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[jillmc40]

Not scared, and not looking for any cheerleading. I'm happy with the decision but still do have time to change it. So, I'm looking for the financial equations as well as a bit of 'way to go' 'cause I have been very excited too . I like seeing these conversations. We all view it differently and will use our points differently but I don't mind seeing both sides at all.

In our household, we are still having the resale vs. direct debate... and are going to look at resale ads right now. I'd love to hear some opinions on this too! Anything we should know? Please feel free to either cheerlead or buzz kill.

As soon as I hit post I saw you post. I saw you say you are not a huge fan of akl. If there is one thing I have learned from timeshares is that you should buy where you want to stay. I am still kicking myself for the studio I own in the poconos . Hahahaha ha!!!!! I have read most people say that resale is better provided you don't want the items they don't allow you to do. Someone else can list those out since I can't say for certain what they are. I believe cruising is one.

Anyways, so far I like dvc more than my other timeshares because of the flexibility. But what do I know. I don't even have my papers yet

 

[misslissa]

To me you sound unsure. If you have any doubt at all I would cancel your contract and take the time to make a firm decision that you are comfortable with. That very well may mean you make the same decision. Odds are it will cost you very little, if anything and you will be no worse off. But if you choose resale, you will have saved over $6,000 and you will have enabled yourself to act on a decision that you won't be able to make after the next few days have passed.

Good luck!

It is safe to say that I'm not struck on either GFV or AKL... I'd rather Wilderness, Beach Club or Boardwalk... So, I'm going to have to do some searching. Do you use a particular agency when buying resale? What are their fees? And, how do you feel about the various resale restrictions?

I can also tell you that I am unsure about every decision that I've ever made financially until I've lived with it a bit... I'm just a little overly analytical and definitely want to know a bit more.

 

[iluvthsgam]

I'm glad I've come across you then! I love a good financial analysis and I need someone smarter than me in this area to give me some points to think about Please see my post above about resales.

I couldn't find anything official about the price increase but I did find this thread: (Crap - URL won't post... *edit*) This is exactly what they were telling me on Saturday. That is when we signed the papers. From what I understand, we still have 10 days from then to backout.

Our use year begins in February. What do you think?

And, thank you! Whether we stick with direct or decide to pull the plug and go resale is up in the air... but I'd love to hear your (and anyone's) advice. I'm not the biggest fan of AKL so a resale wouldn't be completely horrible to me at this point.

For one your timeline will have to be completely adjusted. Just starting the resale process now will take you a while to complete. Search through the ROFR thread and you will see other's posts on how long it took between making the offer and getting the points. Going direct will be much easier and quicker. The question you have to ask yourself is: what works better for you? Do you need/want points now? Do you have all the money to put down? Do you need Disney financing through direct? Can you wait 2-6 months looking for the perfect resale?

At this point in time and for the foreseeable future, the only difference between resale and direct is the limitation on the points for Disney Hotel's and cruises and Adventures by Disney. Look into those options. See if those are something you want to use. If yes, stay with direct. If no, then resale is an option. I have not personally read through the contracts so I do not know if Disney could force you to only stay at your home resort or not if you buy resale, but if I had to guess I would agree with others that say it would be very unlikely they would do that. Could they legally do it? I don't know.

There are many discussions about Use Year available. Use Year matters when you usually book your vacations and if you are prone to moving/cancelling vacations. Ideally you want to pick a Use Year that starts just before your most popular vacation time. If you likely spend a majority of your vacations in the summer, a Use Year of April or June could work best. If you book and need to cancel you are still in the 8-month banking window to bank your points to the next year if needed. If you pick June and want to go right at the end of May into the beginning of June, for example, you need to use two different Use Year allotments of points. The points used for the May dates will expire at the end of May if you don't cancel and bank before the banking window closes.

 

[ELMC]

See now I am confused. You were upset with my analysis because it originally did not include the up-front cost. That is a fair critique. But then you only agree with my premise for "the most part" and only from a "straight financial perspective."

Right. I had a problem with your analysis because you were using numbers to justify a course of action and the numbers were wrong. But I'm told that it's more than just the numbers (even though I don't really see it that way, I can respect that others do). So with regards to your premise about cruising, I agree 100% from a financial perspective, understanding that the financial perspective is not the only one. If you want to cite convenience and flexibility as a position, I cannot refute it with numbers because it's not about that. Is this clear?

