How Long To Recoup Your Initial DVC Cost?

[Galun]

While DVC is a timeshare, it has a very large moat called WDW that makes it different from all other timeshares out there. As long as people want to stay on site at WDW then DVC or a Disney hotel is the only option. So there is a limited supply of onsite accomodations and a lot of demand, as long as that doesn't change I don't think the value of owning DVC will change.

I agree. I think Disney timeshare is unique in that there is little substitution. The same analysis that I did on Disney doesn't really apply to other timeshares. If you try to rent out your Marriott time share for prices that are too high, people will just go somewhere else. For Disney, there is really no alternative if you want to stay on site. As long as there is a sufficient spread between Disney hotel rack rates and DVC rental points, I think the value of DVC rental points can be maintained.

 

[ELMC]

I agree. I think Disney timeshare is unique in that there is little substitution. The same analysis that I did on Disney doesn't really apply to other timeshares. If you try to rent out your Marriott time share for prices that are too high, people will just go somewhere else. For Disney, there is really no alternative if you want to stay on site. As long as there is a sufficient spread between Disney hotel rack rates and DVC rental points, I think the value of DVC rental points can be maintained.

I agree with a lot of what has been said in the past few posts. My concern is not the collapse of point rental prices, but the narrowing of the gap between maintenance fees and point rental prices. It's happening at Vero Beach right now, and I feel that is a glimpse into the future for all DVC resorts.

My question is, if there really is a connection between rack rates and point rental prices, then wouldn't point rental prices be higher? Taking a sampling of reservations, the discount for renting points compared to rack rate is somewhere between 40-60% depending on resort, room size and time of year. To me that seems like way too big of a disparity for one to make a connection between the two. It would seem that if there really were a connection, then a larger portion of those who pay rack rates would take advantage of this discount by renting points, thus driving up the rental price and narrowing the gap. I think that point rental prices are dictated by the economic factors of the point rental market and that they are generally independent of direct bookings. The only connection I think could be established is a negative one, if point rental prices got too close to direct booking prices.

 

[Galun]

I agree with a lot of what has been said in the past few posts. My concern is not the collapse of point rental prices, but the narrowing of the gap between maintenance fees and point rental prices. It's happening at Vero Beach right now, and I feel that is a glimpse into the future for all DVC resorts.

My question is, if there really is a connection between rack rates and point rental prices, then wouldn't point rental prices be higher? Taking a sampling of reservations, the discount for renting points compared to rack rate is somewhere between 40-60% depending on resort, room size and time of year. To me that seems like way too big of a disparity for one to make a connection between the two. It would seem that if there really were a connection, then a larger portion of those who pay rack rates would take advantage of this discount by renting points, thus driving up the rental price and narrowing the gap. I think that point rental prices are dictated by the economic factors of the point rental market and that they are generally independent of direct bookings. The only connection I think could be established is a negative one, if point rental prices got too close to direct booking prices.

I think Vero Beach MF is an anomaly. The resort sustained damage in 2004 due to Hurricane Frances, and as a result we saw 6 - 8% increase in MF from 2005 - 2008. If you look at their operating budget, insurance is like $0.80 per point vs. <$0.10 for most other resorts. Housekeeping can be twice as much as other resorts - understandable given that it's a standalone resort. The MF at OKW is probably the more apples to apples comparison for the resorts within WDW.

Strictly from an investment point of view, I guess this means you should sell your contract if something happened to your home resort that will likely lead to potential for special assessment or faster MF rate increases.

On the spread between rental and rack rates, I think it's actually more like 10 - 30% due to the discounts from Disney, probably less if you consider bonus like discounted dining and stuff like that. I also think DVC rental is relatively unknown. I personally had gone on several cash stays and had no clue on how DVC works until about 2 months ago, and only when a current owner told me about it. I saw their booths but was never interested in taking the time to go listen to a timeshare presentation on a vacation.

 

[DougEMG]

I agree with a lot of what has been said in the past few posts. My concern is not the collapse of point rental prices, but the narrowing of the gap between maintenance fees and point rental prices. It's happening at Vero Beach right now, and I feel that is a glimpse into the future for all DVC resorts.

My question is, if there really is a connection between rack rates and point rental prices, then wouldn't point rental prices be higher? Taking a sampling of reservations, the discount for renting points compared to rack rate is somewhere between 40-60% depending on resort, room size and time of year. To me that seems like way too big of a disparity for one to make a connection between the two. It would seem that if there really were a connection, then a larger portion of those who pay rack rates would take advantage of this discount by renting points, thus driving up the rental price and narrowing the gap. I think that point rental prices are dictated by the economic factors of the point rental market and that they are generally independent of direct bookings. The only connection I think could be established is a negative one, if point rental prices got too close to direct booking prices.

