every year exactly (which has been shot down as a possibility), it would take 10 years to get those $2000 back.
If, on the other hand, I left that money invested in index funds and it grew at a conservative rate of 7% a year, it would grow to $4000 in that same time. With my 100 vs. 150 point contract example, the extra $3000 spent on getting a cheaper contract would earn significantly more money in the stock market than it would through rentals.

Even the people who bought contracts cheap back when the economy was suffering and are now renting them out at a profit would have been much better off investing that money in the stock market. This is true in almost any scenario, as it seems the price of DVC resales is tied to the health of the economy.

As an aside, I would still recommend that people buy a contract larger than they think they will need when they make their first purchase, not for investment purposes, but to avoid the need to add on at higher costs later.

 

[crisi]

As social media has caught wind of "renting points", demand has spiked. At this point, prices demanded by David and other rental brokers haven't moved (except for the $1 per point premium for certain resorts beyond 7 months). I predict you'll see an increase in rental prices that moves independently of the increase in maintenance fees. Rental prices are limited by the price of a hotel room through CRO. With current rentals costing about 45-65% of full rack rate at places like the Poly, and Disney only offering 5-20% discounts at the Poly, there is significant room to increase the price for rentals. Some resorts are even more extreme in the spread between rack rate and rental price.

But, the math doesn't work for DVC as an investment. Consider the time value of money, the amount of effort to rent the points, and the length of time to break even, you'd be better off putting your cash into other investments. If you have to borrow money to buy into DVC, you're deluding yourself by thinking it's an "investment".

I don't really agree with there being significant room. If I rent through CRO, I pay for certain things that I'm not getting with a rental:

1. I can cancel my reservation with a lot of flexibility
2. I can add or subtract days with far fewer availability problems
3. I can put my trust in Disney - I'm not renting through a private party who might not pay his dues and discover my reservation has disappeared.
4. I get daily housekeeping.
5. I can get two beds in a unit - no one is sleeping on a pull out couch
6. I control my reservation - I can call and add the dining plan and magical express - and cancel them. I can make room requests.
7. I qualify for Disney package deals - like free dining, or discounted tickets. Maybe a deal from the travel agent for Disney gift cards - if I'd go that route.
and more.....

Since few people pay rack rate for the majority of rooms, you are really looking at a much lower difference between a DVC rental and a CRO reservation - a difference that for a lot of people, is already pushing it when you add all the value above. Now, not everyone values that entire list, but everything on that list is worth something to someone.

 

[DVC Doctor]

I left that money invested in index funds and it grew at a conservative rate of 7% a year, it would grow to $4000 in that same time.

I would not consider 7% ROI conservative, I would consider that very aggressive. Sure you can spin all sorts of data about the past market performance, but getting 7% yearly for the next 20 years would be a miracle. Also, what about those people that bought index funds in 2006-2008 and panicked and sold in 2009 for a loss.

 

[Ben E N]

I would not consider 7% ROI conservative, I would consider that very aggressive. Sure you can spin all sorts of data about the past market performance, but getting 7% yearly for the next 20 years would be a miracle.

I am curious what data you are looking at to state this. The historical average of the S&P 500 is an average of 9.8% growth per year. Yes, there are good and bad years, but has averaged out to that number of the past 90 years. When talking about an investment, I hope someone is looking at more than just a year or two of data.
With that said, yes, 7% a year is moderately conservative when looking at a 20 year or longer investment, and even if you do think that is aggressive, it still favors the stock market vs. DVC even when the growth projection is lowered to something as tiny as 4%.

Also, what about those people that bought index funds in 2006-2008 and panicked and sold in 2009 for a loss.

What about them? Are you saying that they would have been better off if they had sold their stocks in 2009, and then bought DVC points, as opposed to staying in the market? This seems like a strange comment to make when we are discussing whether trying to make money off of DVC as an investment makes sense or not.

