educating myself on dvc

Discussion in 'Purchasing DVC' started by The V Gang, Jan 6, 2013.

  1. JimMIA

    JimMIA A little Miami humor...

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    I tend to get pretty amused by "break even" analysis anyway. I usually find those calculations rather twisted attempts to justify what the analyst is going to do anyway, no matter how the numbers look.

    Those analyses also usually leave out the annual MF's, which actually are the largest component of your true cost of lodging.

    I think a much more sensible financial analysis is to assume a ten-year useful life and no recovery at the end of ten years -- so divide your initial cost (including finance costs, if applicable) by 10 to get an annual cost. Then add the MF's for the year. Then divide that total by the number of points you receive each year -- that's your per point cost including all components of that cost.

    To calculate the cost of a night's stay, multiple your per point cost X number of points needed.

    Compare the per night cost to other options and see if it seems reasonable to you for the lodgings you will be receiving.

    That said, I think most of us have legitimately justified our purchases using non-financial criteria...which usually are more rational than the financial gymnastics people typically use.
     
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  3. bighoo93

    bighoo93 Mouseketeer

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    Why on earth would such an analysis EVER leave out annual fees? I can't imagine anyone would actually do that, unless they were a true neophyte who didn't know about annual fees. A breakeven analysis is very useful if done properly. No analysis is useful if done stupidly, and there really is no excuse for ever leaving out such a significant component.

    Why is this a sensible assumption? Do you think it is likely that Disney and/or DVC no longer exist in 10 years? This seems much too conservative to me.

    I have no idea what most people have done, but I don't think non-financial criteria are more rational. They are obviously more susceptible to fudging because it is just all in your head, no math involved. If anyone wanted to twist an analysis to make it justify what you want, the non-financial is the easiest by far.
     
  4. Missyrose

    Missyrose DIS Veteran

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    Because far more people than you may realize come on these boards and say "If DVC costs me $12,000 and my annual trips cost $3,000, then I will break even after four years." It's nonsensical but it gets said, a lot. People like to use entire trip costs in their break-even calculations, even though DVC is only about lodging. Like ELMC said, they'll sometimes calculate break-even using full rack rate even if they've never once paid rack rate for a deluxe resort in their lives.

    That's the point, I believe, that Jim was trying to make: You rarely see break-even points accurately calculated in any of these threads.


    It's less sensible to assume you'll keep the contract until it expires. Timeshare purchases simply aren't always like that. Lives changes, finances change; feelings change. There are a million different reasons why someone would sell/give back their DVC contract. 10 years is a nice, round number to project as more of an average than just a hard and fast rule.

    Again, the argument isn't that using non-financial reasons are a good way to justify a DVC purchase, the argument is that more people tend to use them because they are easier to quantify to ourselves. Having the numbers work for DVC saving you money can be hard to calculate in favor of purchasing a contract. But buying a contract because it will allow you to take longer trips/stay in bigger villas/take friends and family brings a much-more immediate conclusion.
     
  5. chalee94

    chalee94 <font color=green>I thought all sand was ground up

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    also, for those experienced with timeshares "in general" and not just DVC, many timeshares currently sell for $1 or less on ebay. DVC has held its value pretty well so far. DVC has not added restrictions to resales that significantly damage their market value so far. that might change or it might not.

    be as conservative or optimistic as you like...
     
  6. ELMC

    ELMC DIS Veteran

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    I agree with you to a point on this. I, too, have seen some very creative break even analyses posted here on the DIS (specifically the one illustrated by Missyrose a few posts up from here). However, if done honestly, I do feel like it can be a useful tool, specifically for those who currently rent DVC points for their stays and are wondering if making the switch from renting to ownership makes financial sense. I don't think you were suggesting it, but I would disagree with you if you suggested that my personal analysis was an exercise in "financial gymnastics". :) In fact, as I'll talk about below, my first analysis led me to the decision not to buy, even though I really wanted to. I remember looking at my wife when all was said and done and saying, "I really want to own this timeshare, but at these prices I just can't justify it."

    This is a good point. When illustrating the break even analysis, DVC salespeople will calculate all of the points you will receive over the life of the contract and then divide that by total purchase price to get an actual cost per point. By narrowing the scope to 10 years you are making things more realistic.