First you make sure to call me out about how the analysis is wrong and the finances aren't right and don't mislead people about the real costs and then you nonchalantly conclude with "taking the occasional cruise isn't the worst thing in the world, even if not to maximize financial value."

I can't figure you out! Usually people either look at it strictly from a dollars and cents side or strictly from the emotional vacation "experience" side. But from you I am getting both!

Right. I look at it from a dollars and cents perspective. But I am trying to recognize that there are other perspectives that are just as valid, even though I don't agree with them.

I think ELMC's being pretty reasonable here. He seems to realize different people will value their points differently and some will use them for cruises while some will not.

The fact that he's not doing what you mention (falling into the dollars and cents camp or the emotional camp) is a credit to how he does his analyses and tries to share with others, w/o becoming pedantic.

This is what I meant to say above.

If you think I am trying to say that one has to pick only one side or the other, that was not my intended point of view. It appeared that ELMC was taking the strict dollar and cents side while criticizing my analysis and then taking the emotional experience side after my responses. My point was it felt ELMC was flip flopping based on what argument was being made.

Whoa there. I can handle a lot, but being called a flip flopper? Yikes. My perspective is strictly dollars and cents. If I see a dollars and cents analysis that I feel is flawed, I'll debate it. If someone wants to use intangibles to value their purchase I disengage, because the two simply cannot be compared. When I say something like "taking an occasional cruise on points is not the worst thing in the world" I am giving credit to another perspective. Personally I would not use my points for a cruise if I owned direct, which I do not.

Obviously different people will value their points differently. It is impossible to quantify "value" any other way besides using dollars and cents. But if it were as simple as dollars and cents there really wouldn't be much discussion, would there?

Well, there is. Businesses do it all the time by assigning a dollar value to the goodwill they have built up. I imagine that DVC owners do it as well when they agree to pay direct prices to obtain benefits that are currently restricted to resale owners. I would suggest that the dollar value of that intangible benefit is the difference in price between direct and resale.

 

[iluvthsgam]

It is safe to say that I'm not struck on either GFV or AKL... I'd rather Wilderness, Beach Club or Boardwalk... So, I'm going to have to do some searching. Do you use a particular agency when buying resale? What are their fees? And, how do you feel about the various resale restrictions?

I can also tell you that I am unsure about every decision that I've ever made financially until I've lived with it a bit... I'm just a little overly analytical and definitely want to know a bit more.

No fees to buy (seller is charged 10% commission). There will be closing costs (which can be negotiated with seller) and if the seller has current points they will likely want you to pay the annual dues on those points as well (since they were already paid this year on Jan 15, 2013) (again negotiable).

There are 4 main resale sites - which can be found by using google. There is the www.dvcstore.com (which advertises here), www.dvcbyresale.com, and http://www.fidelityresales.com. The 4th you have to search google for as it is banned here.

Me personally I would not care about the resale restrictions because I don't see myself ever using those options. They are not an efficient use of points for the value you receive in return. But that is just me.

If you are looking at VWL, BCV, or BWV also know these resorts expire in 2042 versus AKV of 2057 or VGF of 2060. Hard to predict now, but using your best guess will those extra years matter at that point in time? They extended OKW. Will they extend others? Nobody knows. The resale prices for VWL, BCV, and BWV have come up a bit recently, but if you don't want to wait and want to move quick the asking price is about $75-$85 per point - a savings of $60-$70 per point - almost half off!

 

[iluvthsgam]

Right. I look at it from a dollars and cents perspective. But I am trying to recognize that there are other perspectives that are just as valid, even though I don't agree with them.

At least we are trying to be on the same page

Well, there is. Businesses do it all the time by assigning a dollar value to the goodwill they have built up. I imagine that DVC owners do it as well when they agree to pay direct prices to obtain benefits that are currently restricted to resale owners. I would suggest that the dollar value of that intangible benefit is the difference in price between direct and resale.

Hmmmm I would think it would be more than just that. There is a whole group of people who do not know resale exists, which contributes to the price gap. For those that do know about resale, but decide to buy direct instead I think there are more factors than just the restricted benefits, i.e. ease of purchase, financing options, speed of purchase, comfortable with buying from Disney vs. a stranger, nervous about future changes to resale owners, for new resorts the only option is direct if you want it right now, and I am sure more that I can't think of just now. Its hard to say the "value" of all of that is just the different in price between direct and resale because of the fact that not everyone knows about resale and there are those market forces at play.

