Am I missing something or does the break even point come fast when factoring selling the contract?

[Bobb_o]

I took an AKV 100 pt contract at $113/point that has 0 points in 2018, 0 in 2019, and 100 coming 2020 that I saw at DVC Resale Market being sold for $11,810 including closing costs.

I made a spreadsheet where dues increased 3% every year and using 7 nights a year in a standard studio at 100 points. I know that will change and really it's 95 points right now in Dream Season for a week in a standard studio but I wanted to do this quickly and not factor in selling/banking points. I then have a column that factors in selling the contract and getting 80% of the money back until 2048 where I shift it to 50% for 2048-2051, 25% 2052-2055, and 0% 2056-2057. I don't know if that's realistic but it seems like DVC contracts hold their value pretty well.

To compare I took renting those 7 nights at $18/point and increasing the cost 1% every year. This is also not going to be exact but I believe I rented my AKV points in 2016 for $16/point from David's so I have to imagine prices will keep going up.

Here is my graph:

Based on this if I could sell and get 80% back I'd be ahead after 2 visits. However, it would take until after 12 visits without selling before I'm ahead.

Does that look right? Are there any assumptions that I am way off on?

 

[dumaresq]

I think you have to be careful about the sell back price, if we hit a recession the prices will fall through the floor. That doesn't mean you can't break even faster, it just means you can't count on selling at a good price. I don't know about anyone else, but I didn't really do this for financial reasons. A few of my friends things I am nuts because they aren't restricted on when they can go so they just look for really cheap deals, and pay a lot less then I do in fees every year....

 

[Bobb_o]

I think you have to be careful about the sell back price, if we hit a recession the prices will fall through the floor. That doesn't mean you can't break even faster, it just means you can't count on selling at a good price. I don't know about anyone else, but I didn't really do this for financial reasons. A few of my friends things I am nuts because they aren't restricted on when they can go so they just look for really cheap deals, and pay a lot less then I do in fees every year....

I just checked what if I only got 50% right off the bat, then it would take 5 visits. 8 visits if it sells for 25% of the original value. That doesn't seem too bad to me. I haven't seen any deals that are consistently cheaper than renting DVC points. Sure you could stay in a value or moderate for less but I want to stay in deluxes.

 

[crvetter]

The biggest missing component is the time value of money. What would you have if you assumed the 11,810 is invested and withdrawn out for the explicit cost of covering some of your vacation expense. For my analysis I converted my upfront cost to an annuity payment assuming moderately higher returns then currently offered. I then used that payment as an annual offset to my non-DVC side of the spreadsheet so to speak.

Also my other issue with assuming DVC rental on the cash side is that it isn't a guarantee. So I used 20-30% off rack rates on a Deluxe room if I wanted to compare to deluxe accommodations or off moderate to compare there. In theory DVC could decide to restrict the owners from renting, currently they aren't supposed to for a business/profit or they can add in onerous restrictions that could kill this market, unlikely but it could happen, so I felt the Cash side of the resort was a bit safer of an assumption. Also I used a 3% inflation on the room costs also (even if going rental) because they should all be correlated and I think the rental rates are quite low for "in-demand" resorts and we could see some being priced higher soon rather than the common two levels they have now (Premium vs Non-Premium). Plus the whole rental thing relies on finding a willing renter which depending on travel times might not happen. I'd assume people wanting to stay at BCV and BWV will be having harder times than previous because of SW:GE opening for a year or so or those owners demand a higher return, especially if those cash resorts increase in price.

 

[Bobb_o]

The biggest missing component is the time value of money. What would you have if you assumed the 11,810 is invested and withdrawn out for the explicit cost of covering some of your vacation expense. For my analysis I converted my upfront cost to an annuity payment assuming moderately higher returns then currently offered. I then used that payment as an annual offset to my non-DVC side of the spreadsheet so to speak.

Also my other issue with assuming DVC rental on the cash side is that it isn't a guarantee. So I used 20-30% off rack rates on a Deluxe room if I wanted to compare to deluxe accommodations or off moderate to compare there. In theory DVC could decide to restrict the owners from renting, currently they aren't supposed to for a business/profit or they can add in onerous restrictions that could kill this market, unlikely but it could happen, so I felt the Cash side of the resort was a bit safer of an assumption. Also I used a 3% inflation on the room costs also (even if going rental) because they should all be correlated and I think the rental rates are quite low for "in-demand" resorts and we could see some being priced higher soon rather than the common two levels they have now (Premium vs Non-Premium). Plus the whole rental thing relies on finding a willing renter which depending on travel times might not happen. I'd assume people wanting to stay at BCV and BWV will be having harder times than previous because of SW:GE opening for a year or so or those owners demand a higher return, especially if those cash resorts increase in price.

