An article on "Does DVC save you money?"

[Sandisw]

ok, so you have more money in your savings account/retirement account now, then if you never purchased DVC. And even if you never purchased DVC, you would always book your vacations 7-11 months in advance, etc, etc.

I think we are defining savings in very different ways. I define savings as: You put $100 in the bank. It is FDIC insured. It is guaranteed to be $100 + interest next year.

If I purchase a DVC for $25,000 today, am I 100% guaranteed that I can still get my $25,000 back next year?
If I put my $25,000 into a CD, I can guarantee myself I'll have $25,000 + 0.67% next year.
So compounded over say... 20 years... I will have $41,414 in 20 years..
So if I buy DVC for $25,000 today, will I have an extra $41,414 in my retirement account in 20 years?

This is where I think things differ for people. Savings to me is what my vacation budget gets me.

We had a $5000 vacation budget when we first began going on o Disney. That money was to cover whatever we wanted at WDW or other places.

That money got spent every year. If it wasn’t at WDW then we used it for other fun things. It was not going to savings or retirement accounts.

When we bought DVC, that money went farther. More snacks, more souvenirs, larger room or small local trips more often

In that respect it saved us money because it stretched the dollar farther.

Fast forward to today and my vacation budget is much larger but I still consider DVC savings is in terms of what that would provide if we didn’t own it.

 

[havoc315]

This is where I think things differ for people. Savings to me is what my vacation budget gets me.

We had a $5000 vacation budget when we first began going on o Disney. That money was to cover whatever we wanted at WDW or other places.

That money got spent every year. If it wasn’t at WDW then we used it for other fun things. It was not going to savings or retirement accounts.

When we bought DVC, that money went farther. More snacks, more souvenirs, larger room or small local trips more often

In that respect it saved us money because it stretched the dollar farther.

Fast forward to today and my vacation budget is much larger but I still consider DVC savings is in terms of what that would provide if we didn’t own it.

My initial approach was that "getting more for your money" can be a great deal, but it's not truly savings. Though I understand many people see it that way. But in discussing the OP article -- that's what the article was really saying. You're spending money to get a grander experience, you're not thriftily saving money.

But with further thought and analysis... I realize that in most cases, buying DVC is not actually saving a penny, even in comparison to the alternative. Because in most scenarios, you're paying more than if you rented the points.

I bought DVC with the same thinking. And I'm almost regretting running the numbers...

Put simply... Who would spend/save more:
1 $5,000 vacation budget, but they put $40,000 into a 1-time DVC payment, and then "only" $2000 a year into paying dues..
Or
2 $5,000 vacation budget -- But never put that $40,000 into a 1-time DVC. Instead, they invest $40,000, and use the income from the investment towards their $5,000 vacation budget. They take the exact same vacations as person #1 (they rent points annually or pay cash, depending which is cheaper)

Person #2 is going to spend a lot less than person #1.. for the exact same DVC vacations.

Now, I'm not regretting my purchase -- I have a certain satisfaction in "ownership" -- But in dollars and cents, renting points saves you far more money than buying. (if you have the foresight to invest the money you would have purchased with)

 

[gisele2]

For me it is not just savings, it is a product that I like. A luxurious one, and I chose that over other things. So it is future vacations with my aging parents, my sister and brother in law, and eventually with grand-children I hope.

 

[Vulnox]

I bought DVC with the same thinking. And I'm almost regretting running the numbers...

Put simply... Who would spend/save more:
1 $5,000 vacation budget, but they put $40,000 into a 1-time DVC payment, and then "only" $2000 a year into paying dues..
Or
2 $5,000 vacation budget -- But never put that $40,000 into a 1-time DVC. Instead, they invest $40,000, and use the income from the investment towards their $5,000 vacation budget. They take the exact same vacations as person #1 (they rent points annually or pay cash, depending which is cheaper)

Person #2 is going to spend a lot less than person #1.. for the exact same DVC vacations.

Now, I'm not regretting my purchase -- I have a certain satisfaction in "ownership" -- But in dollars and cents, renting points saves you far more money than buying. (if you have the foresight to invest the money you would have purchased with)

I guess one thing not noted is for person 2, the odds of keeping the contract for full 50 years is fairly low. If they sell at 25 years and get at least their initial $40k back, although not dues, I think they come out waaayyy ahead overall. Some have reported doing even better though, maybe getting $50-60k back which covers at least a portion of dues.