 

[ELMC]

I'm glad I've come across you then! I love a good financial analysis and I need someone smarter than me in this area to give me some points to think about Please see my post above about resales.

I couldn't find anything official about the price increase but I did find this thread: (Crap - URL won't post... *edit*) This is exactly what they were telling me on Saturday. That is when we signed the papers. From what I understand, we still have 10 days from then to backout.

Our use year begins in February. What do you think?

And, thank you! Whether we stick with direct or decide to pull the plug and go resale is up in the air... but I'd love to hear your (and anyone's) advice. I'm not the biggest fan of AKL so a resale wouldn't be completely horrible to me at this point.

I think I answered the financial question about direct vs. resale, but if that wasn't clear please let me know. As for the two points I put in bold, I will add this.

Your salesperson did not do you any favors by giving you a FEB UY. By doing this he has placed you firmly in the 2013 UY and has avoided having to give you another year's worth of points. If you bought an AUG UY or later, you would still technically be in your 2012 UY (even though it is calendar year 2013) and he would have to give you 100 points now and then ANOTHER 100 points on August 2013. Search UY threads for more information on how this works. But the bottom line is that you could have gotten 200 points to use in UY 2013 instead of the 100 you received.

With regards to the second comment, you should definitely cancel. If you don't love the resort, you shouldn't own there. There is a definite chance that for your upcoming vacation times AKV will be the only resort available to you. (SSR and OKW also, but I don't see them as having any advantages over AKV...others will certainly disagree). The old adage is to buy where you wouldn't be disappointed staying. If you don't love the resort, you shouldn't buy there. If you feel the same way about VGF then you probably shouldn't buy there either. But if you did it would be a decent financial move paired with a home resort that is not ideal. AKV is a poor financial move paired with a home resort that is not ideal. So to put it into an equation:

AKV < VGF < Just about any other option you have

It is safe to say that I'm not struck on either GFV or AKL... I'd rather Wilderness, Beach Club or Boardwalk...

Then you should buy there. Really. They are smaller resorts that are tougher to get into. If you want to stay there, then you should own at one of the three, that way you're not disappointed if you have to "settle" for your home resort.

So, I'm going to have to do some searching. Do you use a particular agency when buying resale? What are their fees? And, how do you feel about the various resale restrictions?

Click on the banner for The Timeshare Store for information on a very reputable resale company with great service. You can also try http://fidelityresales.com/ While the service isn't as great, they are reputable and they do have a good selection. Both brokers can walk you through the fee structures. Note that Fidelity charges a $195 "administrative fee" that TTS doesn't. As far as the resale restrictions, I don't care about them one bit. As we've talked about before, they're not a good financial use of points. Plus, I bought DVC to stay at DVC resorts. If I want to cruise or stay at these other places I'll pay cash.

As an aside, although I wouldn't recommend it due to price, VWL, BCV and BWV are also available direct through your salesperson. There is a wait list involved, but it can happen. Again, though, the prices compared to resale are incredibly expensive.

I can also tell you that I am unsure about every decision that I've ever made financially until I've lived with it a bit... I'm just a little overly analytical and definitely want to know a bit more.

I hear you on this one. Just know that if you live with this decision a bit and it turns out to be a bad one, it's going to cost you about $6,000 to fix.

 

[iluvthsgam]

So you got 100 points at $145 per point - $1300 off = $13,200. Did you say you had to finance? Is the rate like 11% now? Not a great rate.

With resale, $13,200 gets you 165 points at $80 per point, say 150 points or so to account for closing and potential dues. Or you can stick with the 100 points and only spend $8,000 up front, reducing your costs by $5,000 (again give or take closing costs).

If you had to finance the $13,200 could you swing the $8,000 by going resale? You will also have to calculate how much you would save on interest by not financing.

You certainly have options and I agree with everything ELMC said. If you do decide to stick with direct -> it sure would be worth asking for a later Use Year (if that still works for you). Those extra 100 points are worth at least $1,100 on the rental market. Another way to reduce your costs.

