DVC buy-in and amortization (a math snooze-fest)

[DLgal]

That's just amazing to me. I always try to remember to look at the rack rate posted on the door in whatever hotel I stay in. Just for kicks, because the rate is always way, way, way above what I would think anyone would consider paying. This includes the times I've stayed at Disney hotels. If your alternative to DVC is paying rack rate, then DVC is going to provide phenomenal savings.

The rate posted on the door is not rack rate. Its the MAXIMUM rate the hotel may charge for one night. This has to be posted by law in every hotel. It's a way if ensuring that, in a desperate situation, if you need a hotel room that, say, insurance might reimburse you for, the hotel can't take advantage and price gouge you. This is just one example, obviously. That is why those rates posted on the door are so high.

 

[bighoo93]

The rate posted on the door is not rack rate. Its the MAXIMUM rate the hotel may charge for one night. This has to be posted by law in every hotel. It's a way if ensuring that, in a desperate situation, if you need a hotel room that, say, insurance might reimburse you for, the hotel can't take advantage and price gouge you. This is just one example, obviously. That is why those rates posted on the door are so high.

Hmm. I always thought that was rack rate. What is rack rate then? Just the base, non-discounted rate on any particular day? I guess that would be a little more difficult to capture accurately then.

 

[DLgal]

Hmm. I always thought that was rack rate. What is rack rate then? Just the base, non-discounted rate on any particular day? I guess that would be a little more difficult to capture accurately then.

Yes. Exactly. At Disney, rack rate varies widely depending on the "season."

 

[dmunsil]

Hmm. I always thought that was rack rate. What is rack rate then? Just the base, non-discounted rate on any particular day? I guess that would be a little more difficult to capture accurately then.

Exactly. Rack rate is the published, non-discounted rate that you would get at a hotel if you didn't get any discounts. Most hotels rarely get it. Disney gets rack rate quite often. And all of their discounts are calculated from rack rate. About the maximum discount you can get is 30%, and that's for a non-peak, Annual Passholder discount, only on deluxe rooms and only for nights that are not close to full.

For Disney World, Disney publishes their rack rate charts, though it's not always easy to find them. MouseSavers always has them, though:

http://www.mousesavers.com/2013-walt-disney-world-resort-room-rates-season-dates/

 

[BestDadEver]

There's an old joke about a guy who loses his keys in a huge parking lot on a dark night. He's searching near the base of a lamp post, but he can't find them. Another man approaches to see if he can help. "Is this where you think you dropped your keys?," the man asks. "Nope. But this is the only place where I can see."

Somehow I think that applies a little here. Its easy to use the rack rate, because it is a set, published number that we have access to, including perhaps historical numbers. But the problem is, nobody will actually pay that. So while the number is easily accessible, it is actually a nearly useless metric for comparison, and worse, it is one that will put a tremendously unrealistic bias in an analysis, leading you to believe that you will save a lot more than you ever would in reality (which in turn implies you should be willing to pay a much higher price than you really should).

Sure, you aren't going to get it precisely right by using some set discount off the rack rate. That's a common misguided criticism of these kinds of analyses. You don't have to perfectly predict the future in order for it to be valuable. You just need to be able to make a reasonable range of projections, and recognize the sensitivity of your output to errors in those assumptions. We're talking about projections many years in the future: it's all hypothetical.

For me its easy to use rack rate cause that is the room I am in and that is what the room would cost me if I paid OOP , and I have no prior history staying any disney resorts . Its that simple . I can understand people that have a history of saying at cheaper resorts might not find monetary value in comparison even though I still think in the long run they would come out ahead , there has to be some value in staying in a much bigger nicer accommodations .

So your saying resorts like Yacht club , GF, Poly, and the other deluxe resorts no one pays rack rates there all year round . I find that hard to believe .

