2 Burning questions on my mind - Calling all DVC Financial Experts!

[eMoneyBug]

1. MFs - we know they are capped at 15% increase per year, but per my math, some of the 2042 resorts will be in the $15-$20+ (Vero Beach) range in 20 years. I mean is that really going to happen??? We all think of MFs now as yeah, no problem it's $6, $7, $8 per...but we are going to need some years of 0-2% increase otherwise, we will be begging for 2042 to come along so we no longer are obligated to pay MFs, we won't want to own them anymore!

2. At what point do the 2042 resort resales start going down in price purely because they are going to expire soon? Has anyone done some financial modelling on that. Take out economical recession and those other factors, but just purely with less years of use, the initial price per point has to go down, otherwise "renting" would make more sense right???

Love to hear from you all on these 2 questions.

 

[chalee94]

1 - Yes. It is very likely to happen. DVC owners who are still working will have higher salaries and the increases will be annoying but not a major deal. If you are about to retire and live on a fixed income, you should carefully evaluate your financial commitment here.

2 - DVC is a pretty unique bird as timeshares go. You can't make a plausible model without a historical comparison. The value will go to zero. Resale prices will eventually have to decline. But there's no telling what the price curve will look like before we hit zero.

 

[_auroraborealis_]

Keep in mind that the property tax portion of MF has no cap as well. It is actual.

 

[Sandisw]

Realistically, yeah...MF's could someday reach those high levels. But, if they are going up, so is the cost of staying on Disney property as a cash guest, so for me, it is all relative..lol
I think that you won't see a substantial reduction in the 2042 properties until 2032...10 years from it ending. At that point, we may have more information about what DVC plans for those resorts and at that point, people would have to way MF's, cost, etc.

But, that is JMO!!

 

[MickyLynn]

One approach to end valuation I haven't seen is factoring in the break even point. Most people break even in 3-4 trips, right? So there's still some value in 2037, all things being relative.

We may be telling people to buy an expiring contract on the cheap to test run DVC instead of renting points at that point. They'd get access to member offers should they buy in whatever is in inventory then.

 

[CanadaDisney05]

1. MFs - we know they are capped at 15% increase per year, but per my math, some of the 2042 resorts will be in the $15-$20+ (Vero Beach) range in 20 years. I mean is that really going to happen??? We all think of MFs now as yeah, no problem it's $6, $7, $8 per...but we are going to need some years of 0-2% increase otherwise, we will be begging for 2042 to come along so we no longer are obligated to pay MFs, we won't want to own them anymore!

You have to factor in inflation. Yes, maintenance fees will continue to get higher, but so has everything else in the US. This includes salaries. Historically, DVC maintenance fees have increases in terms of long term average around 4 to 4.5% annually. Inflation is around 2%. So as long as this trend continues, maintenance fees will take a larger portion of your annual budget every year, but not as big as you realize.

2. At what point do the 2042 resort resales start going down in price purely because they are going to expire soon? Has anyone done some financial modelling on that. Take out economical recession and those other factors, but just purely with less years of use, the initial price per point has to go down, otherwise "renting" would make more sense right???

There are a couple factors at play.

1) length of time remaining on the contract
2) Demand. Demand for DVC is a function of demand for Disney' deluxe hotels. The more demand for these hotels>the higher the price>the more value you get out of owning DVC>the more demand there is to buy DVC.

The length of time remaining on the contract will always go down. This factor will always decrease the price of DVC.
The demand portion is harder to determine. If demand stays static, then DVC will go down. If demand decreases, then DVC will drop faster. If demand increases, it can keep prices static, or even increase.

 

[CLE2WDW]

For the 2nd part of your question I have actually done some forecasting mostly because I’m a financial nerd.