 

[Soul Brother]

This is what I was looking for when I asked when you signed your final contracts. There's no point talking about resale if it is no longer an option. There is one very simple thing that you need to consider regarding your direct purchase. When the 10 day recission period expires, the points you paid approximately $132 for will now be worth about $65 after commissions should you decide to sell. That's an immediate 50% depreciation in the cash value of your asset. (The use value remains the same, so if you never sell then it is pretty irrelevant. We don't buy these things planning to sell, but so many of us end up doing just that.) If I were you I would strongly consider resale, especially considering your openness to renting points and using the cash to pay for a cruise. With resale you are getting essentially the same product for half the cost. Another option would be to consider purchasing VGF direct instead. I know you don't love the resort, but VGF projects to hold its value on the resale market much better than AKV and is currently similar in cost. Unless you are traveling at peak times or wanting to book the value rooms or concierge level at AKV, you will most likely be able to find availability at AKV at the 7 month window using your VGF points.

To me you sound unsure. If you have any doubt at all I would cancel your contract and take the time to make a firm decision that you are comfortable with. That very well may mean you make the same decision. Odds are it will cost you very little, if anything and you will be no worse off. But if you choose resale, you will have saved over $6,000 and you will have enabled yourself to act on a decision that you won't be able to make after the next few days have passed.

Good luck!

misslissa, fellow Brooklin resident here!

Quite a great debate here........

I would say ELMC's advice is the most solid overall advice in this thread.
Buying AKL can be done so much cheaper resale and when your contract closes, you've essentially lost half the value you paid if you have to or decide to sell.
VGF is a much, much smaller resort than AKV and will very likely hold it's value much higher for much longer than any property currently at WDW.
BLT has kept it's resale value close to original pricing and that resort is 3 times the size of VGF.
Think supply and demand as well as location when comparing it to AKL.

Buying VGF still allows you to buy direct at a slight premium over AKL but with a much harder to book, more exclusive resort.

Whatever you choose, you can look forward to great vacations with your family for years to come. I hope it all works out for you.
I must disclose that I own at BLT @ $107 per point in Feb 09 and just bought a fixed week in December at VGF so I am a little biased

 

[misslissa]

Great points. Thank you.

However, I'm completely stumped with the UY thing. Our UY begins Feb 2013...

Are you suggesting I buy say in Aug 2013? And get a UY of Aug? We usually travel in Sept - Dec or Jan - Feb.

 

[ELMC]

Great points. Thank you.

However, I'm completely stumped with the UY thing. Our UY begins Feb 2013...

Are you suggesting I buy say in Aug 2013? And get a UY of Aug? We usually travel in Sept - Dec or Jan - Feb.

So there are two factors at work here regarding UY. The first pertains to your initial purchase. If you buy now, and you have an AUG UY or later, you are in your 2012 UY. You will immediately get the points that you would have received had you owned on August 1, 2012. Then, this August you will get another allotment of points. If you wait until after the first of the month of the UY you are buying, you will have missed this opportunity. Salespeople often want to give you a UY month that has already passed to avoid having to give the extra year's worth of points.

The second factor is when you typically vacation. Based on your vacation patterns a FEB UY is actually the worst UY you could possibly have (due to potential cancellations and banking deadline requirements). Do a search on here for "use year" and read the threads. There are some really good ones that will help you learn everything you need to know.

 

[BestDadEver]

Home is AKL!

Thanks~!

AKV are so nice . I just got back form AKV jambo house it was a great resort

 

[iluvthsgam]

Great points. Thank you.

However, I'm completely stumped with the UY thing. Our UY begins Feb 2013...

Are you suggesting I buy say in Aug 2013? And get a UY of Aug? We usually travel in Sept - Dec or Jan - Feb.

When you buy does not determine your UY. Your UY is assigned to you when you buy. You could buy a Dec UY today if Disney made it available to you.

If your most frequent travel time is Sept-Feb then the most ideal UY would be an August UY.

Because: Your 2013 UY points would be available to book vacations from August 1, 2013 - July 31, 2014. Your banking deadline is March 31, 2014 (if you want to bank 2013 points into 2014 you need to make that decision by March 31, 2014).

You also have to understand the cancel policy. If you cancel a reservation 31 days or more before check-in you get those points back. If you cancel 30 days or closer the points are now "holding points" - holding points can only be used for reservations that check in within the next 60 days. These points are not very flexible and obviously want to avoid holding points.

