Actual Point Cost

[KarenNY]

I know this has been discussed quite often in varying degrees of detail, so bear with me please. I know points are usually rented for $10 each. But I want to only charge my friend my actual cost. Assuming I didn't finance my purchases, bought in 1995, and have 500 points, what is my actual cost per point? Thanks.

 

[PamOKW]

Well, you could take whatever you paid -- $62, $65 fill in the blank and multiply by 500. Then divide by 46 (number of years to use). That gives you a per year cost (does not account for lost interest and other factors that you could consider) then add your dues for this year and divide by 500 giving you this year's per point cost. Or, you could just figure out what you think would be a fair amount to charge your friend.

In my example I'll say I paid $65 per point. My per year is $706.50. Dues on 500 at $3.50 per point is $1,750. $2,456.50 divided by 500 comes out to $4.91 per point.

 

[Werner Weiss]

There are a bunch of different ways to calculate annual "actual cost" -- all of which give different results.

The simplest method is to recover your annual maintenance, without regard to your capital investment (initial purchase). After all, you've spent the money, and, presumably, you got so much benefit from your stays and the park pass program (which ended in 1999), that you've already recovered your capital, especially if you bought back in 1995.

A method that many people on this board have suggested is to divide your capital investment by the number of years until 2042, and then to add the maintenance. That's better than ignoring your investment, but it doesn't really account for the value of the money over time. (To give an exagerated example, $1 million all at once and $1 a year for a million years are not equal.)

A better way to determine the value of the initial investment over time is calculate what an annuity for the same amount of capital would generate each year until 2042. That yields a much higher number than simply dividing the capital by the number of years. The higher number is realistic because, after all, you could have put the same money that you put into DVC into an annuity instead. But depending what assumptions you make about investment yield and taxation, you'll get wildly different results. And if you base your assumptions not on a conservative annuity but on a highly successful stock portfolio, the numbers are higher again. Once again, you would add the annual maintenance.

Finally -- and I think this is the most meaningful -- there's the value you place on the "buying power" of your DVC points, in relation to what you would otherwise be willing to pay for your resort accomodations (not the rack rate of the accomodations, but what they're worth to you).

It's nice that you only charge your friend your actual cost, but the actual annual cost per point could vary from $3 to $20 per point depending upon how you want to define the term "actual cost."

 

[John.Disney]

Assuming you paid $60 per point, your annual dues are $3.50, and a discount rate of 3%. You would get an annuity of $1,210. This added to your current year dues of $1,750 gives you a total cost of $2,960 for this years points or $5.92 per point.

If you use an after tax ROI of 7% (instead of the 3% discount rate/inflation rate), the cost comes out to $7.90 per point.

I would use the discount rate (3%) because when you joined the club, theoretically, you didn't use money that you were going to invest for 46 years. You used money that you would have otherwise spent on vacation hotels. If you spent those vacations at equivalent WDW hotels, the money would not have lasted much longer than 8-10 years.

John
(Just happened to have that very spreadsheet open, how serendipitous)

 

[drusba]

The various ways to figure actual cost and which way you choose will often give a different figure. I sort of came to the conclusion that the average cost is between $5 to $6 a point. Now if you want varying answers and numerous ways to make the numbers look different perhaps we should call someone at Arthur Anderson or Enron.

 

[CarolMN]

Originally posted by drusba
Now if you want varying answers and numerous ways to make the numbers look different perhaps we should call someone at Arthur Anderson or Enron.

 

[KarenNY]

Thank you for the calculations. $6 seems fair to me. I don't think I'll need the Arthur Anderson or Enron advice

 

[BobBrazeal]

I think all that paperwork was "inadvertently" destroyed.