For the 2042s I’d predict for prices to start to decline between 2029 and 2032 and then essentially lose all/most value by 2037. The numbers behind those findings have everything to do with break-even analysis and opportunity cost. I’ll use an example... suppose I own 200 points at BCV and I’m fairly comfortable saying I could fairly easily sell those points presently for roughly $30,000 (200pts times $150/pt). If I’m a consumer I justify that cost because my true breakeven is somewhere between year 10 and year 12 depending on my normal lodging cost of my Disney trip(s). Now let’s fast forward 10 years and adjust the cost of dues by carrying forward the average rate of dues being increased (4.4%/year) and also adjust the average cost increase for rack rate rooms (5.7%/year). The year 2029 is the first point where I start seeing the cost/benefit analysis starting to tip. Granted, at this point a buyer could still “breakeven” but it would seem foolish to me to make such a major purchase to simply breakeven after so many years. Obviously, the wild card of all wild cards is nobody knows what Disney is going to do as 2042 approaches. One theory is they could give existing DVC holders an offer to “extend” their contracts... and that would make all this forecasting worthless

 

[ELMC]

One approach to end valuation I haven't seen is factoring in the break even point. Most people break even in 3-4 trips, right? So there's still some value in 2037, all things being relative.

We may be telling people to buy an expiring contract on the cheap to test run DVC instead of renting points at that point. They'd get access to member offers should they buy in whatever is in inventory then.

While not directly tied to end valuation, there have been dozens of threads here on the DIS regarding break-even analysis. I think your assumption of 3-4 trips is off, quite frankly and I'm going to assume that it involves comparing against rack rates. The general thinking on here has been that rack rate is not a good comparison point due to the fact that there are many other options: point rental, discounts, etc. Back in 2012 when we were getting contracts on the cheap, most calculations had us breaking even between 5-8 years vs. renting. Now those calculations have extended out to anywhere between 8-15 years resale and 13-20 years direct, based on what assumptions, interest rates, point rental values, etc. that you choose to use.

To your point, my guess is that in 2037 you might be able to buy a contract for a price that when added to the maintenance fees equals less than five years of straight point rental. But a lot can happen in between now and then.

 

[_auroraborealis_]

Let me propose an alternate scenario to how hotel costs will continue to rise:

Carbon taxes on air and motor travel rapidly increase, significantly reducing long distance demand for WDW rooms. Maintenance fees follow inflation, but demand plummets and Disney have to significantly discount rooms, leasing to MF being higher than cash rates.

 

[HickoryDickory]

The 2042 resorts will certainly become cheaper as they get closer to their expiration dates, but with Inflation, rising lodging costs and such, I can imagine being able to buy BWV resale today at $125 per point and still being able to sell for at least $125 per point in 2030.

It would be difficult to sell a 2042 contract for anything meaningful when there's about 5 years left on the contract since the buyer has to factor in closing costs and annual dues with the purchase price against cash stays or point rentals. Any owner who hasn't already sold their 2042 contracts by then are better off renting their points than selling in those final years.

But, at least for BWV and BCV, it's not like prices will plummet to abysmal numbers when there's still 10-15 years left on the contract. There are plenty of people who would love to pick up a decade's worth of BWV and BCV stays. There are plenty of people who aren't Disney fanatics but are parents with infants or toddlers that want to enjoy DVC at prime Epcot locations with a reasonable buy-in and would be totally fine with the contract expiring when their kids are older children/teens ageing out of Disney. I mean, imagine if BCV or BWV were expiring in 2029 instead of 2042 so we can use today's dollars. What would you pay for BWV or BCV now? I just cannot imagine, even if expiring in 10 years, that BWV or BCV would sell today for less than a VB or HHI contract. Who today would turn down 100 points at BCV for $75 per point? Even if expiring in 10 years, that contract would sell!

VB and HHI won't be worth much. BRV will be cheap points but not as bad as VB and HHI. But BWV and BCV will still have decent value in 2030 due to their prime locations and wide appeal.

Just my opinion.

 

[CLE2WDW]

Let me propose an alternate scenario to how hotel costs will continue to rise:

Carbon taxes on air and motor travel rapidly increase, significantly reducing long distance demand for WDW rooms. Maintenance fees follow inflation, but demand plummets and Disney have to significantly discount rooms, leasing to MF being higher than cash rates.

And the American economy literally crashes overnight. Your scenario is very real and if 2020 elections go the wrong way the risk of this event is very real.

 

[_auroraborealis_]

And the American economy literally crashes overnight. Your scenario is very real and if 2020 elections go the wrong way the risk of this event is very real.

Depends on your perspective. If the economy is unsustainable, crash is also inevitable regardless of near-term outcomes.

 

[anomamatt]

Depends on your perspective. If the economy is unsustainable, crash is also inevitable regardless of near-term outcomes.

