BCV and BWV may have reached peak value

[havoc315]

This is me and I never get how lost opportunity comes into play once you decide to spend your money, whether DVC or something else.

Now, if one would keep it if you didn’t buy DVC, then sure. But, as I shared, my decision this year was more points or update the kitchen. DVC won! So I didn’t lose a thing.

Matter of fact, because I don’t have to pay in full until December, I actually gain a few extra dollars because I would have paid for the kitchen this spring.

To simplify is to the extreme.
Example 1– I give you $100, and then you turn around and give it back to me, to buy a dinner in the year 2032. (But you give it to me now).
Or, Example 2– I give you $20 per year. You stick it in your pocket. In 2032, you have $200… and you give me $100 for dinner at that time. While pocketing the other $100.

If you don’t prepay— you’re pocketing the extra $100.

It’s like a mortgage — but against yourself. When the bank lends a mortgage, the interest rate is set to make it “worth” lending the money. When you prepay, your savings have to be “worth” lending yourself the money.

 

[Cyberc1978]

It’s a simple mathematical law, no different than gravity.
Having $15k per year is NOT the same thing as spending $450k prepaying for vacations for 30 years. (As the extreme).





The lost opportunity is if you didn’t pre-pay, you’d actually have a much bigger vacation budget in the future —- or leftover money for other things.

Which would you rather do — take a 7 day vacation in a studio every year for 50 years…
Or 7 days in a studio for 5 years. Then 8 days in. 1 bedroom. Then 7 days in a DVC
plus a 4 day cruise. Then a Grand Villa for a week plus a 10 day luxury cruise.

So that’s the lost opportunity. You have to calculate whether you’re saving enough money by prepaying on that studio, to make it worth giving up that luxury vacation in 50 years. That illustration is very extreme. In reality, once you factor in the lost opportunity, you’re breaking even after 20-30 years on most contracts. Meaning, after 20-30 years, you’ve saved enough to match the growth you would have gotten without prepaying.

So lost opportunity is more like “what if” I did this or that instead with my money.

How do you then put a monetary value on the “what if” ?

For some knowing the cost of their vacations for the next 10-15 years is a huge plus for others not so much.

 

[Sandisw]

To simplify is to the extreme.
Example 1– I give you $100, and then you turn around and give it back to me, to buy a dinner in the year 2032. (But you give it to me now).
Or, Example 2– I give you $20 per year. You stick it in your pocket. In 2032, you have $200… and you give me $100 for dinner at that time. While pocketing the other $100.

If you don’t prepay— you’re pocketing the extra $100.

It’s like a mortgage — but against yourself. When the bank lends a mortgage, the interest rate is set to make it “worth” lending the money. When you prepay, your savings have to be “worth” lending yourself the money.

More likely it’s that I give you $100 to buy dinner and you buy dinner with it now, Or the $20 you give me to put in my pocket gets spent now and I don’t save it

In both those cases, nothing is gaining anything because my pocket stays empty.

This year I had the choice to give my $30K to DVC or to the contractor for the kitchen. Regardless, spending that money stops any future interest. That is my point.

I understand that there are lost opportunity costs when you pay for something that would otherwise be there if you kept the money and then spent it later


I had $5k a year in 2009 to vacation or use for fun, That got spent every single year so if not to Disney, then somewhere else, So, there really wasn’t any lost opportunity cost in $$$, other than I got one thing vs more than one thing.

Put another way, for us, whatever small amount of opportunity cost lost since I was spending it anyway, wasn’t even worth worrying about in the end.

Initially, I only took $3K out of my savings to add to the $5k.

And that got replaced it within the year by not going to dinner as much. So, the lost cost on that was inconsequential.

It all comes down to how people calculate not only DVC or other financial purposes. For us, that wasn’t a big deal and not enough to make us shy away from DVC.

I am in no way saving money from when I joined because it costs a lot for 900 points, but I still think the money I have and continue to spend is well worth what I am getting from it.

