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-   -   How Long To Recoup Your Initial DVC Cost? (http://www.disboards.com/showthread.php?t=3093206)

theguda 04-08-2013 03:46 PM

How Long To Recoup Your Initial DVC Cost?
 
I just rented points for the first time and it got me thinking about buying a contract on resale. Here's how I ran the #'s and I'd love to hear comments or feedback.

Looks like the going rate to rent points is $11/$12 per point...so let's use $12 for this exercise.

Let's say I buy a Saratoga Springs 200 point contract for $11,000. This year the maintenance fees are $4.81 per point. So if someone paid $4.81 per point and sold them for $12...they'd realize a $7.19 profit per point. Selling all 200 points would net a profit of $1438 for the year.

Assuming a $11,000 cost to buy the contract....if I sold all 200 points each year and got a similar $7.19 per point profit...it would take me basically 7.6 years to recoup the contract cost. Am I looking at that correctly? Would anyone else like to share how long it took you to recoup the initial investment? I realize I didn't factor in what I'd lose by taking that $13,000 and investing it instead. I'm just curious to know if having that initital investment recouped in 7 years is a good deal...bad deal...or great deal.

kenspidey 04-08-2013 04:03 PM

Quote:

Originally Posted by theguda (Post 48046462)
I just rented points for the first time and it got me thinking about buying a contract on resale. Here's how I ran the #'s and I'd love to hear comments or feedback.

Looks like the going rate to rent points is $11/$12 per point...so let's use $12 for this exercise.

Let's say I buy a Saratoga Springs 200 point contract for $11,000. This year the maintenance fees are $4.81 per point. So if someone paid $4.81 per point and sold them for $12...they'd realize a $7.19 profit per point. Selling all 200 points would net a profit of $1438 for the year.

Assuming a $11,000 cost to buy the contract....if I sold all 200 points each year and got a similar $7.19 per point profit...it would take me basically 7.6 years to recoup the contract cost. Am I looking at that correctly? Would anyone else like to share how long it took you to recoup the initial investment? I realize I didn't factor in what I'd lose by taking that $13,000 and investing it instead. I'm just curious to know if having that initital investment recouped in 7 years is a good deal...bad deal...or great deal.

Think about it with direct prices. it would take twice as long. I just can't justify it at current direct prices.

theguda 04-08-2013 04:07 PM

Quote:

Originally Posted by kenspidey (Post 48046677)
Think about it with direct prices. it would take twice as long. I just can't justify it at current direct prices.

I assume by "direct prices" you mean buying DVC directly through Disney or just booking DVC resorts direct with Disney as a non-member? Either way, there is no way I'd do either considering you can rent points and pay far less.

So the only real options are to rent points or buy a resale contract. I'm just curious to know what others think about the #'s I proposed. Buying points is great...but buying a DVC resale seems to be FAR cheaper in the long run. If I can recoup my initial investment in 7 years...is that a good deal? I'd like to know how long it took others to recoup their inital cost.

Smile&Nod 04-08-2013 04:23 PM

The other way to look at "recouping" your investment is to see how much you would spend if you just paid cash - weren't able to rent points and went once a year - my figures were such that I was able to "recoup" my purchase in about 4 - 5 trips - even including the annual dues i was paying.

Bottom line - you will save money over time if you go on an annual basis - probably even every two years - if less often than that it becomes much cloudier...

theguda 04-08-2013 04:50 PM

Quote:

Originally Posted by Smile&Nod (Post 48046930)
The other way to look at "recouping" your investment is to see how much you would spend if you just paid cash - weren't able to rent points and went once a year - my figures were such that I was able to "recoup" my purchase in about 4 - 5 trips - even including the annual dues i was paying.

Bottom line - you will save money over time if you go on an annual basis - probably even every two years - if less often than that it becomes much cloudier...

But you can rent points which is far less than booking direct with Disney. If you compared the cost of buying into the DVC vs renting points...I assume you wouldn't have recouped your purchase in 4-5 trips. Wouldn't that be correct?