It really goes without saying that you (and all of us) can do whatever you want. if you don't care whether you could take the same vacation for less money (or take longer/more/better vacations for the same cost), then don't worry about it. I certainly don't think everyone has to do this kind of thought process for any purchase, even a major one like a timeshare. To me, this is just kind of the way I think, so it comes easy. I couldn't imagine not thinking it through logically. But for others, it is a big, annoying hassle that detracts from the whole experience, and frankly its worth it to them to maybe end up paying a little more so that they don't have to be bothered with this stuff.

I agree with almost everything you say here, especially the part about flawed assumptions that lead to paying more than one probably should. The part I disagree with is how nobody pays rack rates. While I would not do it, there are people who do. BestDadEver has said many times that he does. That also probably explains his direct SSR purchase at a time when resales were readily available in the $50pp range. With his analysis using rack rates, the numbers made sense.

To be fair I never paid full rack rate for a disney property , actually I never stayed on disney property till I had DVC . But my in laws did when they traveled with us .

While I think the resale savings is great for someone that sees no value in the other things offered buy DVC . I do find value in those other things offered by DVC (not monetary value).

I have only been to disney 2 times when I was kid I think I was 13 and the recent cruise took thats it before DVC .

 

[Galun]

I dont get this . Comparing to rack rates is the only apples to apples comparison IMO . Everything else is just hypothetical . I guess you can mix in a 30% discount in there but whats the likelihood that you get a 30% discount every time you go for 50 years .

What if one has no previous history visiting disney . Is it acceptable then .

Maybe apples to oranges comparison since they are both fruit...

Rack rate gives you the option up to a few days before arrival. It does not lock you into maintenance fees in years that you do not go. Both these factors lead to the well deserved premium in rack rates.

 

[BestDadEver]

Maybe apples to oranges comparison since they are both fruit...

Rack rate gives you the option up to a few days before arrival. It does not lock you into maintenance fees in years that you do not go. Both these factors lead to the well deserved premium in rack rates.

 

[RSWA2]

Rack rates are one thing, but again, it's really hard to see what the general public is really paying to stay at a Deluxe resort at WDW.

Most Disers will always look for discounts, 10%, 20%, 30% or whatever. They won't pay whatever is the max price for that season. Or at least they try not to. But what about those guests who are planning for a once in a lifetime trip or a big family reunion. The logistics behind getting everyone together at the same time, with kids, flights, timezones, countries, health, everything, the last thing they probably would argue over is where they can find a discount for a Disney room. I mean, they probably would look at places kayak or hotels.com or any other online place, but that is a lot of work and assumptions.

I would almost guess there is a good percentage who are paying whatever price Disney is asking for, for that travel period. If Disney introduces a publicly advertised discount at that time, then they get it. If not, what they don't know, won't hurt them, as they are still going on their trip.

Those who have always paid rack rates or felt they were lucky to get a 10% discount for a room, will automatically feel that DVC will save them a ton over the max rate for a particular Disney resort season.

 

[Dean]

That's reasonable. You can either pay less for similar accommodations or pay a similar amount for better. "Getting more for your money" is a generalized term that covers both more precisely. I don't draw an important distinction between that and "saving money", so that's probably why it seems odd to me that many are so insistent that you don't save money with DVC. And of course, my situation may be particularly well suited to saving money, because our alternative plan was to rent points to stay in DVC 2 BR.

That means you don't have any real comparison if it's DVC or DVC and just how you pay for it the question. That's a pretty limited view in this type of discussion. As a minimum you could also compare to other Disney Suite's. It also assumes the only way to get DVC is by buying, renting or cash through CRO and that's not necessarily the case. Historically I've averaged about $400 a week for DVC stays and going forward expect to be around $600 a week. That approach is not for everyone and it also requires a commitment, but it is possible for those so inclined.

I dont get this . Comparing to rack rates is the only apples to apples comparison IMO . Everything else is just hypothetical . I guess you can mix in a 30% discount in there but whats the likelihood that you get a 30% discount every time you go for 50 years .