If your UY is August, and you want to make a reservation in Sept 2013. You would use the points from the 2013 UY (because the reservation date falls between Aug 1, 2013-July 31, 2013). Now, lets say you need to move the vacation to January 2014. As long as you are 31 days or more out, you can cancel the Sept reservation, get the points back, and use them to book Jan 2014. What happens if you have an emergency and need to cancel? Again as long as 31+ days you can cancel and get your points back. At this point we are in Dec 2013/Jan 2014. You still have those cancelled points back in your account. If you don't think you can use them prior to July 31,2014 - anytime prior to March 31, 2014 you can bank them into 2014 UY - which means they now can be used for reservations from Aug 1, 2014 until July 31, 2015.

Under the above scenario, if you had a Feb UY it would look like this: 2013 UY is Feb 1, 2013 until Jan 31, 2014. Your Sept 2013 trip, therefore, is booked with 2013 UY points. But since you have a Feb UY your banking deadline is now September 30, 2013. If you need to cancel the Sept 2013 reservation with 31+ days out, you still can. Then you use the points for a reservation to Jan 2014. Now it is October 2013 and you need to cancel the Jan 2014 trip. You still can, but you are now past the banking window and those points will now expire on January 31, 2014 if they are not used.

So you can see, UY is all about having flexibility to move things around really. So it is ideal to get a UY right prior to when you travel most - but it is not critically important that that is the thing you should be most concerned about.

UY does not change when dues are due (always in January). UY does not change when you can book a vacation (always at 11 months out at your home resort and 7 months everywhere else). UY only determines which allotment of points you use to book the vacation which is dependent not when you book but the actual dates of the vacation you want to book.

 

[dmunsil]

I know you guys have long moved past this point, but I just wanted to go back to something that I think is worth noting.

This is your fatal flaw, both from a logical and accounting perspective. Yes, the money has been paid up front, but it has been paid. It cannot be ignored.

It seems to me you are talking about analyzing a different question from the one iluvthsgam is talking about.

Question 1: "Is DVC a good purchase, financially"

Question 2: "Given that I have bought into DVC, does it make sense for me to spend my points on a cruise?"

The answer to #1 absolutely should take into account the buy-in, and you should account for the buy-in using an amortization calculation with interest rather than a straight division of the purchase price by the number of years remaining.

The answer to #2 has to take into account the sunk cost, or rather not factor it in, because it's sunk. Not treating a sunk cost as sunk is just as much a financial mistake as ignoring buy-in when evaluating a timeshare.

In fact, because your contract has a resale value, the entire buy-in is not sunk. Only the instant depreciation that happened when you bought direct. So if you have not yet bought DVC, you should treat the purchase price (amortized) as a real cost that needs to be added to your dues to calculate a "real" annual cost.

After you purchase DVC, you have lost forever about 30-40% of your purchase price, and that's sunk now, like the Lusitania. It's never coming back. But you own an asset that can be converted to cash, and that is something that can and should be amortized into your ongoing costs, because at any point you could sell it and buy a bond with the money, so by continuing to own it you're basically forgoing an income stream.

So you're both wrong. Ha!

I kid, I kid.

Anyway, to give an example:

Joe Doaks is thinking about buying BLT direct. It's $165, and the dues are $4.50. Long-term interest on safe bond funds is 4.5%. What is his amortized cost per year of ownership?

In Excel, you use the PMT function to calculate amortized value of a lump-sum purchase that pays off over time. So PMT(4.5%, $165, 47) = $8.50. Add $4.50 dues and you have Joe's expected annual cost of $13 per point, which of course will go up as dues go up.

OK, so Joe says, that's good, I'll buy. Now the odd thing is that he should call the difference between the direct price and the realizable resale price a sunk cost. So he just paid a lump sum of let's say $65 per point to get the right to use his points for various financially disadvantageous exchanges. That $65 cannot be recouped, so it's just gone. Now his cost per year has gone down, because it's now PMT(4.5%, $100, 47) + $4.50. That's $5.15 + $4.50 = $9.65. Once he's paid the sunk costs, they're sunk. Can't keep kicking himself over having paid them. Though he should, because he should have seen them coming.

That's why it can both be true that buying a DVC membership primarily to go on cruises is a terrible, awful, horrible decision, and yet it can make perfect financial sense to rent points to buy a cruise once you've already bought into DVC, even factoring in the amortized value of the property itself.