Very good point about the value of the principal. I added that I invested the $11,810 instead and made 10% every year, taking 5% and putting it to offset vacations. It didn't make much of a difference and getting 10% isn't really realistic.

Using regular rooms doesn't really work for me for two reasons. First, if I had to pay more than renting points I'm probably not going to go. When I rent I'm putting in my rentals at 11 months out so for AKV which is one of the "easier" resorts to book it seems pretty safe outside of the changes you mentioned that could happen. I thought I had read somewhere that Florida law would have to be changed to prevent owners from booking rooms for others, maybe that's not accurate. Second, if I went with the cash room option I just checked on Mousesavers and it's $389 so if we take 70% that lowers it to $272.30 which is still significantly above DVC rental rates.

Something else I should note that I didn't factor in saving on the dues. I recently read you can pay your dues with gift cards which is awesome considering it's relatively easy for me to get 9% off (5% back on a CC like Discover or Chase Freedom at wholesale clubs which already discount 4%) or 6% off (AmEx Blue Cash Preferred at grocery stores) to make the savings look even more enticing. Of course those offers could go away just like renting.

 

[crvetter]

Very good point about the value of the principal. I added that I invested the $11,810 instead and made 10% every year, taking 5% and putting it to offset vacations. It didn't make much of a difference and getting 10% isn't really realistic.

Using regular rooms doesn't really work for me for two reasons. First, if I had to pay more than renting points I'm probably not going to go. When I rent I'm putting in my rentals at 11 months out so for AKV which is one of the "easier" resorts to book it seems pretty safe outside of the changes you mentioned that could happen. I thought I had read somewhere that Florida law would have to be changed to prevent owners from booking rooms for others, maybe that's not accurate. Second, if I went with the cash room option I just checked on Mousesavers and it's $389 so if we take 70% that lowers it to $272.30 which is still significantly above DVC rental rates.

Something else I should note that I didn't factor in saving on the dues. I recently read you can pay your dues with gift cards which is awesome considering it's relatively easy for me to get 9% off (5% back on a CC like Discover or Chase Freedom at wholesale clubs which already discount 4%) or 6% off (AmEx Blue Cash Preferred at grocery stores) to make the savings look even more enticing. Of course those offers could go away just like renting.

I think those are all valid points and I found the time value not to be much of a difference since the base comparison relies on the fact you were doing a vacation anyways. While our contracts say they can you could be right that Florida may disallow them from restricting us from renting (though they could make it more difficult); though, DVC contracts do explicitly say commercial renting is not allowed. But at any rate assuming 20-30% off rack rates as opposed to renting DVC points would actually just push your payoff ahead, so in actuality your method there is more conservative.

Also yeah you can get some savings on the dues using the GC, which I have used on my contract. I easily got 7.5% off without trying but this year I'll be looking for 10% off (sales and CC offers stacked).

 

[Best Aunt]

Posts are too long for my tired eyes to read but i will say that when people thought about a break even point in the past, they would compare it to rack rate for the same unit by making a cash resie through Disney - not the cost of renting points. I think people often found the break even point to be 7 years.

 

[tasha99]

It CAN work that way. I bought into SSR and BWV, rented about half my points out which covered my fees (we overbought), then after a few years of nice vacations, sold for a profit. Buying after the recession helped. No guaranty there won't be another recession though, which would devalue points again.

 

[heynowirv]

There's always a recession,It's cyclic. When we bought into DVC it was for the intention of family vacations and watching our family grow. We now have 5 contracts of which 2 were bought direct. The memories alone are worth the price of admission as they say.

 

[ElizabethG]

I haven't thought much about the break even. It was a pure luxury purchase. If I had to pay cash, I wouldn't be staying in a 2-bdrm. So, I guess I would have to compare it to my cash alternative, but they aren't comparable.

I have 3 contracts (all purchased direct). The current selling price for my first contract is higher than what I originally paid. I purchased BLT in 2009 for $97/pp direct. So, I could sell it now and have enjoyed 10 years of use for my dues alone. But, I'm not planning to sell.

We added on last summer (CCV at $163/pp direct). We are using the 2018 points and 2019 points this coming summer. The rack rate for the room I booked is 50% of my initial contract cost.

The question I ask myself is whether or not I feel like I am getting a value. - I do.

 

[miTnosnhoJ]

Let’s say you buy a $50,000 contract. And say you sell it for $40,000 in ten years. Using a 10% Cost of Capital, that $40,000 is worth $15400 in today’s dollars. That would also be roughly the value, in today’s dollars, of the lodging for years 11 through the end of the contract.
The Timeshare Industry is based on the fact that most people can’t do math.