See above. IMO you're making two fatal error's if you approach it that way. You're comparing an entity to itself and your assuming full price when discounts are consistently available. That's like buying a car and ONLY looking at that one car and simply comparing one dealer's price to a second dealer with no other info. The next car or dealer, which you may or may not like as well, may be half the price. IMO for ALL issues where you consider rack rate, you should discount it. IMO 20% if the best adjustment there because one can basically guarantee 10% and 20-30% is possible at times.

What if one has no previous history visiting disney . Is it acceptable then .

If that's the approach you want to take, that's up to you. It is not a reasonably comparison to me. It simply illustrates a lack of information, knowledge and perspective rather than justifying such a limited comparison.

 

[bighoo93]

That means you don't have any real comparison if it's DVC or DVC and just how you pay for it the question. That's a pretty limited view in this type of discussion. .

I don't understand what you are talking about, based on the paragraph you quoted.

 

[Missyrose]

So your saying resorts like Yacht club , GF, Poly, and the other deluxe resorts no one pays rack rates there all year round . I find that hard to believe .

Yes, we're saying there are discounts on Deluxe resorts almost year-round. I would suppose that many people who actually research a DVC purchase before buying are people who actively looked for discounts on Disney resorts. Those people often get sick of being on the Disney discount treadmill and begin to research DVC as an option to attempt to save money consistently vs. waiting for Disney to release discounts.

The one group of people who can compare a DVC purchase with rack rate rooms to find a break-even point are those who travel during Christmas/New Year's each time they visit Disney. The last two weeks of December rarely see discounts, so a DVC purchase (even with the large number of points you'd need for those weeks) will likely save those people money (and they would be paying rack rate otherwise).

 

[Dean]

I don't understand what you are talking about, based on the paragraph you quoted.

I'm sorry if I wasn't clear or if I misread. If I was reading your post correctly you were comparing renting points to buying DVC, IMO that' far too limited. Now it may be that you went through other info and options to get there that would alter the discussion and perspective. IMO far too many people who buy DVC, and who go to Disney in general, make too many assumptions without real info or perspective. For example, someone posted a few months ago in a discussion that included onsite/offsite issues, that they're only off site info was a cheap hotel and a timeshare stay 20 years earlier staying with someone else. Even that's more than some but simply not enough info to make an informed decision.

 

[crisi]

I understand that some people are going to go to Disney come hell or high water, and they'll stay in whatever resort is in their budget. If they buy into DVC they can stay at a better place for the same cost, and by some strict definition, someone could say they aren't saving money. They are just getting more for the same money. I'll concede that. It's a semantic argument that doesn't interest me.

Its the point that interests me though, and I'll tell you why.

In 2003-2007 this board was full of these types of analysis. DVC was a great deal - resale prices were climbing. I did a lot of them myself (as I said, accountant and math geek), and I love them.

And a lot of people used these analysis to justify DVC. Sometimes, I could tell it was likely not a good idea for them, but unlike you, they didn't understand the difference between saving and saving. I've always been pretty financially conservative, so this has always bothered me here.

In 2009 many DVCers ended up selling at a loss. A few not only lost DVC, they lost their homes in the recession.

They believed that 1) prices would increase (we can always sell - in the recession, resale prices dropped like a rock.) 2) We will always go to Disney (in a recession without a job, they shouldn't have - although a few did a last trip, while losing their homes) 3) We can always rent (in 2009 not everyone managed to rent their points, there were more points to rent than people looking to rent).

One year of paying dues on points that you don't use throws all these calculations out the window. And usually at a time that you can least afford it.