The bottom line with all this is that the "true" value of DVC points is the resale value, because that's the only value that's set in a competitive marketplace. Just like the "true" value of a car is the resale price. The amount you pay over the "true" price is just money thrown away. Everyone understands this perfectly well with houses, but somehow people can't quite wrap their heads around it when it comes to cars and timeshares.

 

[dbs1228]

OP bottom line is if I were you I would cancel your AKV contract for many reasons:

1) Most important you are not thrilled with the resort! AKV is a beautiful resort but for me personally I prefer to stay within walking distance of the parks. I have stayed and will stay again at AKV but I also know it is pretty easy to get into at the 7 month window since it is a large resort.

2) Resale is a fraction of the cost. You owe it to yourself to explore that avenue especially if you do wind up at AKV

3) AKV has pretty high MF compared other resorts.

4) DVC is not going anywhere you have time to research the entire program take the time and then make your decision.

Unfortunately right now resale except for AKV is priced higher due to demand then it has in several year - with that being said it is still a cheaper option! I bought direct at BLT a few years back at 108.00PP at the time that was EXPENSIVE - I did not know about resale although resale prices were around 100.00PP and not very many (I quickly learned of resale). BLT at the time was the only resort I wanted due to location. We are currently trying to buy BWV for location and since we started our journey to buy resale we have had 2 contracts taken back buy Disney BWV at 55.00PP and 65.00PP. Prices have soared in the past 4 months! We currently have a BWV contract at Disney paying more then we expected to but still well within our budget and still we are saving about $10,000.00 over direct prices!

If nothing else take your time read, read and read more about the program before you spend that kind of money!

Good luck!

 

[iluvthsgam]

So you're both wrong. Ha!

I kid, I kid.

Thanks for this explanation, very insightful. Just to wrap it up and run the numbers then, if they bought direct at $120 and currently could resell at $100, their "sunk" cost is $20 per point, running the amortization at 4.5% for 49 years (they bought in 2010) on $20 = $1.02 per point per year. The numbers for the cruise decision become:

Pay with cash: same $3,034.24
Booking cruise on points: $2,380.28 ("saving" $653.96 over cash price)
Booking cruise with cash after renting points: $765.52 ("saving" $2,268.72 over cash price)

The difference between paying with points and renting the points and paying with cash is $1,614.76.

So again if you can deal with renting points and the purported inconvenience this causes you will "save" $1,614.76. To me that is a big enough difference to go rent the points and pay with cash. Under this scenario. Each person's scenario will be different, of course, depending on what price you bought in at.

 

[dmunsil]

Thanks for this explanation, very insightful. Just to wrap it up and run the numbers then, if they bought direct at $120 and currently could resell at $100, their "sunk" cost is $20 per point, running the amortization at 4.5% for 49 years (they bought in 2010) on $20 = $1.02 per point per year.

Yes, that's the basic idea, except the "sunk" cost doesn't get amortized. It's sunk, so it doesn't pay off. The asset value (the leftover value after removing the sunk cost) gets amortized. It's a depreciating asset that's worth something today, and something less tomorrow.

I think it's more reasonable to use an inflation-adjusted amortization, so we should use something closer to 2.5% as the interest. Otherwise we're accounting for the amortization as a flat nominal dollars per year, and that's not how we experience the value of the points over time; their use value remains constant in real terms. We just shouldn't make the mistake of calculating it out into the future using the historical nominal dues increase.

But right now, we're just calculating how much it costs us to take a cruise on points. The amortization at 2.5% for $100 at 47 years (again, we have to use today's numbers, not the values for when we bought) is $3.64. So the total cost per point is $4.50 + $3.64 = $8.14. Multiply by the 414 points for the cruise and add $95 and we're at $3,465.24, which is more money than it costs for the cruise in cash, at $3,034.24.

Since letting the points expire nets us $0, taking the cruise on points is better than letting them expire. But it's not actually financially advantageous, whereas renting the points is.

And for comparison, using those points to book studios at WDW is worth an average of $24 per point, fluctuating somewhat depending on which studio and what time of year. So you have DVC value of $9,936 by using the points for DVC studios. DVC 1-bedrooms are the bottom of the DVC value, at around $15 per point, and that's still $6,210.

So when people say that using your DVC points for cruises is not a good use of points, that's a huge understatement. It's not merely a little less valuable, it's less than you're paying for the points, accounting for costs correctly.