 

[crvetter]

Let’s say you buy a $50,000 contract. And say you sell it for $40,000 in ten years. Using a 10% Cost of Capital, that $40,000 is worth $15400 in today’s dollars. That would also be roughly the value, in today’s dollars, of the lodging for years 11 through the end of the contract.
The Timeshare Industry is based on the fact that most people can’t do math.

Yes but that particular cost of capital argument operates you would never have outlaid cash on a vacation where you are buying a timeshare. Also 10% cost of capital is fairly high for an individual investor it’s actually quite high for insurance companies (who have some of the highest for public/private equity investments) that typically run 8%. Individual investors have much higher costs to invest.

 

[tasha99]

Let’s say you buy a $50,000 contract. And say you sell it for $40,000 in ten years. Using a 10% Cost of Capital, that $40,000 is worth $15400 in today’s dollars. That would also be roughly the value, in today’s dollars, of the lodging for years 11 through the end of the contract.
The Timeshare Industry is based on the fact that most people can’t do math.

The issue is that based on past experiences, most DVC owners sell their contracts for more than they paid for them. There is no guarantee that will continue, but that has been the reality so far. So it would be more fitting of a typical DVC model to buy a contract for $40,000 and sell it later for $50,000.

 

[MB_01]

All I know is before I found out about DVC I was spending 10-30k every year to every couple of years on rooms at DVC resorts. Now I don’t get new towels every morning but I’m not writing checks. not sure what anyone else’s situation is but this has been a huge win for me personally!!!

 

[MB_01]

I haven’t even thought about what I can sell these points for if I stop going to Disney because I seem to have no end of relatives that want to go. Even if they get tired of Disney they can pry my points out of my cold dead fingers!!!

 

[miTnosnhoJ]

Yes but that particular cost of capital argument operates you would never have outlaid cash on a vacation where you are buying a timeshare. Also 10% cost of capital is fairly high for an individual investor it’s actually quite high for insurance companies (who have some of the highest for public/private equity investments) that typically run 8%. Individual investors have much higher costs to invest.

OP mentioned 10%.
You apply the discount rate to the inflows and outflows, including the residual value.

 

[crvetter]

OP mentioned 10%.
You apply the discount rate to the inflows and outflows, including the residual value.

Buyers should be aware absolutely if looking at the profit in an analysis like this they need to consider the net present value when considering DVC as a financial asset. But I wanted to point out how a timeshare can work for both sides is the corporate return on capital is more than what an individual, which was my comments on why return on capital was high for an individual but didn’t matter much for the OPs purpose because it was conservative.

 

[Bobb_o]

Posts are too long for my tired eyes to read but i will say that when people thought about a break even point in the past, they would compare it to rack rate for the same unit by making a cash resie through Disney - not the cost of renting points. I think people often found the break even point to be 7 years.

I used renting points Whether I buy a DVC contract or rent points DVC really is the best (and practically only way) for me to want to stay on property.

It CAN work that way. I bought into SSR and BWV, rented about half my points out which covered my fees (we overbought), then after a few years of nice vacations, sold for a profit. Buying after the recession helped. No guaranty there won't be another recession though, which would devalue points again.

True, but the recession only lasted about 5 years. Even then I'm sure there would be people who would be happy to buy a 100 point AKV contract for $50-$60/point, although I'm guessing Disney would purchase it. Either way I think with my current situation I could wait it out if I had to.

OP mentioned 10%.
You apply the discount rate to the inflows and outflows, including the residual value.

I purposely said the 10% is unrealistic. The internal rate of return on my ETFs that I have now is 5.8% and my savings account (I know) is just 2.2%. I know DVC is not a "good investment" and I'm not looking at that way. I'm going to be taking vacations and going to WDW because I like to do that. Vacations are a sunk cost to me because I am going to take them, I need it for my sanity. I'm looking at it is what's the best way for me to save and it looks like putting $11k up front will save me money as long as I go for a few years and that $11k contract still has some value. Based on Disney's performance and strategy I'm pretty confident they're going to be ok.

 

[Bobb_o]

...And the wife agreed and we just put an offer in on a contract that's slightly larger than the 100 one I was looking at. Now I embark on the long road of disappointment when either someone else puts in a better offer or Disney snaps it up

 

[DenLo]

Of course all of you are declaring that rental income and paying the Florida Transient Accommodations tax for each night you rented the points, right? Sure you can lower the value of the rental because of the dues you pay, prorated for the number of points used, but you cannot ignore the the Transient accommodations tax.