DVC show financing

[Fred M]

$5,000/year = $417 per month towards your DVC.

Monthly dues are $107, so you're down to $310 per month for a payment.

Don't forget in the U.S. you're going to get a 1098 for the mortgage interest you're paying, so there is a bit of a tax break too if you finance.

 

[ray3127]

I don't necessarily have an issue with financing a purchase. What I do think is nuts is the interest rates these contracts get financed at. 8%? 10%? 15%? That's insane. If you can finance at normal rates like a mortgage, 3-4%, that probably isn't so bad as your investments may be earning double that or more. Why would I take money out of that account to pay cash for something? It would make a lot more sense to do a home equity loan and keep my money invested.

I agree the interest rates are eye-popping. And when you add up the interest you pay in my example above, it's a hefty sum. I'm not a fan of that.

But if you're going to spend that cash anyway, why not put it towards something you "own" and can use for a longer period of time? 9% sucks, but it beats paying the rack rate every year.

If you can pay 3-4% and have a reasonable amount of equity in your home, even better.

 

[moericus]

I don't necessarily have an issue with financing a purchase. What I do think is nuts is the interest rates these contracts get financed at. 8%? 10%? 15%? That's insane. If you can finance at normal rates like a mortgage, 3-4%, that probably isn't so bad as your investments may be earning double that or more. Why would I take money out of that account to pay cash for something? It would make a lot more sense to do a home equity loan and keep my money invested.

This is getting into secured and unsecured debt. The reason the interest rates are higher is because (for the most part) banks can not repossess the DVC contract. It's not a physical object like a house or a car. They can't go to WDW and say I want this room. It's not worth it to them so they make up for that risk in interest charges.

Basic budgeting rules are never finance anything except your home and your car. And make sure those loan payments are around a third of your income.

Do those rules suck for most people? Sure. That is why there are alternative loan options (and usually outright schemes) but they are a GAMBLE. A gamble that you're not going to win very often. It's painful to watch people fall into these traps. It ruins families. And that's why people are so vocal about not financing on these forums.

 

[Fred M]

But why are people so vocal about something that has zero impact on their own lives? Listen, if someone who can't afford DVC is going to drop $30,000 on DVC with no means to pay for it, I highly doubt they're going to listen to a word of warning from folks on a Disney travel message board.

And for those of us who have run the numbers and feel that financing is better for our families (rather than parting with a boatload of cash), and that financing gives us time to enjoy DVC today rather than 10 years from now, it's not a mistake because the rest of you don't want to finance DVC. If you all want to pay cash for DVC, then more power to you. But please, everyone stop treating folks who do finance like we're a bunch of rubes who don't know better.

 

[moericus]

But why are people so vocal about something that has zero impact on their own lives?

In this case it does impact other owners. A large chunk of bankrupt-cheap contracts hitting the market hurts other owners in the time"share".

I don't think anyone means financial advice as an insult. If you think you got it figured out, then go for it. Just know there is a legitimate threat there.

 

[TomorrowlandKD]

Corey Fiasconarios just said saying you shouldn’t finance DVC is like the same as saying if you can’t afford to pay cash for a home, you should only rent. What!!! That’s apple and oranges, a home is a stable investment, a mortgage can be cheaper then rent. You also HAVE to live somewhere so trying to build equity with that money makes sense for many people.

I would never take financial advice from someone who calls himself "Fiasco".

 

[disneyland_is_magic]

I would argue it has more to do with cash flow than anything else. Here are some "mental gymnastics":

Let's say you spend $5,000 per year on lodging at Walt Disney World to stay in Deluxes... to be specific with this example, I'll use the Contemporary. How many nights does that get you in the main A-frame? Depends on the time of year, discounts, etc. But it's easy to spend $5k there.

Let's say that alternatively you choose to buy DVC at Bay Lake Tower. A 200 point contract is roughly $30,000 right now. You don't have all the cash now, but your budget allows for the $5,000 in cash every year. So you put $5,000 down and borrow the rest at 9% over 10 years.

$5,000/year = $417 per month towards your DVC.

Monthly dues are $107, so you're down to $310 per month for a payment.

$310 per month for 10 years at 9% allows you to borrow $24,472... add in the down payment and you're at roughly $30k total purchase.

The maintenance fees will increase each year, but so would the cash cost to stay without DVC. And your initial point cost is locked in.

So for the same amount of cash out each year, instead of having nothing but the memories, you can have the memories and 30 more years of stays after it's paid off. And while I don't think it's wise to buy with the intent of selling, your 200 points are more than likely worth something in 10 years as well.

