This is hoisted from another thread where we're deliberately trying to ruin a new DVC member's fun by doing financial analysis of DVC. So hopefully all the math nerds can come over here and we can get all numerical and stuff. Anyway, it's bothered me for a while that lots of people calculate the "all in" cost of DVC by adding the dues cost to the buy-in divided by the number of years. That's not right. Money now is worth more than money later. If I am buying something that will get me a discount 40 years from now, I will not pay the same amount of money as if I'm getting a discount today. (There's a related error where people calculate their "payoff point" in years by adding up all their discounts to see in what year they end up "paying off" their buy in. That's also not right - it takes more years than the simple analysis would suggest, because the money you are going to save in the future is worth less than the money you paid in the present.) One way to spread a buy-in cost over a number of years is an amortization. This is the same calculation used to figure the payment on a mortgage of a certain amount, which makes sense, because in essence you're the bank - you give Disney a chunk of money, and they promise to "pay it back" by giving you discounts on rooms in future years. The cost to you for those discounted rooms in the future is the amortized cost. In other words, of the discounts Disney is giving you, the amortized cost is just the payback of the money you paid in. That's the amount of money you could have gotten just putting the money in a mutual fund and slowly drawing money out until it was down to 0 somewhere in the future. So for, say, Boardwalk, there are 29 years remaining. If I had to pay $72 per point, how much per point per year, assuming that I could have put $72 into a mutual fund earning 4.5% instead? The answer is $4.49, which is much higher than the simple $72/29, or $2.48. So my all-in cost is $4.49 every year, plus the dues cost, though to be a useful analysis I need to account for the rise on costs of dues over time. However, that's not as useful a way of looking at it. For one thing, there's inflation. Amortization calculates a fixed payment in nominal dollars every period, because that's the way most people think about money. Calculating everything in "real" (i.e. inflation-adjusted) dollars is hard to work out. But not doing do makes things difficult to project far into the future. Near the end of the Boardwalk contract's life, my dues might have risen to $11, but the amortized buy-in (using my previous calculation) is still $4.49. Since the cost of everything else in the world has gone up, my cost per year has gone down in real dollars. One way to get around this is to do inflation-adjusted amortization. A simple way of doing that is to pick what appears to be a reasonable inflation amount and subtract it from my implied interest rate that I could get for my money. So if I think I can get 4.5% from a mutual fund, but inflation is going to be 2%, then I calculate the amortization as 4.5% - 2% = 2.5%. Then I'm getting a "real dollar" amortization. Now my cost for my $72 per point contract is $3.52 per year in constant 2013 dollars. In fact that number in nominal dollars will go up by 2% every year, but it's the same value in real inflation-adjusted dollars. Doing inflation adjustment on the buy-in means I need to do inflation adjustment on my dues increase as well. It means that a 3.5% dues increase per year is a 1.5% dues increase in real dollars. Again, accounting for all of this can make your head hurt. The key is to either do everything in real dollars or in nominal dollars and stick to it. Ultimately whether you do a real dollar amortization or a nominal dollar amortization is a bit of a complicated decision, and it depends on the analysis you're trying to do. But either one is clearly a better way to go than just dividing the buy-in cost by the number of years. Doing that kind of simple division understates the cost of buying DVC, which to some extent is something that Disney exploits to make the purchase appear more attractive than it really is. As it turns out, if you use your points to stay in DVC properties, the discounts are so large that it always pays off no matter what. If you do a slapdash analysis or a rigorous analysis, it's still a bargain. If you use your points to stay in rooms with the least payoff in cash value (which would be 1 bedrooms, for what it's worth), you still come out ahead. It just takes longer to come out ahead for certain rooms and times of year than for other rooms and times of year. On the other hand, if you use your points for cruises and staying in Disney (non-DVC) hotels, doing the financial analysis correctly shows that you're losing money with every stay. The amortized cost of the buy-in plus the dues is less than the cash value of the room or cruise. Anyway, I want to be clear: no matter how you run the numbers, it's a good deal buying into DVC if you use it mostly to stay in DVC properties. It's such a good deal, in fact, that it's still saves most people money if they finance their purchase at 11% interest. That's accounting for the time value of money and everything. I still keep squinting at the numbers trying to figure out where I've gone wrong. It feels bizarre to me that Disney would make such a one-sided deal in some sense. Obviously Disney has plenty of financial analysts, so I trust that they're pretty happy with the payoff matrix. But it still feels strange. I've always been suspicious of a free lunch, and DVC seems too good to be true. Now ELMC will tell me I should never use the phrase "free lunch" when talking about DVC.