ELMC 04-08-2013 05:00 PM

Quote:

Originally Posted by theguda (Post 48046462)
I just rented points for the first time and it got me thinking about buying a contract on resale. Here's how I ran the #'s and I'd love to hear comments or feedback.

Looks like the going rate to rent points is $11/$12 per point...so let's use $12 for this exercise.

Let's say I buy a Saratoga Springs 200 point contract for $11,000. This year the maintenance fees are $4.81 per point. So if someone paid $4.81 per point and sold them for $12...they'd realize a $7.19 profit per point. Selling all 200 points would net a profit of $1438 for the year.

Assuming a $11,000 cost to buy the contract....if I sold all 200 points each year and got a similar $7.19 per point profit...it would take me basically 7.6 years to recoup the contract cost. Am I looking at that correctly? Would anyone else like to share how long it took you to recoup the initial investment? I realize I didn't factor in what I'd lose by taking that $13,000 and investing it instead. I'm just curious to know if having that initital investment recouped in 7 years is a good deal...bad deal...or great deal.

This is an accurate basic analysis. It doesn't account for some other variables that could move the "break even" date in or out. Rising costs in maintenance fees or rental point prices are two of those, but those would be predictions anyway. Another factor would be if the contract came with an extra year's worth of banked points that you didn't have to pay maintenance fees on. But essentially, you have a pretty good understanding of what you are looking at with a DVC purchase.

As for whether or not it's a good deal, that is subjective. Many people think that it is, and that's why they own. Personally, I wanted that number to be around 5 years, so I shopped around until I found a contract that delivered those numbers. As far as taking the money and investing it, that's a shaky argument because very few people actually do that.

Quote:

Originally Posted by Smile&Nod (Post 48046930)
The other way to look at "recouping" your investment is to see how much you would spend if you just paid cash - weren't able to rent points and went once a year - my figures were such that I was able to "recoup" my purchase in about 4 - 5 trips - even including the annual dues i was paying.

Bottom line - you will save money over time if you go on an annual basis - probably even every two years - if less often than that it becomes much cloudier...

With all due respect, I think that this is a weak analysis and one that is not even supported by DVC salespeople. The standard DVC presentation states that you can "break even" in 7-8 trips vs. paying rack rate. So your figures of 4-5 years seem very aggressive to me. Also, they only apply if you are actually paying rack rate. And if you are paying rack rate, my question for you is why? Between discount codes and renting points, there are many ways to stay at Disney for much less than rack rate. In my opinion, paying rack rate to stay at Disney is not a viable option. So to use that as a basis for comparison for another option is fallacious.

Many will most likely disagree, but my guess is that these are the same people who pay sticker price when buying a car.

theguda 04-08-2013 05:11 PM

Quote:

Originally Posted by ELMC (Post 48047373)
This is an accurate basic analysis. It doesn't account for some other variables that could move the "break even" date in or out. Rising costs in maintenance fees or rental point prices are two of those, but those would be predictions anyway. Another factor would be if the contract came with an extra year's worth of banked points that you didn't have to pay maintenance fees on. But essentially, you have a pretty good understanding of what you are looking at with a DVC purchase.

As for whether or not it's a good deal, that is subjective. Many people think that it is, and that's why they own. Personally, I wanted that number to be around 5 years, so I shopped around until I found a contract that delivered those numbers. As far as taking the money and investing it, that's a shaky argument because very few people actually do that.



With all due respect, I think that this is a weak analysis and one that is not even supported by DVC salespeople. The standard DVC presentation states that you can "break even" in 7-8 trips vs. paying rack rate. So your figures of 4-5 years seem very aggressive to me. Also, they only apply if you are actually paying rack rate. And if you are paying rack rate, my question for you is why? Between discount codes and renting points, there are many ways to stay at Disney for much less than rack rate. In my opinion, paying rack rate to stay at Disney is not a viable option. So to use that as a basis for comparison for another option is fallacious.

Many will most likely disagree, but my guess is that these are the same people who pay sticker price when buying a car.