    To clarify my methodology (and reasoning behind it), I was originally an offsite Disney vacationer. We own at Marriott Grande Vista which very easily traded into more time at Marriott Harbour Lake (which was perfect for us because we have little kids). It wasn't until we got a little tired of spending so much time in the car that we looked at onsite options. Clearly we couldn't go back to standard hotel rooms, so we looked at DVC. I knew about renting at the time, and when I broke down the financials provided by my salesperson, I simply couldn't justify the expense when I could simply rent points for $11 each quite easily. Then I came here to the DIS and learned more about resale. When performing the same analysis (buy vs. rent) I found that the crossover point was right around the 5 year mark. And I actually feel like my method is more conservative because it does not amortize the purchase price over ten years but instead includes it up front.

    In my method I had one column that included initial buy in plus maintenance fees added each year (assuming a 3% increase). In a second column I had the cost of renting an equal number of points at $11 per point. When the numbers in the second column were higher, that was the point where renting was actually a more expensive proposition. In the case of my BWV contracts, that point came right around year 5. (The key was finding contracts with three years points. That greatly accelerated the break even point as those points did not carry any maintenance fees and were most likely not valued properly in the price of the contract).

    My BLT resale contract, however, was motivated more by non financials. I simply knew that I wanted to stay at BLT at times and in rooms that would most likely require booking at the 11 month window. Sure I could've bought SSR for $30 less per point, but I decided it was worth more for the peace of mind that comes from owning BLT and being guaranteed the 11 month window. That being said, I still bought a fully loaded contract resale, because I can't afford peace of mind at direct prices. :)


    I think this is a point that often goes overlooked. There are many, many ways to visit Disney for less money than staying at DVC. There are offsite timeshares, weekly specials, vacation home rentals, etc. etc. But one thing that we often forget to put a price tag on is the benefit we get from owning DVC and being able to book and manage our own reservations for onsite accommodations. That has value, even if we forget to quantify it.
     
  7. JimMIA

    JimMIA A little Miami humor...

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    Exactly. Based on my 6-7 years of actual costs of DVC ownership, I honestly don't think DVC saved us a penny. In fact, I think we spent more than we would without DVC.

    However, the qualitative value we received was worth it. I can't put a dollars and cents number on it, but that's where we found the value for our family.

    Other families may well have very different opinions - every family is different.
     
  8. ELMC

    ELMC DIS Veteran

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    I completely agree. While DVC projects to save me money on lodging over the next 8-10 years, my overall Disney expenditures will go up during that time. Case in point...a second trip to F&W this year instead of my normal one. One night I logged onto DVCmember.com, saw that there was availability and the next day we were on a plane. I can almost guarantee that trip wouldn't have happened if we didn't own DVC.

    That being said, it was an awesome trip and I'm glad we had the ability to go. And dollars and cents aside, that is the real value of ownership for us.
     
  9. Dean

    Dean DIS Veteran<br><a href="http://www.wdwinfo.com/dis

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    We've seen a lot of attempted justification. IMO using the rack rates as the benchmark is one such example.



    10 years is my timeframe too. Too many variables after that and who's to say it won't be simply a liability long term, odds are it will be at some point.



    There is no way to justify DVC without using non financial criteria even if you assume you're going to visit WDW routinely. Staying on property is a significant cost above many off property options that are as nice or nicer in many ways. Thus my assumptions include the caveat's that one will routinely visit WDW or at least DVC resorts and that they put value in on property options such that they're willing to pay more to that end. The simplest way to look at it is for WDW vs staying off property in Orlando vs other Disney hotels. My view is that while there are other potential benefits for DVC, it has to at least make sense financially. It doesn't for many that we see post here and end up buying. A glaring example would be the idea of buying retail to use DVC points for cruises routinely.
     
  10. JimMIA

    JimMIA A little Miami humor...

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    It's not the only sensible assumption, and I never said it was. But, obviously to do any financial analysis you have to make certain assumptions. If you are way off one way or the other, the assumptions will dictate the outcome and there really won't be any credible analysis.

    I'm quite confident that both Disney and DVC will still be around beyond 10 years. My assumptions have nothing to do with the duration of DVC. My basic premise is that I'd rather err on the side of caution, so I design my model to be conservative. YMMV.