I believe that if you acknowledge that this isn't likely to be any cheaper than what you are doing now, it removes one of those justification drivers that exist when people are sort of at the cusp of this decision. These discussions now scare the crap out of me. Because they sound so rationale, and they are. And they are very smart, and very smart people work the numbers. And numbers don't lie. The whole thing becomes very convincing. Especially to someone who doesn't REALLY follow the numbers - and frankly, most people have a difficult time with TVM. Except the numbers lie when the reality doesn't live up to the assumptions you made in your calculations. Finally, because I think that if your driving force is to save money (make trips cheaper), its a pretty high indication that you can't afford the risk (not absolute, some people are just frugal). If your driving force is to gain value for your money (either stay in a nicer place for the same amount of money, or spend more money to get something more - like a kitchen and washer and dryer) - that's a different deal. You and I are doing the second. And to me, that's a very important distinction.

 

[dmunsil]

I believe that if you acknowledge that this isn't likely to be any cheaper than what you are doing now, it removes one of those justification drivers that exist when people are sort of at the cusp of this decision. These discussions now scare the crap out of me. Because they sound so rationale, and they are. And they are very smart, and very smart people work the numbers. And numbers don't lie. The whole thing becomes very convincing. Especially to someone who doesn't REALLY follow the numbers - and frankly, most people have a difficult time with TVM. Except the numbers lie when the reality doesn't live up to the assumptions you made in your calculations. Finally, because I think that if your driving force is to save money (make trips cheaper), its a pretty high indication that you can't afford the risk (not absolute, some people are just frugal). If your driving force is to gain value for your money (either stay in a nicer place for the same amount of money, or spend more money to get something more - like a kitchen and washer and dryer) - that's a different deal. You and I are doing the second. And to me, that's a very important distinction.

This is solid advice. As soon as you start thinking, "This is such a great deal that I can't lose!" that's when you should step back and re-evaluate. There are lots of ways that a DVC membership could become worth nothing on the resale market. Renting could get lots harder. The spread between cash and points could narrow a lot, or even go to zero.

That doesn't mean I don't think these evaluations are not interesting and useful. But absolutely people need to not plan based on the idea that they will spend less money in some absolute sense. I think DVC provides value, which most people choose to consume by upgrading the rooms they stay in and/or the amount of time they visit. Someone who had very straightforward and consistent vacation patterns could end up spending less in absolute dollars, but I agree that's not likely to be the common case.

 

[RSWA2]

That doesn't mean I don't think these evaluations are not interesting and useful. But absolutely people need to not plan based on the idea that they will spend less money in some absolute sense. I think DVC provides value, which most people choose to consume by upgrading the rooms they stay in and/or the amount of time they visit. Someone who had very straightforward and consistent vacation patterns could end up spending less in absolute dollars, but I agree that's not likely to be the common case.

+1

Number crunching is fun, I do it all the time. I chose my profession based on the fact that there is only 1 right answer in math, no one can ever say you are wrong because they felt like your answer isn't right.

DVC provides value, it's fun, you get to look forward to a vacation in a nice place and resort. You work hard to earn the time and money, and now you get to use it, guaranteed.

People buy for all types of reasons all good and bad. Impulse, value vacations, enjoyment for themselves, family, friends, money to burn, want to add to debt. But there is never a free lunch. At the end Disney will always come out ahead, somehow. Some DVC owners will get ahead, that just means others have lost. Just like at a casino, you will never beat a casino.

 

[bighoo93]

People buy for all types of reasons all good and bad. Impulse, value vacations, enjoyment for themselves, family, friends, money to burn, want to add to debt. But there is never a free lunch. At the end Disney will always come out ahead, somehow. Some DVC owners will get ahead, that just means others have lost. Just like at a casino, you will never beat a casino.

Except gambling is a zero sum game. Somebody wins and somebody loses (the casino wins overall because they can rig the numbers, but you get my point). But that isn't the case for an economic exchange, and that's the whole reason capitalism works so well. When I buy something, it is because I'd rather own that thing than the money I am paying for it. Whoever is selling it to me would rather have the money than the item. We both come out "ahead". I only say this because Disney making a profit doesn't mean everyone else can't also "win". Nobody has to "lose", though I'm not arguing that nobody does.

 

[DougEMG]

Its the point that interests me though, and I'll tell you why.