And/or the continual insanity that is our current international trade policy could (will) lead to a (global) recession.

 

[Maistre Gracey]

The value of DVC points will never be $0.
(Until the contract has actually expired)

The “zero value” will happen if the rental rate is the same as the maintenance fees, thus making it a zero sum game.

Seeing as though cash room rates will always be higher than maintenance fees, your points will always have a value. Not so much for selling, but for renting. You will always be able to undercut cash CRO prices, yet still get more than mtc fee cost.

 

[CLE2WDW]

The value of DVC points will never be $0.
(Until the contract has actually expired)

The “zero value” will happen if the rental rate is the same as the maintenance fees, thus making it a zero sum game.

Seeing as though cash room rates will always be higher than maintenance fees, your points will always have a value. Not so much for selling, but for renting. You will always be able to undercut cash CRO prices, yet still get more than mtc fee cost.

Valid. I never considering the rental play. That changes the equation.

 

[CanadaDisney05]

Seeing as though cash room rates will always be higher than maintenance fees, your points will always have a value. Not so much for selling, but for renting. You will always be able to undercut cash CRO prices, yet still get more than mtc fee cost.

I know we like to think they are connected, but in reality they are not.

Cash rates = what the market will bear.
Maintenance Fees = Actual costs incurred.

If we go through a major recession, it is very much in the realm of possibility that for a period of time maintenance fees will be greater than cash rates.

 

[Bing Showei]

I know we like to think they are connected, but in reality they are not.

Cash rates = what the market will bear.
Maintenance Fees = Actual costs incurred.

If we go through a major recession, it is very much in the realm of possibility that for a period of time maintenance fees will be greater than cash rates.

That's the thing about Disney's timeshare. As soon as you sign on the dotted line, the house wins. It's why they keep building new timeshare resorts and converting hotel rooms to timeshare units. We're a potentially captive audience.

Guides love to use the line about how "Disney will take a hit on 'locking in pricing' for 50 years because we know you'll come back year-after-year and spend money at the parks. That's how Disney will make back this money." And while there is no doubt you'll be generating additional income for the larger Walt Disney Company by way of the Disney Parks, Experiences, and Products, Inc. division, the truth is, a number of services within annual dues are subcontracted to smaller Disney divisions that can build profit into their services.

So while yes, Maintenance Fees = Actual cost incurred*, there needs to be a fat asterisk there.

*Profit can be made by The Walt Disney Company, Inc. on costs incurred by Disney Vacation Development, Inc., and still pass muster with third party** auditors.

**lucratively employed by The Walt Disney Company, Inc.

 

[Maistre Gracey]

I know we like to think they are connected, but in reality they are not.

Cash rates = what the market will bear.
Maintenance Fees = Actual costs incurred.

If we go through a major recession, it is very much in the realm of possibility that for a period of time maintenance fees will be greater than cash rates.

Respectfully, I doubt it.
I don’t have a point chart handy, but how much is a studio..?? 15 points?? Dues $8..??
That’s $120 a night for a deluxe, including tax. I don’t see Disney selling for less than that.

 

[CanadaDisney05]

Respectfully, I doubt it.
I don’t have a point chart handy, but how much is a studio..?? 15 points?? Dues $8..??
That’s $120 a night for a deluxe, including tax. I don’t see Disney selling for less than that.

I'm not suggesting that it is likely, but if things get bad enough and they cannot fill rooms its definitely possible. They would likely be creative with it (discount + gift card + free dining, etc....), so that they don't have to advertise the price is so cheap.

 

[Yinn]

Valid. I never considering the rental play. That changes the equation.

As a financial nerd, doesn't this loosely correlate to stock options as well? In the last 5 years, contract prices wil drop. But the bottom will be supported by potential. It's the reason stock option contracts don't truly go to zero until actual expiration and will still retain some value. The value in an unknown, close to expiration DVC contract is that Disney MAY offer something. That could be in the form of an extension, first rights on a new offering, etc. To some, it will be worth something to hold onto that expiring contract for the hope of gaining that advantage.

While I don't think this will actually happen to BCV/BWV. Imagine if in the last 5 years, they offered a 15 year extension at $15/ppt. Which I think they did with OKW. If you're holding onto that contract, that value just got bumped up tremendously. So while unlikely to happen, I do see people holding on for potential for something to occur.