Are all points created equally?

[jdotgolden]

If you really want to over complicate it (I did) then you would calculate ALL annual due increases and historic values, including the subsidized dues that are rare. You’d comb through annual reports; heck there’s even a post on here about my concern around aging animals, vet bills and their impact on annual dues. You’d take into account recent renovation dates to try to model surge increases. Yes I went nuts on that on my giant spreadsheet.

Then if you go down that line, you have to account for the annual increases in cash prices per year. Both in the place where you normally stay (AoA for me) as well as where you would stay. Which I also did in my giant spreadsheet.

But wait! There’s more. What about cash value of something like free dining? Yup. Took that into account too in the massive spreadsheet. Including the last 3 years of cash free dining trips. I literally have a picture of EVERY snack credit receipt on my phone But if you’re going to do that, you have to take into account Tables in Wonderland eligibility and discounts along with Gold Pass discounts. Check and check.

Renting? Took that into account too. I ran a 10 year history on rental prices from multiple brokers as the easy way, and then calculated a private rental to see what would bring in.

Is that enough? No. Because most don’t keep their contracts. They trade it in, or they grow tired of it. So I took into account contract decay using options contracts and time value as a model But also taking into account historical direct price increases as that has an effect on resale prices. Once you factor in resale, you know your true cash equivalent

But if we’re going to take into account resale, you can’t forget about ROFR. So yes, I evaluated month by month the last 3 years of ROFR to know my best offer. Plus, compared them to direct prices to figure out what are Disney’s ROFR thresholds.

But just when we thought we were done, we forgot opportunity and investment cost. Do we use a safe investment? How about a guaranteed CD or a treasury bond? Or do we use a bull market or long term market average? But then it depends on where in the market and economic cycle we’re in. And goes back to the holding period of the DVC contract.

I’ve taken a LOT into account when I bought my contract. I’m not trying to get into this analysis being the ultimate hard rule. This analysis isn’t even near complete as it doesn’t take into account the other season. And it will be outdated when the 2021 points chart kicks in.

Still reading? Most people aren’t, which is why I didn’t want to get into all that.

This isn’t meant to cover all of it, everyone’s situation will be different. Maybe you’ll cook with a DVC. Maybe you drive and use free parking. Maybe you try the trick to get the pixie discount offer. Maybe you buy coupons for free BJs memberships so you can buy discounted Disney gift cards, but only after you’ve opened a credit card with a special bonus that now gives you 15% cash back plus an extra 5% cash back but only between a full moon and a blue moon and when your toes are red. This isn’t trying to account for all of that.

So what is it for? Nothing. As I stated in my original post “I just thought it was an interesting perspective on "value".

So take it from there. Apply it to whatever situations and calculation that applies to you. Or..don’t. And read it at face value. Who cares what the actual numbers say. Maybe the message to someone is that BWV Studio is the best value. Maybe to someone else, it’s that AKL Jambo is a better value than AKL Kidani. To another, perhaps it’s IDGAF that BRV 1BR is a horrendous “value”, I love it during holidays. They would all be valid because at the end of the day this is just a perspective. And we’ll justify our purchase.

Do you have this spreadsheet that you could share?!

 

[Yinn]

Do you have this spreadsheet that you could share?!

When I created it, I found a lot of other shared spreadsheets. The problem is that they didn't apply specifically to me or my investments, and they would get outdated but people would make decisions off of it still. Mine is the same, I did it point in time but I haven't updated it since and the economics have changed quite a bit since then. BWV as an example has plummeted in price. There's a new dining plan. Of course if you finance the economics change widely - which I didn't need and account for. I really rather not share it for fear of someone taking it and making a at a glance decision based on it. It's my decision guide but it shouldn't be used as a hard rule.

Also, as I said before some decisions aren't value based. I had AKL as a mid-pack resort in terms of value. I still ended up with a small AKL contract. We'll justify our purchase and I justified that one with value rooms and giraffes. Keep an out on my next post. "How many points is a giraffe worth?"

 

[dsnymnkyuncle]

When I created it, I found a lot of other shared spreadsheets. The problem is that they didn't apply specifically to me or my investments, and they would get outdated but people would make decisions off of it still. Mine is the same, I did it point in time but I haven't updated it since and the economics have changed quite a bit since then. BWV as an example has plummeted in price. There's a new dining plan. Of course if you finance the economics change widely - which I didn't need and account for. I really rather not share it for fear of someone taking it and making a at a glance decision based on it. It's my decision guide but it shouldn't be used as a hard rule.