In 2003-2007 this board was full of these types of analysis. DVC was a great deal - resale prices were climbing. I did a lot of them myself (as I said, accountant and math geek), and I love them.

And a lot of people used these analysis to justify DVC. Sometimes, I could tell it was likely not a good idea for them, but unlike you, they didn't understand the difference between saving and saving. I've always been pretty financially conservative, so this has always bothered me here.

In 2009 many DVCers ended up selling at a loss. A few not only lost DVC, they lost their homes in the recession.

They believed that 1) prices would increase (we can always sell - in the recession, resale prices dropped like a rock.) 2) We will always go to Disney (in a recession without a job, they shouldn't have - although a few did a last trip, while losing their homes) 3) We can always rent (in 2009 not everyone managed to rent their points, there were more points to rent than people looking to rent).

One year of paying dues on points that you don't use throws all these calculations out the window. And usually at a time that you can least afford it.

I believe that if you acknowledge that this isn't likely to be any cheaper than what you are doing now, it removes one of those justification drivers that exist when people are sort of at the cusp of this decision. These discussions now scare the crap out of me. Because they sound so rationale, and they are. And they are very smart, and very smart people work the numbers. And numbers don't lie. The whole thing becomes very convincing. Especially to someone who doesn't REALLY follow the numbers - and frankly, most people have a difficult time with TVM. Except the numbers lie when the reality doesn't live up to the assumptions you made in your calculations. Finally, because I think that if your driving force is to save money (make trips cheaper), its a pretty high indication that you can't afford the risk (not absolute, some people are just frugal). If your driving force is to gain value for your money (either stay in a nicer place for the same amount of money, or spend more money to get something more - like a kitchen and washer and dryer) - that's a different deal. You and I are doing the second. And to me, that's a very important distinction.

Great post....For me the important question to answer when buying DVC was how much risk I was taking on, and that I measured in how much time had to pass for my assumptions to remain true and me to finally breakeven.

After all if I own for 50 years I'm going to save money, but what if I only own for 1,2,3,4,5, etc years, how much money will I lose if I have to sell before I breakeven.

 

[Dean]

Its the point that interests me though, and I'll tell you why.

In 2003-2007 this board was full of these types of analysis. DVC was a great deal - resale prices were climbing. I did a lot of them myself (as I said, accountant and math geek), and I love them.

And a lot of people used these analysis to justify DVC. Sometimes, I could tell it was likely not a good idea for them, but unlike you, they didn't understand the difference between saving and saving. I've always been pretty financially conservative, so this has always bothered me here.

In 2009 many DVCers ended up selling at a loss. A few not only lost DVC, they lost their homes in the recession.

They believed that 1) prices would increase (we can always sell - in the recession, resale prices dropped like a rock.) 2) We will always go to Disney (in a recession without a job, they shouldn't have - although a few did a last trip, while losing their homes) 3) We can always rent (in 2009 not everyone managed to rent their points, there were more points to rent than people looking to rent).

One year of paying dues on points that you don't use throws all these calculations out the window. And usually at a time that you can least afford it.

I believe that if you acknowledge that this isn't likely to be any cheaper than what you are doing now, it removes one of those justification drivers that exist when people are sort of at the cusp of this decision. These discussions now scare the crap out of me. Because they sound so rationale, and they are. And they are very smart, and very smart people work the numbers. And numbers don't lie. The whole thing becomes very convincing. Especially to someone who doesn't REALLY follow the numbers - and frankly, most people have a difficult time with TVM. Except the numbers lie when the reality doesn't live up to the assumptions you made in your calculations. Finally, because I think that if your driving force is to save money (make trips cheaper), its a pretty high indication that you can't afford the risk (not absolute, some people are just frugal). If your driving force is to gain value for your money (either stay in a nicer place for the same amount of money, or spend more money to get something more - like a kitchen and washer and dryer) - that's a different deal. You and I are doing the second. And to me, that's a very important distinction.

