How Long To Recoup Your Initial DVC Cost?

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

  1. lodge

    lodge DIS Veteran

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    Exactly our view of our DVC timeshare.
     
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  3. k3chantal

    k3chantal DIS Veteran

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    I say 'opportunity' because its not guaranteed that I will stay exactly when I want, where I want. As long as I book within the 7 to 11 month window, I have the 'opportunity' to get what I want. Sometimes, I may 'luck out' and get what and when I want under that time period. And sometimes, even if I am in that 7 to 11 month window I won't get what I want when I want it.

    Of course, I can stay at Disney anytime I want, if I pay cash. But being a DVC member certainly doesn't make it cheaper. I have just paid in advance for my vacations. I go more often because I am a DVC member than if I was just someone off the street therefore I spend more there. Perhaps, years out I will save money because I will have been a member long enough and hotel prices will rise enough that it will become a 'good deal'. But meanwhile, I have spent a ton of money (happily) with no guarantee that resort prices will rise to the point that DVC is a 'good deal'.
     
  4. theguda

    theguda Mouseketeer

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    Of course owning DVC makes taking trips less expensive. There are probably thousands of threads on disboards detailing how dvc saves money long term. The question is...are you gonna go enough the make the upfront cost worth it? Because once you recoup the initial cost the maintenance fees are SO much cheaper than any other way to stay at WDW. You can stay in a studio at AKL for 2 weeks in October for $700. That's ridiculously cheap. You may not view the DVC as a money saver but I bet most do.
     
  5. sndral

    sndral DIS Veteran

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    Perhaps I am too literal, but the people who rented your points would have had all the fun @ WDW and you wouldn't have had a vacation.
    I took your $12000 and invested it w/ a 6% rate of return and at the end of 7years had $18,044 in my pocket.
    I took your $12000 'invested' it in SSR and rented 200 points for $11 per point and paid $4.81 MF for 7 yrs. making $8666, thus still being $3334 in the red. BTW, I think even $11 is high for a private renter of SSR to expect.
    In both cases no vacation to WDW was enjoyed by the owner.
    I think most people look at what lodging would cost them w/out DVC v. w/ DVC and base the number of years to recoup based on that.
    In my mind it's a luxury purchase and as I contemplate buying my logic is - I like visiting Disney, I like staying in deluxe resorts at Disney, I can afford it, so I'm buying it. The only return I'm hoping for is the fun of future vacations.
     
  6. Dean

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

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    One of the issues with this approach is that you're comparing DVC to itself. DVC is generally an expensive way to go to Disney. There are so many more ways to visit Disney than staying at a DVC resort. Some are cheaper and some more expensive but generally DVC is on the higher end. There are a number of resorts in the area that are as nice or nicer than DVC that are off property, for some that's better and others are willing to pay dramatically more to stay of property. Just consider your options and realize what you are and are not getting.

    My personal thought is that DVC is a good value for studios and 2 BR units for those that feel paying more to stay on property in a moderate or higher is a good value and comparing to 1 or 2 moderate or deluxe rooms. 1 BR and Grand Villas are less of a dollar value comparatively. Realize there is far more risk with a timeshare. There is the risk of a special assessment or that dues will go up more than expected. There is risk of loss of points for various reasons. If you use the points for non DVC options, you'll rob $$ value from your potential savings as well. I'd suggest you compare to how and when you normally vacation including the unit size, resort and time of year you'd likely be using.

    Realize your projections are the best case scenarios, it's all down hill from there. Plus I'm not sure that you can rent SSR or OKW consistently for the overall going rate even currently. To me timeshares are as much about psychology as dollars and I believe most people spend any "savings" pretty quickly in other areas. Plus there are other ways to stay even at DVC that are potentially cheaper. I've had many 1 week stays at DVC 1 & 2 BR units for cheaper than that $700 a year cost. More risk and less cost but it's worked well for me.
     
  7. ELMC

    ELMC DIS Veteran

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    Given that two different point rental brokers are currently paying $11 per point, I don't think it's an unreasonable expectation.
     
  8. theguda

    theguda Mouseketeer

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    Exactly. Go look at the rent/trade DVC board. People are posting $12 sales and they're selling like hotcakes.

    Again, to clarify...I'm looking at this as a vacation and investment. I'm not going to sell all the points...but i could and in 7-9 years the contract would be paid off by others and I'd enjoy WDW for the low cost of just the maintenance fees.
     