Also, as I said before some decisions aren't value based. I had AKL as a mid-pack resort in terms of value. I still ended up with a small AKL contract. We'll justify our purchase and I justified that one with value rooms and giraffes. Keep an out on my next post. "How many points is a giraffe worth?"

In the cooling evening twilight, with a hot steaming tea? A lot.

 

[TandemShoehorns]

When I created it, I found a lot of other shared spreadsheets. The problem is that they didn't apply specifically to me or my investments, and they would get outdated but people would make decisions off of it still. Mine is the same, I did it point in time but I haven't updated it since and the economics have changed quite a bit since then. BWV as an example has plummeted in price. There's a new dining plan. Of course if you finance the economics change widely - which I didn't need and account for. I really rather not share it for fear of someone taking it and making a at a glance decision based on it. It's my decision guide but it shouldn't be used as a hard rule.

Also, as I said before some decisions aren't value based. I had AKL as a mid-pack resort in terms of value. I still ended up with a small AKL contract. We'll justify our purchase and I justified that one with value rooms and giraffes. Keep an out on my next post. "How many points is a giraffe worth?"

I wanted to pick your brain one more time. I read posts about people deciding to sell 2042 resorts "while they still have some value left because they certainly won't be worth much soon." (not a direct quote, but you get the idea) Figuring that you already have modeled this into a spreadsheet, I thought I would ask you about your process and assumptions in determining the value of a contract based on declining years remaining. I guess I would assume that differences in current prices of same contract length resorts reflect the desirability of location and personal preferences of that sort. Also, I believe there may be a relationship with the possible rental income left in the contract that could make a base value for each resort. But I don't have much confidence in my ability to see this issue with any semblance of clarity. Help me, Obi-Wan Kenobi. You're my only hope.

 

[Lorana]

A simplistic formula I've used is:
Cost Per Point / Years Remaining + Annual Dues = Value of the Point

The reason some people are saying that 2042 contracts won't have value soon, as they expect resale price will continue to drop as the number of remaining years continues to drop. But as you can see in the market, not all 2042 are equal in value, because popularity, size of the resort, location, etc., has a factor in its price.

For example, I personally love BRV, but clearly I'm in a minority compared to people who love BCV given the different in average cost between the two, both resale and direct. That said, I recognize BCV has one of the best pools AND an ideal location, so I understand why. At the same time, I'm pretty happy that one of my favorite resorts is priced so low. 20 years is still a lot of time, IMHO. If in the next few years it were to drop in the $60s/point, I'd probably be tempted, because 15 years is still a long time, too. ;-)

 

[Yinn]

I wanted to pick your brain one more time. I read posts about people deciding to sell 2042 resorts "while they still have some value left because they certainly won't be worth much soon." (not a direct quote, but you get the idea)

Those people are just justifying the sale. Personally, at $100-$110 for a BWV contract, it's peaked my interest for the prime location. I'm not ready to jump on it, but it has my attention.

Figuring that you already have modeled this into a spreadsheet, I thought I would ask you about your process and assumptions in determining the value of a contract based on declining years remaining. I guess I would assume that differences in current prices of same contract length resorts reflect the desirability of location and personal preferences of that sort. Also, I believe there may be a relationship with the possible rental income left in the contract that could make a base value for each resort. But I don't have much confidence in my ability to see this issue with any semblance of clarity. Help me, Obi-Wan Kenobi. You're my only hope.

Good question. Short answer: Similar to option contracts, I had aggressive decay values on them. The closer to the end, the closer to $0 it goes but it never truly goes to $0 until expiration (The reason for that is because there's always a chance that Disney does something at expiration. Wouldn't you pay $1 for a contract without any points left to see what might happen? But that speculation only lasts until expiration.) Once it expires, it's worth exactly $0.

Now I'll address the why. As @Lorana pointed out, most people will use a rental cost per year calculation. Now, ignore the actual dollar numbers and point values. I'm going to use them for illustrative purposes only.

For example, if it costs $5 to rent the room from Disney - equivalent time let’s say 50 points. then the maximum value of the contract would be $5 for a 50 point contract with one year remaining because nobody will pay you more than what they could get direct. For two years, the maximum value would be $10, three $15, etc. Except one would also rent, and if rentals were $3 then the max would be $3@1 year, $6@2, $9@3, etc. So at 3 years out the maximum I’d be willing to pay would be $9 for a $50pt contract with 3 years remaining. I'm ignoring opportunity, inflation, and investment costs for now. So that's the base kind of calculation. No matter what happens from here on out, if you'll use the contract then the maximum value to you would be pegged to that.