 

[BeachClub2014]

I am in no way saving money from when I joined because it costs a lot for 900 points, but I still think the money I have and continue to spend is well worth what I am getting from it.

Same. We aren't up to 900 points quite yet, but the premise is the same. There may be some DVC owners that are "saving" money via their membership, but we ain't one of them. At best for us, owning DVC allows for cost avoidance. Owning points over the years have resulted in us going to WDW far more often, and spending more money overall, than if we didn't own.

For us, it's about the overall value, not the net "savings".

 

[havoc315]

More likely it’s that I give you $100 to buy dinner and you buy dinner with it now, Or the $20 you give me to put in my pocket gets spent now and I don’t save it

Whether you drop the apple to the ground or simply hold it up so it never falls, gravity still applies. Same with lost opportunity.

Are you saying if you didn’t spend $30,000 on DVC (or whatever initial price), you would have just thrown it in the trash?

It’s not about whether you saved it. While saving it would give you a value easy ti measure it — whether you saved the $30,000, whether you used it on a new kitchen, whether you paid off credit cards, whether you threw a huge party, whether you spent it on a single luxury vacation — it’s an opportunity lost. Saving/investing is an easy objective measurement. It’s measurable, just like the acceleration of a falling object measures gravity. But gravity still applies even if an object isn’t actively falling. When you pay for something in advance, you’ve lost opportunity. Like gravity, it’s measurable (but with less precision).

In both those cases, nothing is gaining anything because my pocket stays empty.

But you would have had the new kitchen, or credit cards paid off, or an ultra luxury vacation, etc.

Now… if you were to say “but I’d rather have 30 years of Disney” — that’s where we get into the actual measurement of lost opportunity. What’s the more cost effective way to get 30 years of Disney?
If you actually want 30 years of Disney, is it more cost effective to save that initial $30k, or is it more effective to spend it all at once? And those are the calculations considered.

This year I had the choice to give my $30K to DVC or to the contractor for the kitchen. Regardless, spending that money stops any future interest. That is my point.

But if you spent it on DVC… then you don’t get your new kitchen. And then as your appliances break, you run up credit card debt to replace them. Your home has less resale value since you didn’t update your kitchen.

I understand that there are lost opportunity costs when you pay for something that would otherwise be there if you kept the money and then spent it later

No… that’s not the definition of opportunity costs.

I had $5k a year in 2009 to vacation or use for fun, That got spent every single year so if not to Disney, then somewhere else,

But if you borrowed $30k in 2009 to partially pre-pay the vacation (whether borrowed from a bank or borrowed from your own cash reserve, or borrowed by skipping the new kitchen), you now no longer have $5k per year in future years after 2009 (you have to use some of that to repay the bank, replenish your cash reserve, pay for kitchen appliances that break).. so maybe now you only have $3k per year after 2009. Ahhh, but your vacation is already partially paid for — true.
And thus, we can add the numbers—- would it have been better to pay $30k in 2009, and then $3k per year after that. Or better to have just paid $5k per year. The measurement of lost opportunity.

So, there really wasn’t any lost opportunity cost in $$$, other than I got one thing vs more than one thing.

Put another way, for us, whatever small amount of opportunity cost lost since I was spending it anyway, wasn’t even worth worrying about in the end.

Initially, I only took $3K out of my savings to add to the $5k.

And that got replaced it within the year by not going to dinner as much. So, the lost cost on that was inconsequential.

It all comes down to how people calculate not only DVC or other financial purposes. For us, that wasn’t a big deal and not enough to make us shy away from DVC.

I am in no way saving money from when I joined because it costs a lot for 900 points, but I still think the money I have and continue to spend is well worth what I am getting from it.

I’m not saying it isn’t worth it. I’m simply looking at the cost. A Toyota may be $30k and a Mercedes may be $100k. Whether a Mercedes is worth the extra $70k, that’s a subjective question. But I’m merely saying, hey they Mercedes costs $70k more than the Toyota. Up to you whether it’s with it.