 

[havoc315]

I guess one thing not noted is for person 2, the odds of keeping the contract for full 50 years is fairly low. If they sell at 25 years and get at least their initial $40k back, although not dues, I think they come out waaayyy ahead overall. Some have reported doing even better though, maybe getting $50-60k back which covers at least a portion of dues.

But the point renter comes out even more ahead in that scenario...

So ok...

Let's do Riviera..
$36,000 to buy 200 points. About $8.40 in dues per year. Over 25 years -- Pay the $36,000 + 42,000 in dues, a total payment of $78,000. Now, let's assume they can actually get $72,000 for re-sale -- Their "investment" doubled!! Fantastic! So the total out of pocket cost was only $6000!!!

But what if they rented points instead...
I'll use a rental rate of $18 per point and an investment return of 8%..

So person #2 -- Gets all the same vacations.... For absolutely no cost -- In fact, they have a net in-pocket profit of $105,000!
Dropping the investment return to 5% -- Then person #2 still saved about $2,000 more than the person who bought and re-sold. (Assumption for this math was that re-sale value would be double the initial purchase price)

 

[BlackTea]

At the end of 40 years, person #2 still has $11,000 remaining in their investment account. So person #2 has actually paid a net cost of only $83,000.

You lost me here, I plug your number into Excel, and did some quick check, here is what I got,

If only your 30K increment 5% annually, but portion of rental cost out of this 'investment' stays at 1800 for 40 years, around year 38, there will be no money left.

Another more possible scenario, say the portion for rental cost increment by 4% annually, so year one u take out 1800, year two, take out 1872, year 3, 1947, so on so forth, around year 20, there will be no money left in your investment account...

Did i miss anything?

 

[Vulnox]

But the point renter comes out even more ahead in that scenario...

So ok...

Let's do Riviera..
$36,000 to buy 200 points. About $8.40 in dues per year. Over 25 years -- Pay the $36,000 + 42,000 in dues, a total payment of $78,000. Now, let's assume they can actually get $72,000 for re-sale -- Their "investment" doubled!! Fantastic! So the total out of pocket cost was only $6000!!!

But what if they rented points instead...
I'll use a rental rate of $18 per point and an investment return of 8%..

So person #2 -- Gets all the same vacations.... For absolutely no cost -- In fact, they have a net in-pocket profit of $105,000!
Dropping the investment return to 5% -- Then person #2 still saved about $2,000 more than the person who bought and re-sold. (Assumption for this math was that re-sale value would be double the initial purchase price)

I get what you are saying and it's certainly tough to overcome that, but there are so many unknowns, from what the Riviera contract would sell for to the idea of rental rate being $18/point still in 25 years,

One question I have for you I am obviously missing, how do they end up with an in-pocket profit of $105k if using the profits from the investment to pay for the vacations? Do you mean if they invest in stocks that give dividends? So you assume the dividends would pay the $18/point and that the initial stock investment grows 8% YoY? Just getting it straight. I am not disagreeing with your assessment, just my own understanding.

 

[havoc315]

You lost me here, I plug your number into Excel, and did some quick check, here is what I got,

If only your 30K increment 5% annually, but portion of rental cost out of this 'investment' stays at 1800 for 40 years, around year 38, there will be no money left.

Another more possible scenario, say the portion for rental cost increment by 4% annually, so year one u take out 1800, year two, take out 1872, year 3, 1947, so on so forth, around year 20, there will be no money left in your investment account...

Did i miss anything?

Looks like one of us missed something..
I'm plugging it into a compounding investment calculator..

So let's do the 2 scenarios you mentions:

First scenario:
30k -- Withdrawing $1800 per year for 40 years: Not sure where I was off. But you're right, not a winner at 5%. But at 5.5% -- That looks like the break even point. Anything better than 5.5%, the renter comes out ahead of the buyer.

Now, second scenario -- The question is whether rental costs increase faster or slower than dues. Just because dues are increasing by 4% per year doesn't mean rental costs will increase by the same amount. I don't know the historical rate of increase in rental rates. But an argument can be made that since the *supply* of rental points is constantly increasing, and the owners are aging, the supply of rental points will rise more than the demand, suppressing the price of renting points.