So now that we've got that out of the way, you have to factor in administrative costs (ie, closing costs). So at $10/point for 50 points for 3 years remaining that's $500 total. If closing costs are $500, that's $1000. You just doubled the cost of the contract. Divided by 3, that's $333/year. Add in annual dues (lets say $10/pt, but these should be projected out for the resort based on CAGR) that's another $500. So it'll cost $833/year for 50 points.

Let's compare it to a 1 year contract. Let's say it costs $1/pt for 50 points with 1 year remaining. $50 total, what a steal!! The administrative costs remain the same. So you're still paying $500 for closing. That single year is now $550, plus the same dues @ $10/pt, that ends up being $1050 for the single year for that same 50 points - 26% more expensive despite the $/pt being discounted by 90% of the 3 year contract. Even if the contract was free, the dues and closing costs alone would add up to $1000. So that's kind of the logic behind why there's aggressive decay on the backend of a contract. When you figure out the actual market/cash/rental values, then it'll give more clarity as to how aggressive it actually gets.

At $1000, that's a rental rate of $20/point. Will it still be $20/point in 22 years? Doubtful, but I doubt dues will be under $10/pt at that point too - BRV is at $7.78 with a 4.3% CAGR; that's a rough projected $18.83/pt in dues, none of the WDW 2042 resorts will be under $10/pt if they continue at the current CAGR. Boardwalk would be the closest at $13.43/point (again, really basic assumption on CAGR). So then you can calculate the average profit margin of these brokers, and the average cost of a DVC rental compared to cash to figure out all the numbers.

So you overlay that analysis on top of all other factors - financing rates, investment costs, inflation, etc. etc. And then you ask the big question. Is it a use? Or a resale strategy? Because if you want out, the last 3 years aren't as financially appealing to a buyer. So then you have to figure out the optimal out point, and the associated costs of that out. If it's a use, then your calculation is much simpler in terms of rent vs own and you just use a $0 endgame.

So you're right, there is a relationship between rentals and the resorts but there's also a financial time based factor to the contracts themselves. But there's still a disparity if we look at BCV and BWV. They rent for the same amount, but BCV is 35% higher than BWV. You can tell me it's location, but really they're right there. It's not much of a difference especially when considering the amount of walking in the parks. So what's driving the 35%? The pool? The decor? How much is all that worth? Would you pay 35% more per night to rent at BCV? If so, then it's justified. If not, then that how much would you pay? Take that and compare it to the 35% and you get an idea of how inflated the BCV contracts are - or how undervalued BWV contracts are depending on your view.

 

[MickeyMouse3!]

Do these figures factor in buy in costs and annual maintenance fees vs. cash bookings?

 

[Yinn]

Do these figures factor in buy in costs and annual maintenance fees vs. cash bookings?

No it does not. It’s a simple view, Algebra 101. A room costs X points, a room costs Y dollars. Y Dollars/X = 1 point.

Here’s another interesting way to view the data - as a renter. If you were a renter, Davids now charges $19/point to rent. Renting a 1BR at BRV would represent a 16% discount. Quite a bit of risk to take to go with a broker there instead of direct for not that much savings.

 

[DougEMG]

So you're right, there is a relationship between rentals and the resorts but there's also a financial time based factor to the contracts themselves. But there's still a disparity if we look at BCV and BWV. They rent for the same amount, but BCV is 35% higher than BWV. You can tell me it's location, but really they're right there. It's not much of a difference especially when considering the amount of walking in the parks. So what's driving the 35%? The pool? The decor? How much is all that worth? Would you pay 35% more per night to rent at BCV? If so, then it's justified. If not, then that how much would you pay? Take that and compare it to the 35% and you get an idea of how inflated the BCV contracts are - or how undervalued BWV contracts are depending on your view.

BCV pros over BWV - pool and dining that you don't have to go outside to get to
BWV pros over BCV - better views and cheaper rooms
So maybe BCV has slightly higher demand, maybe there isn't that much of a difference in demand.

The big difference is that there are twice as many rooms at BWV as BCV so assuming that the % of owners selling is the same there should be a lot more BWV contracts for sale than BCV, so more supply, but demand is similar to BCV. More supply with equal demand should have a lower price in theory. So supply and demand are what is probably drives the price difference.