Thanks for your comments. I didn't want to muddy the waters by throwing in other variables like returns on other investments that would, as you said, scale the recoup date forward or back. I write mortgage loans for a living and I equate buying into the DVC with buying points on a loan. I would never recommend someone waiting 7 years to recoup the cost of those points. Granted, the DVC is quite different than buying points on a loan...but the premise is somewhat similar.

Scanning the resale market I don't see anything that would recoup my costs in 5 years. If so, I'd buy it. For example, I do have an offer out on a SSR 200 point contract. All points have been used for 2013 so I'd start receiving 200 points in 2014. The seller wants $13,000..which if I sold them all and made a $7.19 profit on each point it would take me 9 years to recoup. If I wanted that number at 5 years the price would have to be $7190 ($35.95 per point which seems unheard of based on my limited research so far). Can you really find contracts for $35 per point?

kenspidey 04-08-2013 05:18 PM

Quote:

Originally Posted by theguda (Post 48047472)

Thanks for your comments. I didn't want to muddy the waters by throwing in other variables like returns on other investments that would, as you said, scale the recoup date forward or back. I write mortgage loans for a living and I equate buying into the DVC with buying points on a loan. I would never recommend someone waiting 7 years to recoup the cost of those points. Granted, the DVC is quite different than buying points on a loan...but the premise is somewhat similar.

Scanning the resale market I don't see anything that would recoup my costs in 5 years. If so, I'd buy it. For example, I do have an offer out on a SSR 200 point contract. All points have been used for 2013 so I'd start receiving 200 points in 2014. The seller wants $13,000..which if I sold them all and made a $7.19 profit on each point it would take me 9 years to recoup. If I wanted that number at 5 years the price would have to be $7190 ($35.95 per point which seems unheard of based on my limited research so far). Can you really find contracts for $35 per point?

Only Vero and then you have to factor in higher Maint. Fees

ELMC 04-08-2013 05:25 PM

Quote:

Originally Posted by theguda (Post 48047472)
Thanks for your comments. I didn't want to muddy the waters by throwing in other variables like returns on other investments that would, as you said, scale the recoup date forward or back. I write mortgage loans for a living and I equate buying into the DVC with buying points on a loan. I would never recommend someone waiting 7 years to recoup the cost of those points. Granted, the DVC is quite different than buying points on a loan...but the premise is somewhat similar.

Agreed. Somewhat similar but also a little unique. Remember, first and foremost, DVC is a way of front loading a portion of the costs of future vacations while at the same time enhancing your vacation experience. So you have to imagine that there is some leakage there that applies to the actual "cost" of going on vacation. So it's not exactly like pure investments.

Quote:

Originally Posted by theguda (Post 48047472)
Scanning the resale market I don't see anything that would recoup my costs in 5 years. If so, I'd buy it. For example, I do have an offer out on a SSR 200 point contract. All points have been used for 2013 so I'd start receiving 200 points in 2014. The seller wants $13,000..which if I sold them all and made a $7.19 profit on each point it would take me 9 years to recoup. If I wanted that number at 5 years the price would have to be $7190 ($35.95 per point which seems unheard of based on my limited research so far). Can you really find contracts for $35 per point?

Yes and no. And yes and no. :)

Yes, you can find contracts for that amount, but no they're not listed for that amount. The key is finding contracts that have banked points with maintenance fees already paid on them, because those are pure profit. If you rent out those points instead of using them, then that money can offset your initial buy in. That being said, the market has changed significantly over the past few months, and deals like that are virtually non existent. So really it comes down to what your comfort level is and getting the best price you can. But rest assured, you clearly get the math and there's not much you're missing. So just put all the pieces together and go with your gut.

DougEMG 04-08-2013 07:09 PM

Your analysis is pretty much the same as I do and was just one of a number of way I used to see if buying DVC made sense for us. I also compared buying against just renting and against just staying in moderates like I normally did.

When I was looking at contracts, I was looking for contracts with a 6-8 year pay back / breakeven point. As ELMC said, finding a loaded contract with free points reduces that breakeven time, but those contracts aren't as easy to find as they were 12-15 months ago.