But that brings us to the third scenario -- Risk and spillage. Most, if not all, DVC owners will experience some "spillage" of points. A year where they only use 196 of their 200 points... not that easy to rent out just 4 points. Or a year where they use their points less than optimally. The point renter never needs to worry about spillage -- If they only need 196 points, they typically can rent just 196 points. They don't have to worry about using their points suboptimally one year -- they can just forego renting points this year.
And the ultimate spillage -- risk -- What if after 5 years, you lose your job and can't afford the dues anymore. You can re-sell your DVC, but likely at a loss only 5 years out. The renter can just walk away. What if you have a maximum spillage event... I don't know, something like a pandemic making it really difficult to travel, making it hard to rent out your points. The renter doesn't have to worry about that. And finally, the renter can constantly re-evaluate and optimize. Disney offers free dining 1 year.. or a huge 40% discount on the room you'd want, suddenly booking a cash room is CHEAPER than renting points for that particular trip.

So yes -- Your scenario #2 makes it a little harder to calculate. But as discussed under #3... risk and spillage heavily favor the renter.

 

[havoc315]

I get what you are saying and it's certainly tough to overcome that, but there are so many unknowns, from what the Riviera contract would sell for to the idea of rental rate being $18/point still in 25 years,

One question I have for you I am obviously missing, how do they end up with an in-pocket profit of $105k if using the profits from the investment to pay for the vacations? Do you mean if they invest in stocks that give dividends? So you assume the dividends would pay the $18/point and that the initial stock investment grows 8% YoY? Just getting it straight. I am not disagreeing with your assessment, just my own understanding.

No.. the rental rate won't be $18 in 25 years. But the buyer's dues won't be $8.40 per point either. So we stick to the 2021 figures for both.

Yes, there are unknowns. Same goes for ANY comparison. And I'm not using this argument to actually discourage anyone from buying DVC -- I bought it, I don't regret it.

I'm just discouraging the thought process that DVC is bought as "savings." I don't need "savings" to justify the purchase. I buy things all the time -- because I enjoy them. Whether or not they are a "savings."

 

[tigertides]

In the absence of DVC, I bet most people would take a lot fewer vacations. I'm certain that by being a DVC owner, you take more vacations to get more "bang for you buck".

In that respect, higher utilization of the product would cause you to spend more money, not less.

Once you account for transportation costs, tickets, food, etc, going more than once a year to DVC will cost you more money than had you never purchased DVC, and only went once every 2-3 years.

If you want to argue that owning DVC makes you a happier person b/c it forces you to take more vacations (something most Americans don't max out), that's another argument.

 

[4luv2cdisney]

I'm not sure what post exactly I'm responding to (lol) but the big disconnect I frequently see in these #s is that someone with a $5K vacation budget is going waaaaaaay overboard on their DVC purchase from the get-go if they are plunking down $40K on DVC (If we're assuming a family of 4).

A $5K vacation budget gets you 5-6 nights in a moderate, tickets, food, and gas (since you're probably gonna need to drive on that budget). Maybe you can fly if your kids are not yet Disney adults and you got a smokin deal on your room. Less if you're staying deluxe.

So, to get the equivalent of 5-6 nights in a studio, you should only be buying 75/100/125 points depending on season and resort. Which can be done for less than 40K. Potentially a lot less.

 

[smisale]

So you sold your 400 shares of DIS just a few weeks shy of hitting the mark for long term capital gains... to potentially buy a timeshare that “won’t cost [you] a penny.” Your logic is consistent, I’ll give you that.

Disney shares down 190 can buy back in and still pay for my small contact at HH there’s my logic

 

[RoseGold]

Now, let's put the initial $33,000 in a 8% return investment. And rent our points every year.
So at $20 per point -- We will pay $4000 per year to rent. I'll take $1488 out of my pocket (just like a DVC owner), and I'll take the other $2522 out of my investment account.
Now, my 8% return actually almost exactly matches the money I need to pay for my point rental (in excess of the dues payment!)

Using the historic DVC rental point appreciation from $10 in 2010 to $20 in 2020, 7.5%, and your investment return of 8%, you have no money at 14 years. BC won't be worth much at that point, but it will be worth more than zero.

And that's the property with the worst (resale) math in the system. Change this to SSR, or even BLT or Poly, and the math is quite stark. Use SSR at 100 (multiple current Fidelity listings), and hey, even changing the initial rental to 18, and you're out of money in 9 years, while SSR is still kicking along toward 2057 expiry. Particularly against cash value, Poly and VGF shine. Not that it matters, because the OP article isn't really into math.

 

[havoc315]

Using the historic DVC rental point appreciation from $10 in 2010 to $20 in 2020, 7.5%, and your investment return of 8%, you have no money at 14 years. BC won't be worth much at that point, but it will be worth more than zero.