    I chose ten years because I'm guessing that most DVC owners will keep their contracts ten years or less. I'm sure some will hold their contract until expiration, but not many. Others will sell in a year or two for a host of reasons. (And frankly, I suspect those who cling to financial analysis of "break even" will be heavily represented in that subset!) Also, I have big trouble predicting with any certainty what I'll be doing beyond ten years from now, so I try to keep my assumptions to what seems realistic to me.

    The "no recovery" aspect leaves plenty of room for argument.

    A more realistic recovery guess might be to estimate a recovery of 50% of today's typical resale prices. So, just a quick glance at the ROFR thread indicates BLT selling for roughly $85 resale. Looking out ten years, is $45 a reasonable guess for resale value? To me, it's in the reasonable range, although my conservative nature would probably lead me to use $40...or $20. :rolleyes:

    Again, I don't have any exclusive on financial analysis assumptions. There is a lot of room for debate.
     
  11. ToddyLu

    ToddyLu Welcome aboard explorers- I love Mr. Ray

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    :) DH and I were lucky we spent $250 a year on flood insurance--simply because his parents had, it seemed cheap enough and a small puddle ran up in our garage during Hurricane Georges in 1998 ( I think it was that year)....fast forward to 2005 and Katrina, with 4 1/2 feet of salt water in my home which is 2 miles from our small beach. Now that paid off--in a "it saved our butts sorta way".

    DVC...never looked at cost analysis...it was how I wanted to enjoy Disney...we splurged...and have not regretted one cent.

    My point is that you can consider the cost of things forever...but it is up to you to know how to spend your money...sometimes you get lucky, sometimes unlucky and sometimes just kinda "eh". We were LUCKY with Katrina and recommend flood insurance far more than DVC.
     
  12. JimMIA

    JimMIA A little Miami humor...

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    To me, this is really the one KEY assumption that MUST underly any decision to purchase DVC. IMHO, you really have to be at the point where you simply would not be satisfied staying offsite.

    Real world example: For May 2011, I booked a split stay -- OKW 1 BR for several days, Wyndham Bonnet Creek 1 BR for several days. Both stays were booked with DVC or Wyndham points and all days were Sunday - Thursday...so low points cost at both resorts.

    I checked the costs, and the OKW 1 BR worked out to $189 per night (27 points X my per point cost of $7 per). To me, that is good value.

    The Wyndham Bonnet Creek stay should have been $67.20 per night (15,000 points X $4.48/K), but we lucked out and got it for $40.32 per night (9,000X $4.48/K).

    WBC is great, OKW is our favorite DVC resort. But $140 per night is $700 for the 5-night stay. We canceled OKW and spent the whole trip at WBC...and had a great trip.
     
  13. bighoo93

    bighoo93 Mouseketeer

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    Wow. That is really bad. I certainly agree that if anyone does any analysis in a nonsensical fashion, it is totally useless. I can't believe most people wouldn't at least try to do a legitimate breakeven analysis on a purchase like this, but if someone can't even come close to doing it right, there really is no point.
     
  14. bighoo93

    bighoo93 Mouseketeer

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    I completely agree. I've pointed this out when I have seen people use rack rate as their comparison. My own breakeven comparison was in using rented points, which is much less expensive than rack rate and even most discounted cash rates. But it was the realistic alternative, and that is the key.

    I wouldn't want to go past 10 years before reaching my breakeven point either. But it isn't because I assume Disney or DVC will be worthless at that time. Maybe we are thinking along the same lines but using different terms.


    As long as you spend less on lodging as a DVC member than you would as a non-member for the same trips, then you can justify it on purely financial terms. As you often point out, for people who would normally stay in value resorts, it probably doesn't make sense financially. But for those who would otherwise stay in the same DVC resorts, but either pay cash or rent points, you can definitely justify it with only financial measures.
     
  15. bighoo93

    bighoo93 Mouseketeer

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    This makes sense. I think I misunderstood what you were saying. I wouldn't be comfortable going past ten years (and even that is pushing it) for a breakeven period either.
     
  16. Dean

    Dean DIS Veteran<br><a href="http://www.wdwinfo.com/dis

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    IMO you use what you would have spent without DVC as the benchmark and what you could spend off property for condo's or timeshares the an additional comparison. IF you were consistently renting points, that's fair, but only in that situation.

    IMO you can only compare what you would spend for lodging, not for the trips. Plus I believe that the psychology of DVC puts MOST people in a position where they spend more, not less, even when the numbers sound great for them. If you're talking only room only then I'd agree, at least on paper.
     

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