 

[ELMC]

I know you guys have long moved past this point, but I just wanted to go back to something that I think is worth noting.



It seems to me you are talking about analyzing a different question from the one iluvthsgam is talking about.

Question 1: "Is DVC a good purchase, financially"

Question 2: "Given that I have bought into DVC, does it make sense for me to spend my points on a cruise?"

The answer to #1 absolutely should take into account the buy-in, and you should account for the buy-in using an amortization calculation with interest rather than a straight division of the purchase price by the number of years remaining.

I disagree. There is a difference between cost and value. I am talking about the cost of the points, as in what you paid for them. You are talking about value, which might be a legitimate argument, but more times than not just muddies the waters. You can assign future values or opportunity costs or inflation models to anything, not just DVC. The theory that I apply to DVC purchases is that there is zero opportunity cost. Very, very few people are making a decision between spending money on DVC and actually investing it to realize the gains you are talking about. They're either going to spend it on DVC, or a new pony, or something shiny. Regardless, it's going to be spent. So back to dividing the cost per point by the number of years left, I actually think that is the most accurate way of determining the cost (not value) of future points. But I do agree that it is important to know in the back of your mind that the $3.50 you spent on a point today is

The answer to #2 has to take into account the sunk cost, or rather not factor it in, because it's sunk. Not treating a sunk cost as sunk is just as much a financial mistake as ignoring buy-in when evaluating a timeshare.

In fact, because your contract has a resale value, the entire buy-in is not sunk. Only the instant depreciation that happened when you bought direct. So if you have not yet bought DVC, you should treat the purchase price (amortized) as a real cost that needs to be added to your dues to calculate a "real" annual cost.

After you purchase DVC, you have lost forever about 30-40% of your purchase price, and that's sunk now, like the Lusitania. It's never coming back. But you own an asset that can be converted to cash, and that is something that can and should be amortized into your ongoing costs, because at any point you could sell it and buy a bond with the money, so by continuing to own it you're basically forgoing an income stream.

So you're both wrong. Ha!

I kid, I kid.

Anyway, to give an example:

Joe Doaks is thinking about buying BLT direct. It's $165, and the dues are $4.50. Long-term interest on safe bond funds is 4.5%. What is his amortized cost per year of ownership?

In Excel, you use the PMT function to calculate amortized value of a lump-sum purchase that pays off over time. So PMT(4.5%, $165, 47) = $8.50. Add $4.50 dues and you have Joe's expected annual cost of $13 per point, which of course will go up as dues go up.

OK, so Joe says, that's good, I'll buy. Now the odd thing is that he should call the difference between the direct price and the realizable resale price a sunk cost. So he just paid a lump sum of let's say $65 per point to get the right to use his points for various financially disadvantageous exchanges. That $65 cannot be recouped, so it's just gone. Now his cost per year has gone down, because it's now PMT(4.5%, $100, 47) + $4.50. That's $5.15 + $4.50 = $9.65. Once he's paid the sunk costs, they're sunk. Can't keep kicking himself over having paid them. Though he should, because he should have seen them coming.

I completely disagree with this. In this model you are simply writing off any costs that can't be recouped and removing them from the equation to obtain a cost of use. You don't see a problem with that? Just because the costs can't be recouped does not make that portion of the use of the timeshare free.

That's why it can both be true that buying a DVC membership primarily to go on cruises is a terrible, awful, horrible decision, and yet it can make perfect financial sense to rent points to buy a cruise once you've already bought into DVC, even factoring in the amortized value of the property itself.

The bottom line with all this is that the "true" value of DVC points is the resale value, because that's the only value that's set in a competitive marketplace. Just like the "true" value of a car is the resale price. The amount you pay over the "true" price is just money thrown away. Everyone understands this perfectly well with houses, but somehow people can't quite wrap their heads around it when it comes to cars and timeshares.

 

[ELMC]

Thanks for this explanation, very insightful. Just to wrap it up and run the numbers then, if they bought direct at $120 and currently could resell at $100, their "sunk" cost is $20 per point, running the amortization at 4.5% for 49 years (they bought in 2010) on $20 = $1.02 per point per year. The numbers for the cruise decision become:

Pay with cash: same $3,034.24
Booking cruise on points: $2,380.28 ("saving" $653.96 over cash price)
Booking cruise with cash after renting points: $765.52 ("saving" $2,268.72 over cash price)

The difference between paying with points and renting the points and paying with cash is $1,614.76.