And that's the property with the worst (resale) math in the system. Change this to SSR, or even BLT or Poly, and the math is quite stark. Use SSR at 100 (multiple current Fidelity listings), and hey, even changing the initial rental to 18, and you're out of money in 9 years, while SSR is still kicking along toward 2057 expiry. Particularly against cash value, Poly and VGF shine. Not that it matters, because the OP article isn't really into math.

A lot of assumptions you’re baking in. In most cases, you’ll do better renting points, even at Poly and VGF.
The most erroneous assumption on which it all falls apart: DVC rental prices have NOT doubled in 10 years.

https://dvcnews.com/dvc-program/renting-points/rentals-for-non-members
The price of point rental in 2011 was $12-$14 per point.
https://dvcnews.com/dvc-program/renting-points/rentals-for-non-members
Today, it's $15-$21. (head over to the DVC trade forum, plenty of $15-$16, the maximum asking price is about $17.50)

So that's not a 100% increase in a decade... it's a 25% to 33% increase or so.
On the other hand, dues have increased more than 100% in the last decade.

So when you factor that in.... It makes annual renting of points even more advantageous. Point rental costs are increasing much slower than dues are increasing --- I'd speculate it's because of a quickly rising supply of rental points (aging contracts with the owners using them less often than when they first bought them, greatly expanded offering of DVC properties).. so the supply of rental points is increasing much faster than demand. We may get to a point in a few years where the rental price = annual dues.

 

[RoseGold]

A lot of assumptions you’re baking in. In most cases, you’ll do better renting points, even at Poly and VGF.

I was just using that poster's even bigger assumptions, that rental prices will stay the same for decades, which isn't realistic. Even BC math, which I don't view as favorable, and would never buy, can support a decision to buy, especially against cash bookings.

I agree that the assumptions compound over multiple decades, a percent here and there can definitely flip BC math! But I didn't really buy planning that. I plan to hold for less than 10 years, so I've very confident in my math. I bought SSR, which just plugs along flat-ish -- and also VGF, which I think has the most potential to appreciate over time, based on its chart and location. I'm open to selling everything in 10 years, and maybe if VGF does what I expect, and Disney is still around by then, I can pass it down.

 

[havoc315]

I was just using that poster's even bigger assumptions, that rental prices will stay the same for decades, which isn't realistic. Even BC math, which I don't view as favorable, and would never buy, can support a decision to buy, especially against cash bookings.

Sorry, as I revised my post simultaneously with your post.
The rental price has only slowly risen over the last decade.. from about $13 per point in 2011 to $16.50 per point in 2021. Dues have risen much much faster. Which really increases the value of renting points even more, and makes buying an even worse "savings" from a financial perspective.

Comparisons to cash bookings is typically not the right comparison, as a cash booking has much greater objective value than a DVC booking: Don't need to make a cash booking 11 months in advance, can cancel and get a full refund of cash bookings easily. You don't have to pay for the cash booking 20 years in advance.
Comparison to point rentals is quite a bit more of an "apples to apples" comparison.

 

[808blessing]

So what I’m concluding from the last post is a lowish point rental usually works out to the cost of the dues.

The outlay is the real cost.

I say this because I bought while on. trip where I got super duper cheap rental points and thought hmmmm how can I get this every year GUARANTEED? The resales aspect was the icing.

 

[crisi]

This is why I say that (as an accountant) you can make these numbers "prove" whatever you are looking to prove. Because you need to make assumptions - what cash room rates will do, whether this changes your patterns, what rental rates will do, what dues will do, whether you'll ever "loose" points, how long you will hold for, what the salvage value is (for non finance people that's what you'll be able to sell if for when you sell it), what value you will use for the time value of money. Even without getting into definitions of savings.

 

[havoc315]

This is why I say that (as an accountant) you can make these numbers "prove" whatever you are looking to prove. Because you need to make assumptions - what cash room rates will do, whether this changes your patterns, what rental rates will do, what dues will do, whether you'll ever "loose" points, how long you will hold for, what the salvage value is (for non finance people that's what you'll be able to sell if for when you sell it), what value you will use for the time value of money. Even without getting into definitions of savings.

Agreed.... I mean, there are some clear cut things. But the “savings” of DVC isn’t one of them.

I’m not discouraging anyone from buying DVC. I’m an owner.
Just saying I wouldn’t use “savings” as the reason for the purpose.

 

[upritbass]

Ok, let’s run the numbers for VGC. Renting at VGC costs...

AAAAAAAhahahahahahaha *snort* hahahahah *gasp* haha ha ha

Sometimes I crack myself up.