What if you fall on hard times? Then you sell and recoup what you can.

My point is about cash flow... if you have the cash flow to spend 'x' amount on lodging at WDW every year, then you may be better off financing DVC and directing that cash flow towards a DVC loan than continuing to pay cash rates every year. It depends on the resort, but I think the above example is perfectly reasonable.

ETA: quickly glancing at the point charts, I think a 200-point stay at BLT would transfer to about $5k in cash... A week in a LV Studio, for example, is 199 points. Pretty sure a week at Christmas is at least $5k.

Well first of all, I really, really like the idea of your example so thank you for sharing it and putting thought into it. I like the idea of looking at it as cash flow.
I just spent quite a bit of time writing a lengthy reply analyzing 10 years of interest +10 years of maintenance fees and how to minimize those by saving for a heftier down payment. Then I realized we were discussing $5000 for one week lodging at Disney World! And I agree, that’s very realistic! Let’s just appreciate how expensive it’s become

 

[Soap_1984]

I see a couple people making the argument that DVC does not lost value. Was that true during the 2008 recession? I wasn't interested in DVC at that time but I would have thought it decreased with everything else?

It doesn't matter if it loses value during a recession because almost everything loses value during a recession. This reference to the recession is ironic given the comparisons to financing a house made on the recent show. While Fiasco may be somewhat misguided in his comparison, consider that the recession you speak of was a housing collapse, and when comparing financing a house vs. DVC no one ever says financing your house is a terrible idea. The ONLY reason financing a house is deemed a prudent financial decision is because it is, historically speaking, likely that the house will appreciate in value; and it has to appreciate a lot for it to make sense. I understand you need a place to live, but similar to DVC there is a renting option vs. buying that applies to housing. Appreciation has been generally been the case for housing with an exception every 10-15 years, and has also seemingly been the case with DVC - I am not saying it is smart or stupid to finance DVC, just saying those that say you stupid and/or for paying a few thousand in interest over 5 years on a contract by financing it, in the grand scheme of borrowing, it is not necessarily such a ridiculous amount of money considering on a $500,000 mortgage you will pay $40k in interest in the first three years and own less than 10% of your house. I am not sure anyone who lost $300,000 on their house when the recession hit really cared that their DVC contract they paid $20 grand for was now worth $10 grand. The size of the contract and the timing of when you need to sell play a role.

The thing is that now, I cannot justify buying Riviera for this exact reason. They are pricing it so high that in order to justify it financially, compared to the past, or to many current resale contracts, the contract must appreciate in value. Who knows what the economy will do, but I do know that these resale restrictions make the assumption of increasing value very questionable. I would love to speak to someone from DVC about how they determined the price per point for Riviera, perhaps someone on here knows.

As an aside, if you look at Disneys "Preferred" 10% financing option on Riviera, your head will explode when you try and justify buying 160 points to stay in a one bedroom for a week a year. I know it is an impulse buy, but even if I paid cash I couldn't figure out how I am saving any money over the first 15 years vs. just buying rooms direct with the general discounts they give.

 

[YesterDark]

Personally, if I don't see a ROI of 10-12 years with a contract length of double that, I don't see how you can justify it.

 

[CanadaDisney05]

As an aside, if you look at Disneys "Preferred" 10% financing option on Riviera, your head will explode when you try and justify buying 160 points to stay in a one bedroom for a week a year. I know it is an impulse buy, but even if I paid cash I couldn't figure out how I am saving any money over the first 15 years vs. just buying rooms direct with the general discounts they give.

Your probably not saving money over the first 15 years. However, Riviera is a 50 year contract. Even if you sold after 15 years, you would likely receive back a lot more than zero when you went sell.

If you a buy house on a 25 year mortgage, your likely not breaking even over 25 year. The benefit comes after year 25 when you no longer have mortgage payments vs continuing to pay rent.

 

[TonyaG83]

Corey Fiasconarios just said saying you shouldn’t finance DVC is like the same as saying if you can’t afford to pay cash for a home, you should only rent. What!!! That’s apple and oranges, a home is a stable investment, a mortgage can be cheaper then rent. You also HAVE to live somewhere so trying to build equity with that money makes sense for many people. Buying a home is also about establishing stability for your kids, so they can have roots and long term friends and long term schools. I was disappointed no one at the table didn’t speak up to that.

