How Long To Recoup Your Initial DVC Cost?

Discussion in 'Purchasing DVC' started by theguda, Apr 8, 2013.

  1. theguda

    theguda Mouseketeer

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    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.
     
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  3. kenspidey

    kenspidey Mouseketeer

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

    theguda Mouseketeer

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    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.
     
  5. Smile&Nod

    Smile&Nod Mouseketeer

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    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...
     
  6. theguda

    theguda Mouseketeer

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    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?
     
  7. ELMC

    ELMC DIS Veteran

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    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.
     
  8. theguda

    theguda Mouseketeer

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    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?
     
  9. kenspidey

    kenspidey Mouseketeer

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

    ELMC DIS Veteran

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    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.
     
  11. DougEMG

    DougEMG DIS Veteran

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    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.
     
  12. e46m3

    e46m3 Mouseketeer

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    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.
     
  13. Novakm

    Novakm Mouseketeer

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    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.
     
  14. ELMC

    ELMC DIS Veteran

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    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.
     
  15. ChesapeakeTechie

    ChesapeakeTechie Mouseketeer

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

    ELMC DIS Veteran

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    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.
     
  17. Dean

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

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    In spite of the positive comments you've gotten, I'm not thrilled with your approach. It seems to me you've combining the ideas of using DVC and savings with the approach one would take looking at DVC simply as a true investment.

    Since your main idea was related more to buying and renting, Lets look a little deeper. There are other costs and risks and they must be factored in. Historically dues and up front costs have gone up more than rental rates. IMO if you want to look at it as an investment you've got to consider what you could make on that money otherwise. As a long term investment, good mutual funds have a strong track record. DVC is a high risk investment and should be looked at accordingly. From an investment standpoint I'd want return of principle and around 20% before taxes given the risks involved. You've got to account for advertising, lost points, non payment, damages you have to pay for and the like.

    Looked at from a personal use standpoint I think the best option is to look at what you're paying without owning vs what you pay with DVC. Personally I think you're historical usage without DVC is the better comparison than a single rental but that's a variable you must make a decision on. In that situation you still need to look at the lost income on the up front money, dues increases and risk including your personal situation. I think the quickest one is likely to break even is 7-8 years now that the points are pretty even throughout the week and most are going to be more in the 10-12 year or longer range, even longer for a 1 BR as the comparison. Of course there's more to the story than just dollars, there's also extra value. Don't make 2 mistakes I sometimes see. One is attributing savings to the kitchen and the other using DVC rack rates (even discount) as the comparison.
     
  18. k3chantal

    k3chantal DIS Veteran

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    Whenever I see the words 'investment' and DVC in the same paragraph, I cringe. This is not an investment; no matter whether you buy direct or resale.

    You are buying the opportunity to stay at a Disney resort for X amount of time per year. If you decide to sell later on and you 'make' money, consider yourself lucky but you better add up all the money you spent on vacations while using your points. If you 'lose' money, well, weren't you going on vacation anyway so did you lose anything? If you rent your points, you will get your maintenance fees paid for that year and some more but I know for a fact that my house rental is bringing more money in a year than any DVC contract can. So again, probably not a 'good' investment and I use that word loosely.

    We bought our contract knowing we wanted to go back year after year to Disney. We bought it knowing that because we had it we would spend more money at Disney (tickets, food, traveling costs, etc....). All we assumed was that it would guarantee us a vacation at a place we love at a level of resort we wouldn't normally splurge on.

    I don't intend to sell and I don't intend to rent (if I ever do this it will be solely that we have fallen on 'bad times' and need to cover the maintenance fees and can't afford a vacation and its additional costs.) If we fall on 'good times' again, we will definitely buy more points; probably resale. I love my contract and appreciate the vacations we have been on because we have it.

    It's not a 'deal'; it's a vacation. If you figure out a way to 'feel good about the money you spent'; good for you but please don't twist it to be an investment.
     
  19. theguda

    theguda Mouseketeer

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    I call any outlay of $ an investment. Certainly not in the same terms as a mutual fund...more like a down payment on a house. And although I won't sell all my points, I do think the best way to compare costs is looking at the maintenance fees as a DVC member vs renting points. It doesn't matter if i sell my points or use them....I'm going to net the same dollar benefit either way compared to renting the points.

    So strictly from a numbers perspective the difference between what you could rent points for - how much the points cost as a dvc member = profit. Profit per point x Number of points = annual profit. Total upfront cost / annual profit = how long it takes to recoup the upfront cost. That seems to be a very logical and smart way to determine, financially, if its worth it to a person.

    So if I wanted to...I could buy a 200 point contract for $12,000, sell those 200 points every year and realize a profit of about $1400 and use that to pay off the $12,000. In approx 8.5 years I'll have all my upfront cost paid for by people who rented my points. Isn't that an "investment"...just like your rental property? Someone else lives in a house you own. If they pay long enough you own something someone else paid for.
     
  20. k3chantal

    k3chantal DIS Veteran

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    Your definition of an investment must be different from mine which is fine with me because I would never "invest" in DVC. I do consider it an invese since my investments tend to make me money and DVC 'makes' me spend more. But, of course, I am assuming you would use your DVC contract the way it was meant to be used.

    I guess if you only intended to rent out your points, you could say you were making money. Better read that contract carefully. DVC can, at any time, take away perks or the ability to rent at any resort except your own home resort which may make your 'investment' less desirable to potential renters. There are rules that need to be followed and repercussions if you chronically rent your points out. So, good luck with your plan.
     
  21. theguda

    theguda Mouseketeer

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    I've heard this before and don't understand it. It's not like you can't stay at Disney anytime you want. Buying DVC doesn't give you any better chance to stay at Disney. What it DOES do is make it less expensive
     

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