So again if you can deal with renting points and the purported inconvenience this causes you will "save" $1,614.76. To me that is a big enough difference to go rent the points and pay with cash. Under this scenario. Each person's scenario will be different, of course, depending on what price you bought in at.

If I were you I would not apply amortization schedules or sunk costs to your analyses, as I think they simply confuse matters, distorts values and adds more variables that are difficult to track. What you're doing here is very similar to your initial analysis that I disagreed with, and I disagree with dmunsil's posts in this thread. Just because a cost cannot be recouped does not mean that it should not be accounted for when determining the cost of the use of your points. Or, if you do, you need to realize that getting that "discount" cost you an initial sum (the lost value of the contract). So in your example above, sure the user "saved" $653.96 by using points instead of cash. But it cost them $8,280 (414 x $20) in order to get that discount.

 

[dmunsil]

I disagree.

The conversation wouldn't be interesting if you didn't.

There is a difference between cost and value. I am talking about the cost of the points, as in what you paid for them. You are talking about value, which might be a legitimate argument, but more times than not just muddies the waters. You can assign future values or opportunity costs or inflation models to anything, not just DVC.

Yes, you can apply future value calculations to anything, and my point is that you should. It's true that you can't predict the future perfectly, but you can take a reasonable stab at it. The key point is to constantly remind yourself that money in your pocket now is worth more than money that has been promised to you in the future. Don't you agree with that basic point?

If you do agree with the basic point that money now is worth more than money in the future, then you understand that something that costs $100 and lasts 10 years is costing you more than $10/year, right? Exactly how much more depending on your assessment of the time value of money. But that's never 0%.

Ask yourself, if someone offered to let you pay for your DVC purchase in equal annual payments with no interest, you'd snatch that deal in a half-second, right? Because it would be a huge discount from paying for it all up front. How much of a discount? That's the question.

The theory that I apply to DVC purchases is that there is zero opportunity cost. Very, very few people are making a decision between spending money on DVC and actually investing it to realize the gains you are talking about.

I think I see your point, but I disagree. (Again, what kind of conversation would this be otherwise?) I think most people are either dipping into their savings or tapping their available credit. Either of those has a future cost in real, actual dollars which people should account for properly. I do not think people are trying to decide between DVC and a pony. They buy DVC because it feels like an investment. They know they take trips, they know those trips cost them money, and they see that DVC will save them money and/or allow them to have a nicer trip. So for DVC they are willing to tap their savings or credit in a way that they wouldn't to buy a complete luxury like a pony.

So back to dividing the cost per point by the number of years left, I actually think that is the most accurate way of determining the cost (not value) of future points.

There's just no way this is ever right. You cannot take something that pays off over time and just divide the cost by the years and get an accurate cost. You may have a more conservative estimate of the time value of money than me, but you cannot imply an interest rate of 0% and be correct. Interest is never 0%.

I completely disagree with this. In this model you are simply writing off any costs that can't be recouped and removing them from the equation to obtain a cost of use. You don't see a problem with that? Just because the costs can't be recouped does not make that portion of the use of the timeshare free.

Accounting for sunk cost has to work this way. When you buy an instantly depreciating asset, you lost the depreciated money. It's gone. You account for it the same way you account for buying fancy food or a skydiving trip - it's consumed. And you should feel foolish for consuming it, because you got absolutely nothing with it. At least food tastes good and skydiving is fun. The depreciation on your DVC purchase bought you basically nothing except perhaps a faster time to get your points (for new resorts) and the right to use your points for some stuff you should never ever use your points for. But once you've done it, it's done. Accounting for it as though you could go back in a time machine and undo your consumption is unrealistic.

In no way am I implying that the sunk cost is free. On the contrary, I'm forcing the buyer to face up to the fact that they just sunk a huge cost that they will never get back.

It's like someone convinced you to buy a gold ring for $1000, and after you buy it you find out it's only worth $500. Do you continue to say, "That ring is worth $1000! I paid for it, so I should know!" Or do you write off the $500 loss as a learning experience and recognize that you own a $500 ring? I say you do the latter, which is the harder path. Your way is easier, because you can pretend the sunk cost is paid over time, when it's not, it's paid right up front.