I actually think that the 40-60% range is reasonable given that Disney has typically been giving big discounts over the last few years (don't we always tell everyone to assume at least a 20% discount on rack rates when seeing if owning vrs paying cash makes sense), that you are sending money to strangers on the internet, you won't know until you get there that you are going to have a room and the cancellation rules most owners place on their reservation all make renting more risky than booking through Disney so a renter needs a fairly big savings off rack rate to make that all worth while. To me a 50% discount seems to be the sweet spot for both renters and owners.

If one looks at the 5 year average for MF increases at the WDW resorts and then apply that for the next 10 years, BWV, OKW, SSR and BCV should all have MF of around $8, VWK and AKV will be around $8.50 and BLT doesn't have enough data to try and forecast.

If you look at the next 10 years and assume an average 4% annual increase in MF, then OKW, SSR and BLT are still under $8 and the rest are under $9.

Compare that to rental rates of $11-$13 right now and even if the rental rates don't increase in the next 10 years (extremely unlikely), your rent is still going to cover over and above your MF.

 

[ELMC]

If you look at the next 10 years and assume an average 4% annual increase in MF, then OKW, SSR and BLT are still under $8 and the rest are under $9.

Compare that to rental rates of $11-$13 right now and even if the rental rates don't increase in the next 10 years (extremely unlikely), your rent is still going to cover over and above your MF.

I totally agree. But there have been posts on this thread that have assumed a continuous $6 gap between MFs and rental prices, which I don't expect to continue for the life of DVC contracts.

 

[theguda]

Right now the gap is bigger than $6 and I don't see anything that would change that.

BWV fees are $5.84...i guarantee you those could sell for $13-$15 or more considering BWV owners can book 11 months out for F&W. if I rented and wanted to attend F&W...I'd definitely pay a premium to someone who can give me the best shot at getting a room at BWV (or BC). That's a small reason why I decided to buy BWV. The demand for EPCOT resort rooms will always be extremely high.

 

[ELMC]

Right now the gap is bigger than $6 and I don't see anything that would change that.

BWV fees are $5.84...i guarantee you those could sell for $13-$15 or more considering BWV owners can book 11 months out for F&W. if I rented and wanted to attend F&W...I'd definitely pay a premium to someone who can give me the best shot at getting a room at BWV (or BC). That's a small reason why I decided to buy BWV. The demand for EPCOT resort rooms will always be extremely high.

How can you possibly guarantee that?

 

[bighoo93]

My question is, if there really is a connection between rack rates and point rental prices, then wouldn't point rental prices be higher? Taking a sampling of reservations, the discount for renting points compared to rack rate is somewhere between 40-60% depending on resort, room size and time of year. To me that seems like way too big of a disparity for one to make a connection between the two. It would seem that if there really were a connection, then a larger portion of those who pay rack rates would take advantage of this discount by renting points, thus driving up the rental price and narrowing the gap. I think that point rental prices are dictated by the economic factors of the point rental market and that they are generally independent of direct bookings. The only connection I think could be established is a negative one, if point rental prices got too close to direct booking prices.

Of course there is a connection between direct bookings and DVC point rentals. In any free market, competitive substitutes or alternatives have a direct impact on product demand and therefore pricing. There are all sorts of alternatives to renting DVC points for a vacation, but there is none that is so obviously directly comparable as direct bookings at the same resort. If the price for direct bookings increases, then DVC points become relatively more attractive, which increases demand, and ultimately lifts prices. The opposite happens if there is a lowering of direct booking prices. This isn't the only factor involved, but we'd pretty much have to throw everything we know about economics and competitive strategy out the window to deny this connection.

 

[theguda]

How can you possibly guarantee that?

I'll prove it this fall when I rent mine for these prices to people who want a guaranteed BWV room during F&W (and they're still paying way less than any other option except owning themselves).

 

[Dean]

While DVC is a timeshare, it has a very large moat called WDW that makes it different from all other timeshares out there. As long as people want to stay on site at WDW then DVC or a Disney hotel is the only option. So there is a limited supply of onsite accomodations and a lot of demand, as long as that doesn't change I don't think the value of owning DVC will change.

While WDW and the Disney name does provide a buffer, I think many people are overly confident because of those factors.

I don't think rental prices will track inflation smoothly in the short run. Rental prices should be tied to the economic cycle similar to hotel rates. When occupancy is low (like during the recession), the rates will collapse. When occupancy is high, rates will firm up. When these ups and downs are normalized over the long run, the rental rates should track hotel rate increases.