  9. ELMC

    ELMC DIS Veteran

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    I think you've been clear on this point. People are disagreeing with you on two points. First, they (myself included) disagree that this is an investment. It's a timeshare, which by definition almost precludes it from being an investment. For me, an investment has some expectation of preservation of principle along with annual increases. A timeshare (even DVC) does not meet these expectations. It is a depreciating asset and the first 7-9 years of "gains" are actually a return of principle. The only real "gain" would occur on the back end and then only if you were to actually sell and only if there was some residual value. Too many ifs. That being said, if you disagree with what I'm saying here, then you probably view DVC as an investment. Not my way of looking at it, but I can respect your opinion. :)

    Second, what people are saying is that there are better ways to enjoy WDW for a low cost starting 7-9 years from now. Think about it this way...would you give me $13,000 now to get absolutely no benefit for the next 8 years only to have the possibility of saving money on your vacations starting in 2021? Too long of a horizon for me.
     
  10. theguda

    theguda Mouseketeer

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    My answer to that question is...probably. I would not be getting the "possibility" of saving money on my vacations in 7-9 years. Instead, the savings would be a certainty because there is no way maintenance fees will ever approach the cost of renting points. Also, I wouldn't be paying the $13,000...the people who rent my points would be paying it over the next 7-9 years (assuming i sold all my points).

    I'm going to assume that over a long period of time the cost difference between maintenance fees and what you can get by renting your points will be about the same as today. So I expect that gap to average around $7 per point...which means maintenance fees are 60% cheaper than renting. So the real question is...is it worth to front $13,000 today...recoup that $13,000 via rental points over the next 7-9 years... to save 60% on my trips for the next 30 years? I think that's a smart financial move. My hesitation isn't the money...it's the time required to list and sell the points should I choose to do so. Thanks to everyone for all the comments. I really like to hear all te opinions.

    Also, I view DVC as an investment because I see it as a vehicle to save money on my trips. To me, spending $500 on something that would otherwise cost me $1000 is the same as me buying a stock for $500 and selling it at $1000.
     
  11. Missyrose

    Missyrose DIS Veteran

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    Am I the only one who finds it crazy to spend thousands of dollars on DVC and not use it personally for almost a decade? :scared1:
     
  12. ELMC

    ELMC DIS Veteran

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    I get what you're saying and although I don't share your point of view, I do see it. One thing I would caution you on, however, is the assumptions you have made above that I have put in bold. First off, I completely disagree with your assertion that the savings are "a certainty" and that maintenance fees have no chance of eclipsing point rental prices. You have absolutely no way of knowing this and I think it's risky to make plans now based on this theory.

    I would not be so sure that the gap between maintenance fees and point rental prices is as stable as you might think. Up until this year, point rental prices were fairly constant in the $10-11 range. Only recently have we seen renters able to get $12, and even that requires time and patience. However, that $10-11 price range was stable for a period of about five years; a period of time when maintenance fees were rising at an average rate of about 4%.

    Remember, maintenance fee increases are exponential and increases in point rental prices are not. This means that the gap will close a lot faster than you think. What is happening with VB is a good predictor of what will likely happen with the other resorts, just further out in time.

    As it was said earlier in the thread, we all talk about break even points and when we can vacation for just the maintenance fees, or whatever you want to call it, but that is not the goal. Instead it's a predicted benefit that might occur as we use our Disney Vacation Club for its intended purpose...taking vacations to Disney. Unless that is your main goal, I can think of many different ways to allocate your money that would have less risk, more liquidity and greater returns. The fact that we will "get our money back" is an ancillary benefit of ownership.
     
  13. theguda

    theguda Mouseketeer

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    Then you're not reading my posts. I've said multiple times that I would never just sell all my points. I would probably use them to go once a year then sell the others to help recoup the upfront cost of the contract. The only reason I brought up selling all the points each year is show how the DVC could be viewed as an investment to save money in the future.

    Again, I'd never just sell my points. But let's say that was the only way you could buy into DVC. You had to sell your points until your upfront cost was recouped. You wouldn't pay $13,000 today....let someone else pay back that $13,000 over the next 7-9 years by renting points...then save 60% for the rest of your life?
     