 

[DougEMG]

I don't really agree with there being significant room. If I rent through CRO, I pay for certain things that I'm not getting with a rental:

1. I can cancel my reservation with a lot of flexibility
2. I can add or subtract days with far fewer availability problems
3. I can put my trust in Disney - I'm not renting through a private party who might not pay his dues and discover my reservation has disappeared.
4. I get daily housekeeping.
5. I can get two beds in a unit - no one is sleeping on a pull out couch
6. I control my reservation - I can call and add the dining plan and magical express - and cancel them. I can make room requests.
7. I qualify for Disney package deals - like free dining, or discounted tickets. Maybe a deal from the travel agent for Disney gift cards - if I'd go that route.
and more.....

Since few people pay rack rate for the majority of rooms, you are really looking at a much lower difference between a DVC rental and a CRO reservation - a difference that for a lot of people, is already pushing it when you add all the value above. Now, not everyone values that entire list, but everything on that list is worth something to someone.

I agree with you here that direct reservations through Disney do provide additional value and because of that I think that there is always going to be a significant difference between DVC rental rates and CRO reservations. Most people are wanting a 40%-50% discount off the CRO rate in order to consider a DVC rental.

 

[kydisneyfans]

We also bought our first DVC points in 2012-AK in the upper 60's after paying $10 per point to stay through a private renter.
Our contact was loaded so we rented out the points we could not use, recouping nearly 1/5 of the purchase price instantly.

Talked to some folks at OKW back in April-when I asked them where they live, they said here. Literally as in DVC rooms at Disney. They had bought several thousand points at OKW during the recession at close to $40 a point. They rent out unneeded points during high travel times at a premium to assist with monthly dues while traveling to spend time with their kids. They had sold off all their assets and now just DVC for weeks and months on end. I crunched the numbers on my end, it still seems high ($300,000-$400,000 in points) plus maintenance fees. One of the perks they mentioned was never mowing or worrying about maintenance ever again. Not sure I would ever try that in today's environment, but these folks took a gamble in 2010 and they look to have won. They can sell the points for nearly double that if they wanted to now.

 

[DVC Doctor]

I am curious what data you are looking at to state this. The historical average of the S&P 500 is an average of 9.8% growth per year. Yes, there are good and bad years, but has averaged out to that number of the past 90 years. When talking about an investment, I hope someone is looking at more than just a year or two of data.
With that said, yes, 7% a year is moderately conservative when looking at a 20 year or longer investment, and even if you do think that is aggressive, it still favors the stock market vs. DVC even when the growth projection is lowered to something as tiny as 4%.

What about them? Are you saying that they would have been better off if they had sold their stocks in 2009, and then bought DVC points, as opposed to staying in the market? This seems like a strange comment to make when we are discussing whether trying to make money off of DVC as an investment makes sense or not.

I am VERY well aware of the S&P returns going way back to 1928, and often read these debates online, BUT most people do not have the intestinal fortitude to stick with dollar cost averaging and keep investing in a proper manner to get these kinds of returns. In fact, most people panic and make emotional decisions and have far less returns.

How about this - rather than get off track, IF you can get 9.8% returns with stock market investing, then congratulations - you would be crazy to think about investing in DVC at this point as the returns will be lower and the risk greater.

DO NOT FORGET - all DVC investments will eventually drop in price to $0 as it is a RTU 50 year contract and this is a guaranteed 100% loss in your initial investment, no matter what the cost is. The DVC investment plan is just a game of musical chairs where people can rent and recoup their original investment and hope to get some profit renting. At this moment, the music is playing and everyone is smiling (making money), but one day in the future the music will stop and some people will be left standing without a chair - game over.

 

[MrInfinity]

I have to agree with @Ben E N Many people above are talking about the 2011 crash as a profitable time to buy DVC... But if you were one of the minority that had money available, you could invest in pretty much anything and you'd have made a profit. DVC would have been cheap, but one of the least profitable of the options available. For example some speak of getting points at $60 and today they're worth $90. Which is a nice 50% appreciation. But that same money invested in plain old Disney Stock in 2012 could have made you 200% in 3 years - plus dividends, tripling your cash value while remaining liquid and not tied to a timeshare.

It is a fools play to say you're going to make money buying into a timeshare even during a down time. Because during a down time, real property or stocks will appreciate even more, faster. Buy DVC if you want to own a piece of Disney World and go there regularly. Not for any investment reason. Renting is a great way to get rid of some points you don't need, but is not going to make more than the stock market in really any repeatable scenario.