DVC show financing

[TonyaG83]

I agree that this whole episode didn't sit well with me. I truly do believe that the key word in the term "Personal Finance" is "Personal". There is no right way, and no wrong way to do things. An adult making a large financial decision SHOULD have a good understanding of the pros/cons that come along with it, and how it affects them personally. However, we all know that the majority of people make emotional decisions without truly understanding the consequences. This is where I believe things can get predatory.

I agree with your statement and your outline above. The #1 point is that it is personal and what makes sense for some, doesn’t for others.

Sometimes financing, if done correctly, is a good option. If you don’t have the money or never expect to amass it, financing via a high interest lender isn’t the best idea. Anyone who extends themselves financially should have a good grasp of what they are laying out and what they will receive in return.

I finance because I’m extremely aware of my personal finances, exposure, and know how to ‘play’ with my money. I can leverage a small fraction of what I have to get 100% of what I want. I could either take a chunk of liquid cash and pay for a contract outright, or I could pay a portion of it, invest the rest into an aggressive fund, and then use the dividends to pay for not only my interest on the loan, but a small fraction of the principle. I’m also crossing my fingers for the currency gap to lessen, but that would just be a bonus.

 

[Princess Jes]

And this is after an entire season of Pete Werner bragging about all the contracts he’s spontaneously bought with cash.

I think you'll find that Pete certainly has not paid cash for his points, and even made mention of it in the Financing show.
He used a HELOC to finance at least SOME of his points.

I don't understand the premise that the "non-financers" push that using cash is a safer way to do things?

Sure, you're not tied in to a loan should you need to sell (and really, unless you buy direct, you're probably going to come out about even on the resale market anyway, if not ahead) but if you used say a good chunk of your savings to buy them, you're still out the same amount of money (excluding interest which in these situations is not the greater portion of the value) so either way, you're going to be out almost the same amount of money, only in one case you're out immediately (cash) and the other, you have to pay the deficit off for however long you need to make up the difference in purchase less sale price.
I understand that losing your job would mean you don't have money to pay the remainder of the loan and risk defaulting, but again, if you bought resale, had it even for a year, you should have paid off the likely risk between what you paid and what it's worth is after 12 months.
And as we've seen, the latest trend is that points are appreciating rather than depreciating (again, excluding the difference between buying from Disney vs resale)

 

[jarestel]

Stripping away the gloss and glitter that we sometimes like to paint a DVC purchase with (investments, real estate interest, magic, etc), it's important to remember that all we're doing is simply pre-paying for future vacations. Not to be harsh, but nobody should be buying a timeshare, whether with cash or financing, if the payment will inflict serious financial damage "if something happens". The fact that we can sometimes sell our DVC contracts for a profit is a nice perk, but it wasn't always this way and is probably unreasonable to assume it will always be this way, especially since the folks buying 2042 resorts today are likely purchasing at or near the apex at this point.

Bottom line, it's a timeshare purchase and we pay for vacations today that we won't take for 20 years. If that sounds reasonable and the money won't be missed, DVC is a good idea. I think simply arguing over whether to finance or not is missing the real point of a timeshare and is probably misleading to new purchasers.

 

[Chrisizzle]

I think you'll find that Pete certainly has not paid cash for his points, and even made mention of it in the Financing show.
He used a HELOC to finance at least SOME of his points.)

There are two Petes on the show.

Pete via webcam financed with HELOC.

I don’t recall Pete Werner (the host) saying he financed. Maybe I missed it. It seems like every week of the first dozen DVC shows he started each episode with ‘add-on-itis got me again and I just purchased another 200 points at ________ resort.’

 

[Ruttangel]

I think the link with DVC store is a bit too much at the moment.
DIS unplugged tries to be the voice of reason on all things Disney - say it as they find it. But on DVC I wouldn’t say that is always the case

 

[disneyland_is_magic]

I think the link with DVC store is a bit too much at the moment.
DIS unplugged tries to be the voice of reason on all things Disney - say it as they find it. But on DVC I wouldn’t say that is always the case

Yes. Pete always tries to be unbiased, I respect that. But honestly whatever their financial relationship is with the DVC store, listening to Pete talk about mortgaging your home was surprising to me.

The Dream agents are always saying let’s book a resort you’re comfortable with at a price you can afford, blah blah. Dreams agents clearly want what’s best for their clients.

When Pete was talking about how easy financing is to get, I admit I wondered if he and Sean are garnering referral bonuses from the DVC store. That puts a lot of faith in Disney who is revoking perks and benefits at every turn and so many unknowns where the market will go.

I don’t know. It felt different. I couldn’t see the clear message this was definitely the best thing for people listening, especially since they glossed over risks.

 

[CanadaDisney05]

I don’t recall Pete Werner (the host) saying he financed. Maybe I missed it. It seems like every week of the first dozen DVC shows he started each episode with ‘add-on-itis got me again and I just purchased another 200 points at ________ resort.’

I don't think he mentioned it on this episode, but I'm pretty sure being surprised when he mentioned it in the past.

 

[YesterDark]

I'm pretty sure I remember Werner mentioning him financing on some of the earlier shows.

 

[DLgal]

People seriously take out HELOCs to pay for DVC? Wow. So, the recession and housing crash has already been forgotten, huh?

 

[CanadaDisney05]

People seriously take out HELOCs to pay for DVC? Wow. So, the recession and housing crash has already been forgotten, huh?

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

 

[Lumpy1106]

Here's the way I see financing;
Financing DVC is NOT like financing a home. You buy a house and it, in and of itself, does not immediately lose value because you moved in. There can be financial crashes but that's a whole other topic that would apply to any loan. You could say DVC resale is like buying a home because it does not lose value, but you need a place to live, you do not need to go on vacation (debatable I know).