It's not stable if you live in a housing-bubble market. STARTER homes in my neighborhood cost more than $1 million. We're the #2 on the list of overvalued real estate in the world. Once it crashes, and it inevitably will, whoever took out a mortgage to put a roof over their head will end up owing more than what their house is worth. It's happened before and it will happen again. In that case, housing is NOT a good investment.

Also - some of those people at the table don't have kids. They aren't necessarily worrying about school districts or roots or stability. They've literally picked up their lives and moved across the country to be closer to Disney. I know it wasn't addressed in this show, but it's been addressed when other topics are being discussed, that they can't speak for certain demographics.

 

[CampbellzSoup]

If you have enough equity in your house/enough liquid assets, it makes perfect sense.

no it doesn’t...your taking equity out of your home to buy something you have no true ownership of

 

[disneysteve]

no it doesn’t...your taking equity out of your home to buy something you have no true ownership of

You own the contract/points. They have value and you can resell them if you choose to, so you do own something.

 

[CanadaDisney05]

no it doesn’t...your taking equity out of your home to buy something you have no true ownership of

?????

DVC is deeded real estate. It's a tangible, long term asset. But that wasn't even my point. What I was saying is that if you have enough in equity in your house/enough liquid assets to survive an economic downturn, the risk of using your HELOC is pretty minimal.

Lets say your house is worth 500K and you have a 200K on your mortgage. You take out a Heloc of 25K to purchase DVC. It would take a housing crash of 55% before you were underwater on your house. While that is not outside of the realm of possibility, it would certainly be an extreme situation. Even if you didn't buy DVC on the HELOC, it would only take an additional 5% crash before you would be underwater anyways. The additional risk of buying DVC on the HELOC is pretty minimal.

Now if you owned a 500K house and your mortgage was 475K, I would not suggest taking out a 25K Heloc (not even possible in Canada fwiw. Not sure if it's possible in the US) to buy DVC, because the risk of being underwater on your house is way too high.

 

[Starport Seven-Five]

Reflecting a bit more on this today I think the thing that upsets me about this podcast is that they're using their platform to promote and normalize some horrible financial behavior. High interest rates, flippant comments about "no one pays cash for cars", etc. It'd be one thing if people weren't listening but the statistics on personal finance in the United States show that people are already in debt up to their eyeballs with minimal savings.

I'm not against financing if the interest rate is lower (I'd define that currently as sub 4%) and I really don't care how people spend their money but I can't sit by when people are trying to normalize double digit interest rates to finance a vacation.

It doesn't matter if it loses value during a recession because almost everything loses value during a recession. This reference to the recession is ironic given the comparisons to financing a house made on the recent show. While Fiasco may be somewhat misguided in his comparison, consider that the recession you speak of was a housing collapse, and when comparing financing a house vs. DVC no one ever says financing your house is a terrible idea. The ONLY reason financing a house is deemed a prudent financial decision is because it is, historically speaking, likely that the house will appreciate in value; and it has to appreciate a lot for it to make sense. I understand you need a place to live, but similar to DVC there is a renting option vs. buying that applies to housing. Appreciation has been generally been the case for housing with an exception every 10-15 years, and has also seemingly been the case with DVC - I am not saying it is smart or stupid to finance DVC, just saying those that say you stupid and/or for paying a few thousand in interest over 5 years on a contract by financing it, in the grand scheme of borrowing, it is not necessarily such a ridiculous amount of money considering on a $500,000 mortgage you will pay $40k in interest in the first three years and own less than 10% of your house. I am not sure anyone who lost $300,000 on their house when the recession hit really cared that their DVC contract they paid $20 grand for was now worth $10 grand. The size of the contract and the timing of when you need to sell play a role.

I swear I saw a post further up claiming it never went down which was the reason for me bringing that up. I can't find it now so it was either edited/deleted or I misread. My overall point was that people shouldn't over extend themselves to get in now just because recent price history has trended up with DVC.

 

[CanadaDisney05]

flippant comments about "no one pays cash for cars

I LOL'd when they said that. Many, many people pay cash for their cars.

 

[YesterDark]

A very quick google search probably puts the number between 30-40% of people pay cash for their cars. No sure how that breaks down to new vs used, primary vs secondary, cars for kids etc.

 

[jackieleanne]

I would argue it has more to do with cash flow than anything else. Here are some "mental gymnastics":

Let's say you spend $5,000 per year on lodging at Walt Disney World to stay in Deluxes... to be specific with this example, I'll use the Contemporary. How many nights does that get you in the main A-frame? Depends on the time of year, discounts, etc. But it's easy to spend $5k there.