MF should track inflation of wages... I thought I read somewhere that 2/3 of MF are used to pay direct wages at the resorts.

I would argue that Disney raising direct prices and thus firming up the resale market over the past couple months is an unexpected upside. But I do agree with you that the current implied rate of return in the mid to high teens is probably the best case assumption.

Timeshares are an anomaly including DVC though maybe a little less so than most. They simply don't tend to track well either rental or sales for a number of reasons. Many won't take the chance to either rent or buy for many different reasons even when it makes perfect sense for them. Many also don't know about the option or know enough to investigate. One might argue that they have tracked historically but one cannot argue that they have tracked well over the last 15-20 years. They may or may not going forward, I tend to think they won't and that those that feel otherwise are forgetting one very important thing, DVC is still a TIMESHARE.

I agree. I think Disney timeshare is unique in that there is little substitution. The same analysis that I did on Disney doesn't really apply to other timeshares. If you try to rent out your Marriott time share for prices that are too high, people will just go somewhere else. For Disney, there is really no alternative if you want to stay on site. As long as there is a sufficient spread between Disney hotel rack rates and DVC rental points, I think the value of DVC rental points can be maintained.

To a degree you are correct but I think you overemphasize the importance. The % of people who will pay extra to stay on property is relatively small and there are a significant number of people who prefer staying off property.

Right now the gap is bigger than $6 and I don't see anything that would change that.

BWV fees are $5.84...i guarantee you those could sell for $13-$15 or more considering BWV owners can book 11 months out for F&W. if I rented and wanted to attend F&W...I'd definitely pay a premium to someone who can give me the best shot at getting a room at BWV (or BC). That's a small reason why I decided to buy BWV. The demand for EPCOT resort rooms will always be extremely high.

But there are other expenses, costs and risks. By the time you advertise in some way, pay income taxes on the rental and have someone that causes damage or doesn't pay, the long term return will be less. I also think the assumption of rental return even on the gross is overly optimistic over a several year period.

 

[ELMC]

Of course there is a connection between direct bookings and DVC point rentals. In any free market, competitive substitutes or alternatives have a direct impact on product demand and therefore pricing. There are all sorts of alternatives to renting DVC points for a vacation, but there is none that is so obviously directly comparable as direct bookings at the same resort. If the price for direct bookings increases, then DVC points become relatively more attractive, which increases demand, and ultimately lifts prices. The opposite happens if there is a lowering of direct booking prices. This isn't the only factor involved, but we'd pretty much have to throw everything we know about economics and competitive strategy out the window to deny this connection.

Here's the problem with your theory...much like anything else in economics, it's just a theory. For ever Keynesian out there, you have an equally educated economist who thinks that Keynesian economics is counter productive. Furthermore, your theory is based on an assumption of educated and efficient markets, and I would suggest that the DVC and Disney direct booking markets are neither. The percentage of people who stay at Disney who actually know about renting DVC points as an option is (in my estimation) infinitesimally small. I liken it to Touring Plans, who suggest that less than 1% of guests at Disney on any given day have even been introduced to what touring plans are. We seem to forget that we here on the DIS are in the minority of Disney guests, and that our behavior and knowledge is the exception, not the rule. So while your theory is sound (and I happen to agree with it, in theory) where we diverge in our thinking is that I do not think that the other circumstances exist for it to actually apply to this real world situation.

 

[bighoo93]

Here's the problem with your theory...much like anything else in economics, it's just a theory. For ever Keynesian out there, you have an equally educated economist who thinks that Keynesian economics is counter productive. Furthermore, your theory is based on an assumption of educated and efficient markets, and I would suggest that the DVC and Disney direct booking markets are neither. The percentage of people who stay at Disney who actually know about renting DVC points as an option is (in my estimation) infinitesimally small. I liken it to Touring Plans, who suggest that less than 1% of guests at Disney on any given day have even been introduced to what touring plans are. We seem to forget that we here on the DIS are in the minority of Disney guests, and that our behavior and knowledge is the exception, not the rule. So while your theory is sound (and I happen to agree with it, in theory) where we diverge in our thinking is that I do not think that the other circumstances exist for it to actually apply to this real world situation.

This is microeconomics, it has nothing to do with Keynesian or non-Keynesian theories. And it doesn't require perfect efficiency or education. This is more than theory. Gravity is a theory. Supply and demand are laws. If you find some evidence that the prices are completely unrelated, then it would be worth looking into what is causing that. But in the absence of that, I think we ought to assume that the laws of supply and demand, as well as everything we know about competitive strategy, still hold.