In general I agree and with most specifics. Most people don't understand or inappropriately discount the time value of money. Many people are buying that can't really afford it even if they can finance and "make the payments". But I think the key point here is the risk involved in such a commitment/purchase. Maybe the only slightly variance I would have from your post Crisi is that I think many who do the math can afford it and IMO, they should do the math and justify buying even if they can afford it. It makes no sense to buy if they can't make the match work, afford it AND handle the risk involved. Those that have enough they don't care the value likely won't buy DVC, it's those of us in between that should both buy in only if the math works and if we can afford it. I was just talking to someone yesterday (we're in HH at a Marriott and I'm looking at the ocean as a write) who routinely goes to the bank to borrow money for their yearly vacation then pays it off over the year. I'm sure most reading this will say they wouldn't do that but everyone who uses a CC and doesn't pay it off every time is doing the same.

 

[bighoo93]

I'm sorry if I wasn't clear or if I misread. If I was reading your post correctly you were comparing renting points to buying DVC, IMO that' far too limited. Now it may be that you went through other info and options to get there that would alter the discussion and perspective. IMO far too many people who buy DVC, and who go to Disney in general, make too many assumptions without real info or perspective. For example, someone posted a few months ago in a discussion that included onsite/offsite issues, that they're only off site info was a cheap hotel and a timeshare stay 20 years earlier staying with someone else. Even that's more than some but simply not enough info to make an informed decision.

Yeah, I guess you just misread. Strange though, because I was pretty clear in saying that it was only my particular situation, and that it was using your definition of saving money which was what I would have spent if I hadn't purchased DVC. But anyway, no big deal.

 

[bighoo93]

Its the point that interests me though, and I'll tell you why.

In 2003-2007 this board was full of these types of analysis. DVC was a great deal - resale prices were climbing. I did a lot of them myself (as I said, accountant and math geek), and I love them.

And a lot of people used these analysis to justify DVC. Sometimes, I could tell it was likely not a good idea for them, but unlike you, they didn't understand the difference between saving and saving. I've always been pretty financially conservative, so this has always bothered me here.

In 2009 many DVCers ended up selling at a loss. A few not only lost DVC, they lost their homes in the recession.

They believed that 1) prices would increase (we can always sell - in the recession, resale prices dropped like a rock.) 2) We will always go to Disney (in a recession without a job, they shouldn't have - although a few did a last trip, while losing their homes) 3) We can always rent (in 2009 not everyone managed to rent their points, there were more points to rent than people looking to rent).

One year of paying dues on points that you don't use throws all these calculations out the window. And usually at a time that you can least afford it.

I understand and agree with all this. But then your point isn't that you can't save money, or nobody saves money, etc. with DVC. But rather, it is to understand that there are risks involved, and understanding those risks and how you could manage them if these scenarios arise. This is also true for other parts of the assumptions, though, and it is just as important. For example, some want to assume guaranteed 8% returns on your money that you set aside for cash reservations instead of buying DVC. Over the very long term, it is not unreasonable to believe that can be achieved. But annual fluctuations are also going to be normal for that kind of return, and also the point at which you invest the money makes all the difference in the world. If you are regularly making contributions to savings then you mitigate this risk because you will be buying at multiple time and price points. But if you are looking at the alternative to buying DVC points, that is investing your money at a set point in time, and if that is at a relative high point in the market, your returns could be far, far worse even in a rising market. It is pretty standard, fundamental advice to not invest money that you need for near-term use in volatile instruments, which includes stocks and stock mutual funds. So this isn't necessarily the best assumption to use for the return on your "vacation fund", unless you also understand that risk that a big market drop could wipe that out as well.

The point is, there are risks no matter what you do. It is a mistake to believe that DVC is a risk-free opportunity as you astutely point out, but it is also a mistake to assume that about alternatives that will bring you 8% (and even less than that) annual returns as some (not you) also assume.