Let's say that alternatively you choose to buy DVC at Bay Lake Tower. A 200 point contract is roughly $30,000 right now. You don't have all the cash now, but your budget allows for the $5,000 in cash every year. So you put $5,000 down and borrow the rest at 9% over 10 years.

$5,000/year = $417 per month towards your DVC.

Monthly dues are $107, so you're down to $310 per month for a payment.

$310 per month for 10 years at 9% allows you to borrow $24,472... add in the down payment and you're at roughly $30k total purchase.

The maintenance fees will increase each year, but so would the cash cost to stay without DVC. And your initial point cost is locked in.

So for the same amount of cash out each year, instead of having nothing but the memories, you can have the memories and 30 more years of stays after it's paid off. And while I don't think it's wise to buy with the intent of selling, your 200 points are more than likely worth something in 10 years as well.

What if you fall on hard times? Then you sell and recoup what you can.

My point is about cash flow... if you have the cash flow to spend 'x' amount on lodging at WDW every year, then you may be better off financing DVC and directing that cash flow towards a DVC loan than continuing to pay cash rates every year. It depends on the resort, but I think the above example is perfectly reasonable.

ETA: quickly glancing at the point charts, I think a 200-point stay at BLT would transfer to about $5k in cash... A Premier week in a LV Studio, for example, is 199 points. Pretty sure a week at Christmas is at least $5k.

Exactly this. I'm coming from the UK and purchased via DVC this year. I vacation at Disney at least every other year. Next Year I have my honeymoon a trip that for our deluxe stay was going to cost us over £5000 for our room at AKL for 14 nights. I also plan on a trip in 2021 for the anniversary again this would have been another £5000 if not more due to the rates that the hotels go up. I got a contract for 135 points that I've financed as it worked out I financed $12,000 so around £11,000. Well those two trips that I've just stated alone would cost me £10,000 at least so I've got two trips and only £1000 short of breaking even on the initial cost.

Financing is a personal choice and not for others to say what we should and shouldn't do. Sure I could have saved and purchased it in cash, but I was already gonna spend £5000 for that honeymoon and have a wedding I'm paying for.

I will add that I researched DVC for over 12 years and this involved lots of discussions with the other half and we took at least 7 trips in that time period, so yes finance made sense for us especially given the cost of rooms rack rate.

 

[Linkura]

Oh man... finally got around to watching this. And, as a CPA with a pretty good knowledge of personal finance, yikes. Y'all weren't exaggerating. I'm not even sure where to start, so I'll just point out a few things that were particularly egregious:

-Pete asking the audience if we pay for our WDW vacations via credit card. Uh... yes? But I pay off my card in full every month so it is basically like paying in cash. Pete condescendingly asking the audience if they pay in cash for a vacation is ridiculous. It's a LUXURY, just like he says, and so are timeshares! Don't buy them if you can't afford them! I can understand maybe taking a few months to pay off your vacation that you put on a credit card, but you're also not taking out a new line of credit for it, and it's easy to find credit card offers with 0% or low interest so you don't need to get bilked on interest as long as you pay it off within the intro period.

-Talking up loans that START at 9.9% and go up to the 2x% range is completely irresponsible. The HELOC idea isn't too terrible of an idea as long as you KNOW you can afford the payments and you get a decent rate like Other Pete did at 4%. With 4%, you can dump your excess money you have from not paying cash into an index fund and make back your interest in the long term. But 9.9%+ is a joke rate and you're blowing a massive amount of money on interest. Sean got hosed.

-It's obvious none of these people have a background in finance or personal finance and the hardball way Pete approaches it ("If you don't like financing, I don't want to hear it!") is completely irresponsible. And don't get me started on the fact that this show is sponsored by a timeshare resale company and they're in on making the recommendations.

I'm not a DVC member and never will be, but I still liked watching some of the episodes in this series to learn about the DVC resorts and how it all works (again, CPA/personal finance background so I kind of like this stuff in a nerdy way). But not anymore; I'm done with this series if they're going to aggressively promote high-interest loans to buy timeshares on a show that is sponsored by a timeshare resale company and has co-hosts from that company.

 

[hertamaniac]

With 4%, you can dump your excess money you have from not paying cash into an index fund and make back your interest in the long term.

Yep, and with enough invested, you can use the returns to pay rack rates and not be locked into a contract with rising maintenance fees; I'm not a debt carrier fan.