One thing to be aware of is that rental rates don't increase the same way that MF do. For the longest time rental rates were $10/point and it is only within the last year or so that they have jumped up to $11-$13 range. I suspect that will continue to be the trend, with rates rates being stable for a number of years and then taking a jump of $1.

e46m3 04-08-2013 07:42 PM

I like to also factor in the decay of the contact based on expiration date. Also if I use rack rate in my equation, I factor in a 30% discount as I would never stay at a dvc resort without some kind of promotion.

Novakm 04-08-2013 08:32 PM

Theguda


I added in the cost of money to my specific circumstances and came up with 9 years, not 7. I bought resale anyway, because that 9years did not factor in the residual value of the initial investment.

When considering the residual value, I assumed 10% for the realtor to sell, and 10% loss in value each year. The big question being how much would I lose if forced to sell before 9 years? Based on this, the break even is less than 3 years, which for me is good enough to pull the trigger.

ELMC 04-08-2013 09:15 PM

Quote:

Originally Posted by Novakm (Post 48049349)
Theguda


I added in the cost of money to my specific circumstances and came up with 9 years, not 7. I bought resale anyway, because that 9years did not factor in the residual value of the initial investment.

When considering the residual value, I assumed 10% for the realtor to sell, and 10% loss in value each year. The big question being how much would I lose if forced to sell before 9 years? Based on this, the break even is less than 3 years, which for me is good enough to pull the trigger.

While theoretically the points in bold make sense, I don't put a lot of stock in them. I don't buy into placing a value on the cost of use of money because typically money that is going to be used to purchase DVC is going to be spent, not saved. If not DVC, most people will buy something else. It's discretionary income and is typically treated as such.

It's good that you are anticipating a decrease in the value of your contract, but I think that 10% might be a bit steep. It really depends on the timing. Most people who bought DVC in 2012 are seeing a 10-20% gain in the value of their contract. Of course the commission would wipe that out, but my point is that for any given time period resale values fluctuate so wildly that it is difficult to assume anything.

Your point in italics is excellent because it talks about an exit strategy. Unfortunately, most people do not think about this when purchasing DVC, which is why a lot of people get into the trouble that they do. In fact, it was this very thinking that turned me away from buying DVC direct.

ChesapeakeTechie 04-08-2013 09:15 PM

Quote:

Originally Posted by ELMC (Post 48047590)

Agreed. Somewhat similar but also a little unique. Remember, first and foremost, DVC is a way of front loading a portion of the costs of future vacations while at the same time enhancing your vacation experience. So you have to imagine that there is some leakage there that applies to the actual "cost" of going on vacation. So it's not exactly like pure investments.

Yes and no. And yes and no. :)

Yes, you can find contracts for that amount, but no they're not listed for that amount. The key is finding contracts that have banked points with maintenance fees already paid on them, because those are pure profit. If you rent out those points instead of using them, then that money can offset your initial buy in. That being said, the market has changed significantly over the past few months, and deals like that are virtually non existent. So really it comes down to what your comfort level is and getting the best price you can. But rest assured, you clearly get the math and there's not much you're missing. So just put all the pieces together and go with your gut.

Any thoughts on why those contracts with banked points are becoming harder to find?

ELMC 04-08-2013 09:25 PM

Quote:

Originally Posted by ChesapeakeTechie (Post 48049806)
Any thoughts on why those contracts with banked points are becoming harder to find?

Yes. Because someone who knows who he is :) spent a year on here talking about how loaded contracts were more valuable, so the demand for them is higher and any potential sellers who read that information then stripped their contracts before they sold. :lmao:

Seriously, though, I'm not sure. I don't know what percentage of sellers are actually on these boards to heed that advice or if the brokers are advising sellers to use up the points before they list. One theory I have, and it's just that, a theory, is that for the past few years, people selling their contracts were looking to do so in large part due to financial hardship due to the economy. People in this situation are not really in a position to take an expensive Disney vacation, so the points stayed in the contracts. In theory this makes sense, but I don't know how broadly it applies.

I'd love to hear some other opinions on this...it's a great question.


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