  14. theguda

    theguda Mouseketeer

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    I'm sure you're right about the gap between maintenance fees and rental fees fluctuating. But I don't agree that they would ever be close to the same amount and historical numbers bear that out. You just said rental fees held steady for a while at $10-$11. Now people are having no problem selling for $12 and I've even seen private sales at $13. The average maintenance fee at SSR for the last 8 years is $4.28. So historically, over he past 8 years the gap has been more than $6 +/-. I think it's safe to assume $7 is more likely going forward since $12 sales are common now on disboards.
     
  15. DougEMG

    DougEMG DIS Veteran

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    I'm sure they were just trying to be helpful. :wave2:
     
  16. Brian Noble

    Brian Noble His Curmudgeonly Highness

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    The ROI on DVC points is relatively low---even on resale purchases---and the payoff window is correspondingly long. That long window subjects you to too many downside risks, IMO, because it means you are depending on market conditions not changing. That's not just prevailing rental rates, etc., but all kinds of other factors as well. For example, if we see another spike in oil prices, and therefore jet fuel prices, leisure destinations like Orlando that depend heavily on folks outside driving distance get squeezed. A large recession or even a 9/11-style "black swan" event could also pop up.

    Indeed, if you look at Disney's own behavior, they have very consciously moved away from building rental stock and towards fractional ownership---and that started right around the travel crash following 9/11. They mothballed the second half of POP for a full decade before finally completing it, while rapidly building DVC units and even converting some rental stock to fractional ownership (two floors at AKL-Jambo, the North Wing of CR). In effect, Disney has decided to give up a little long-term revenue in exchange for a short-term payoff and sharply reduced risk.

    True, there are upside possibilities as well---travel demand could continue its upward slope, oil prices could remain low, etc. But, if you want to be a timeshare landlord, there are many better options out there. Usually, this is because the acquisition cost of the other option is near-zero, not because rental rates are so high. This has the added benefit of hedging risk---the payoff window can be as short as one year, or at worst two, per week owned. In other words, rather than spend 2x what you need for personal use, and rent out half, buy only the DVC points you think you want for personal use, and develop a lower-risk/lower-cost rental business on the side, for a total cost very close to your DVC points only.

    Finally, do not discount the amount of work it takes to run even a modest timeshare rental business. The time you spend dealing with tire-kickers and looky-loos, educating potential clients on how timeshares differ from hotels, etc. is non-trivial. If you have a big enough market presence, you can charge a deposit just to check availability, as David does, but you need to be a real player to pull that off rather than have potential customers just go elsewhere.
     
  17. DougEMG

    DougEMG DIS Veteran

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    I agree. If someone is wanting to rent their points (for whatever reason) as long as they are not distressed points about to expire they can easily get $11/point right now.
     
  18. Brian Noble

    Brian Noble His Curmudgeonly Highness

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    PS: I'm not sure if it has come up in this thread yet---I haven't read all of it---but you also need to account for the opportunity cost on the purchase cost for the "rental half" of your points purchase vs. just parking that amount in some investment vehicle that you judge to have comparable risk to the rental business. Your original post doesn't factor this in, and it makes the DVC payoff window even longer.
     
  19. ELMC

    ELMC DIS Veteran

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    True, but you do understand that point rental prices increase on a straight line basis whereas maintenance fee increases go up on a curve, right? So the gap between the two will be less and less each year until one point where they eventually intersect.
     
  20. ELMC

    ELMC DIS Veteran

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    Great point. I've always said that the "opportunity cost" argument does not apply to DVC purchases because if one doesn't buy DVC they will most likely spend that money on something else. However, if you are treating it as a pure investment, you do need to consider this in order to have a viable comparison.
     
  21. DougEMG

    DougEMG DIS Veteran

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    I bought my DVC (resale) not as an investment but as a means of vacationing onsite at WDW. I looked at multiple senarios to see if within each senario it still made sense to buy DVC. One of the senarios I used is exactly what the OP is talking about, how long to get my money back/ breakeven if I 'have to, need to or want to' rent out the points every year. I wanted that time period to be short enough that I would be reasonably confident about the relationship between rental rates and MF.

    Once I was confident that under each of my different senarios it made sense to own DVC, I bought in.

    And yes, when I vacation using my DVC points, I mentally (really I store it all in a multi page excel spreadsheet) charge myself the going rental rate just to make sure my senarios are working as I expected them to.

    Just remember that the long term value of your DVC contract is $0.
     

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