Financing DVC is not like financing a car. While direct DVC does lose value like a new car, and resale does not lose value like a used car, you need the car to get to your job - the car expense is factored in to your cost of living but your wages are higher because you can get a better job if you have a means to get to that job.

But honestly, the reason I would not finance DVC is you are not comparing the cost of DVC to buying a house or car, but to the cost of staying on-site in a non-DVC resort - and you would never finance that. It takes years before staying DVC pencils out in comparison, but if you finance it takes much longer. You have to ask yourself, does that make sense? For us it's an emphatic "no", and you'd have to do some real mental gymnastics to convince me it would make sense for anyone.

 

[CanadaDisney05]

For us it's an emphatic "no", and you'd have to do some real mental gymnastics to convince me it would make sense for anyone.

What if you could invest the cash, and earn more than you would pay out in interest?

 

[Starport Seven-Five]

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?

 

[bakerworld]

We bought during 2008 - it was a great time to buy, both direct and resale. We also financed our purchase. Everyone needs to do what is comfortable. For us, it was worth the interest to keep our bank balance where we wanted it. We thought of it like a car payment. We paid it off early because that is what we do. We just had helmet gutters put on the house - we financed .... Did we need the gutters - well, it depends of which of us your ask.

 

[TonyaG83]

But honestly, the reason I would not finance DVC is you are not comparing the cost of DVC to buying a house or car, but to the cost of staying on-site in a non-DVC resort - and you would never finance that. It takes years before staying DVC pencils out in comparison, but if you finance it takes much longer. You have to ask yourself, does that make sense? For us it's an emphatic "no", and you'd have to do some real mental gymnastics to convince me it would make sense for anyone.

What if you could invest the cash, and earn more than you would pay out in interest?

Financing/borrowing can make sense. It is literally the way of the world. Countries, large corporations, banks - do not have the capital for what they're doing. All of that money belongs to someone else. They're hoping the risks they're taking with those funds will pay off.

Financing DVC definitely exposes you in the face of an economic downturn, but so do mutual funds, stocks, and other aggressive investments. Your principle is never guaranteed. People do it because the risk/reward ratio is something that they can live with. 'Investing' in DVC just has a different (emotional/mental) benefit.

And like it has been mentioned, IF you do have the cash to pay up front, why not make that money work for you instead of dumping it somewhere all at once, where the only ROI is sleeping at a nice hotel? Paying outright can actually be seen as fiscally irresponsible if you had the option of putting that money somewhere that would have it generating extra income for you. That extra income could pay your interest fees and more.

 

[hertamaniac]

We did the DVC tour at SSR couple years ago after staying at OKW for about 2 weeks (cash). They definitely were armed with some financial historical data pointing towards a positive purchase. We were handed the obligatory folder and retreated into our financial bunker for analysis.

In my review, being local to WDW, I couldn't justify the expense regardless of purchase method. I am perfectly happy to enjoy local resident perks (and when I forge ahead for another AP), but the DVC draw has worn off. There are other personal financial reasons where I want a continuous cash stream and, for me, that's not DVC. If we can stay onsite and use the earnings from other investments to pay cash for those stays and not be locked into a contract, then that's where I'll lay my head.

 

[Princess Jes]

There are two Petes on the show.

I'm very aware of this.

It seems like every week of the first dozen DVC shows he started each episode with ‘add-on-itis got me again and I just purchased another 200 points at ________ resort.’

Just because he added on, doesn't mean he didnt Finance it.
A PP mentioned earlier that Pete has definitely referenced financing before, and i recall that too.
I highly doubt that he has paid cash for the 1,000 points he has, and regardless, its absolutely none of our business either way.

I wondered if he and Sean are garnering referral bonuses from the DVC store.

Sean has only bought direct points, and Pete has also mentioned that he does NOT get a discount for his resale purchases.
The whole point of having the DVC store on board, is that they sponsor the DIS and the podcasts, so getting a personal benefit would be unethical and unproductive for the DIS, they need the sponsorship to pay for all the FT team members they have now and all the equipment they need to produce all the shows and content they do.

 

[ray3127]

But honestly, the reason I would not finance DVC is you are not comparing the cost of DVC to buying a house or car, but to the cost of staying on-site in a non-DVC resort - and you would never finance that. It takes years before staying DVC pencils out in comparison, but if you finance it takes much longer. You have to ask yourself, does that make sense? For us it's an emphatic "no", and you'd have to do some real mental gymnastics to convince me it would make sense for anyone.

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.

 

[CanadaDisney05]

But honestly, the reason I would not finance DVC is you are not comparing the cost of DVC to buying a house or car, but to the cost of staying on-site in a non-DVC resort - and you would never finance that. It takes years before staying DVC pencils out in comparison, but if you finance it takes much longer. You have to ask yourself, does that make sense? For us it's an emphatic "no", and you'd have to do some real mental gymnastics to convince me it would make sense for anyone.

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% is $24,472.

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.

This is basically the o'l buy vs rent argument when it comes to principle residence. So in a way, its almost exactly like buying a house. The only thing I would add is that like buying a house, your DVC contract is not very liquid. If you're financing over 10 years at 9%, there is a good chance that you literally do not have access to that cash (rather than making a conscious decision to finance and keep your cash invested in something more liquid). In the event that life happens and you need access to cash, selling your DVC may take a significant amount of time. You just have to be aware of the risks that come when your investing in something that is not liquid.

 

[disneysteve]

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.