 

[ELMC]

This is microeconomics, it has nothing to do with Keynesian or non-Keynesian theories. And it doesn't require perfect efficiency or education. This is more than theory. Gravity is a theory. Supply and demand are laws. If you find some evidence that the prices are completely unrelated, then it would be worth looking into what is causing that. But in the absence of that, I think we ought to assume that the laws of supply and demand, as well as everything we know about competitive strategy, still hold.

You're missing the point.

 

[bighoo93]

You're missing the point.

Maybe so. I thought the point was whether the price for direct bookings had any effect on the price of DVC rentals. It could be that I was distracted by irrelevant comments about Keynesian economics.

 

[DougEMG]

Here's my general theory of rentativity

(1) The majority of renters want to have around a 50% discount to rack rates to make it worth while taking on the risks and restrictions of renting over booking directly with Disney. Less is better of course!

(2) The majority of owners want to rent out their points for around double their maintenance fees. More is better of course!


So

Rental Rates = function(rack rate, maintenance fees)

 

[a742246]

"Rentativity", That was pretty good Doug.

 

[Dean]

This is microeconomics, it has nothing to do with Keynesian or non-Keynesian theories. And it doesn't require perfect efficiency or education. This is more than theory. Gravity is a theory. Supply and demand are laws. If you find some evidence that the prices are completely unrelated, then it would be worth looking into what is causing that. But in the absence of that, I think we ought to assume that the laws of supply and demand, as well as everything we know about competitive strategy, still hold.

As I said before, I think the issue that's being missed here is that timeshare really don't track any logical approach very well including economics. DVC MAY come closer than most but historically there's still been a significant void between what should be happening and what has/is happening. My view is that this is a mix of psychology and economics and that psychology is the larger factor beyond the logic of the economics.

 

[bighoo93]

As I said before, I think the issue that's being missed here is that timeshare really don't track any logical approach very well including economics. DVC MAY come closer than most but historically there's still been a significant void between what should be happening and what has/is happening. My view is that this is a mix of psychology and economics and that psychology is the larger factor beyond the logic of the economics.

Hmm. Maybe it is the pixie dust that allows them to ignore logic and laws of economics.

Sometimes, when people don't understand something, they assume it means it can't be understood by anyone.

 

[Dean]

Hmm. Maybe it is the pixie dust that allows them to ignore logic and laws of economics.

Sometimes, when people don't understand something, they assume it means it can't be understood by anyone.

Think what you want, wasn't it you chastising me for what you saw as personal attacks. It's not a question of understanding but a question of reality. But then I forget all the 20 years of timeshare experience that you have including non DVC options. Frankly you don't have to look far to see examples of where reality doesn't alter behavior as it should, such as those who buy retail and often more points for the option of cash type exchanges. Or for people who have looked at DVC years ago and over the years and DVC clearly made sense but they couldn't pull the trigger. I think the one element that you leave out from a rental standpoint (put another way) is the risk involved for the rentee and the emotions that go with that risk. The other issue is that DVC is still a specialty option that a large segment of people don't know about or don't know enough about to consider it. From where I stand rental prices have gone up maybe 30% max from the 90's and fees have gone up anywhere from around 50% to around 90% for the 2042 resorts which have been around long enough to have a true track record even for the one's from that group that have been around less than 12 years, BCV. I think 46% was the lowest I saw and it was for BCV. Even then fee increases have been consistent and rentals have not.

 

[bighoo93]

Think what you want, wasn't it you chastising me for what you saw as personal attacks. It's not a question of understanding but a question of reality. But then I forget all the 20 years of timeshare experience that you have including non DVC options. Frankly you don't have to look far to see examples of where reality doesn't alter behavior as it should, such as those who buy retail and often more points for the option of cash type exchanges. Or for people who have looked at DVC years ago and over the years and DVC clearly made sense but they couldn't pull the trigger. I think the one element that you leave out from a rental standpoint (put another way) is the risk involved for the rentee and the emotions that go with that risk. The other issue is that DVC is still a specialty option that a large segment of people don't know about or don't know enough about to consider it. From where I stand rental prices have gone up maybe 30% max from the 90's and fees have gone up anywhere from around 50% to around 90% for the 2042 resorts which have been around long enough to have a true track record even for the one's from that group that have been around less than 12 years, BCV. I think 46% was the lowest I saw and it was for BCV. Even then fee increases have been consistent and rentals have not.

None of this has anything to do with what we are talking about. I don't care how many years of experience you have, I'm persuaded by sound logical arguments and reasoning, not by unsupported assertions. If you've learned so much from your vast timeshare experience, that should be reflected in your explanations and reasoning. I'm open to the idea that DVC rental points resist the laws of supply and demand, but the burden of proof is on those who make that claim.