Buying DVC costs more than taking an annual Disney trip paying as you go, in some cases. (Mostly the 2042 contracts). Up to the buyer whether owning DVC is worth more than taking an annual cash/rental Disney trip. (They may see value in the pride of DVC ownership, in forcing themselves to take annual trips, etc).

 

[wnielsen1]

Here's the thing about opportunity cost. Is it legit? Absolutely! But, why stop there? Why not put a value on your happiness? For years I was running around trying to save a few bucks (or even more than a few bucks) here and there and a spreadsheet entered into every decision. Then one day, I completely stopped. And my happiness increased significantly. How much should I value that in my spreadsheet?

 

[DonMacGregor]

I think a point not often made is that while opportunity cost does exist, it is relative. Buy that $40k Toyota instead of the $70k Mercedes, and the $30k saved can be invested or used for other things (like replacing these pesky kitchen appliances). Save $50 by buying steaks and BBQ'ing them rather than eating out, and the opportunity is smaller, relatively speaking (while still existing). Arguably, a spending pattern that leads to many of those $50 savings adding up to a more significant amount that can then be invested or utilized otherwise does exist.

Conversely, if, for example, Elon Musk armed with his wealth saved that $30k by going with a Toyota (he's a dino fuel man at heart and secretly hates electric cars), versus average Joe with a small 401k and maybe $50k in the bank, then the opportunity for Elon is much smaller, relative to his total wealth versus average Joe.

I also think age can't be overlooked. A young person in their 20's or 30's, looking at a long game for financial security needs to look more closely at opportunity, versus someone in their 50's or 60's with a strong and diverse savings and retirement portfolio.

 

[Sandisw]

Whether you drop the apple to the ground or simply hold it up so it never falls, gravity still applies. Same with lost opportunity.

Are you saying if you didn’t spend $30,000 on DVC (or whatever initial price), you would have just thrown it in the trash?

It’s not about whether you saved it. While saving it would give you a value easy ti measure it — whether you saved the $30,000, whether you used it on a new kitchen, whether you paid off credit cards, whether you threw a huge party, whether you spent it on a single luxury vacation — it’s an opportunity lost. Saving/investing is an easy objective measurement. It’s measurable, just like the acceleration of a falling object measures gravity. But gravity still applies even if an object isn’t actively falling. When you pay for something in advance, you’ve lost opportunity. Like gravity, it’s measurable (but with less precision).





But you would have had the new kitchen, or credit cards paid off, or an ultra luxury vacation, etc.

Now… if you were to say “but I’d rather have 30 years of Disney” — that’s where we get into the actual measurement of lost opportunity. What’s the more cost effective way to get 30 years of Disney?
If you actually want 30 years of Disney, is it more cost effective to save that initial $30k, or is it more effective to spend it all at once? And those are the calculations considered.






But if you spent it on DVC… then you don’t get your new kitchen. And then as your appliances break, you run up credit card debt to replace them. Your home has less resale value since you didn’t update your kitchen.



No… that’s not the definition of opportunity costs.





But if you borrowed $30k in 2009 to partially pre-pay the vacation (whether borrowed from a bank or borrowed from your own cash reserve, or borrowed by skipping the new kitchen), you now no longer have $5k per year in future years after 2009 (you have to use some of that to repay the bank, replenish your cash reserve, pay for kitchen appliances that break).. so maybe now you only have $3k per year after 2009. Ahhh, but your vacation is already partially paid for — true.
And thus, we can add the numbers—- would it have been better to pay $30k in 2009, and then $3k per year after that. Or better to have just paid $5k per year. The measurement of lost opportunity.






I’m not saying it isn’t worth it. I’m simply looking at the cost. A Toyota may be $30k and a Mercedes may be $100k. Whether a Mercedes is worth the extra $70k, that’s a subjective question. But I’m merely saying, hey they Mercedes costs $70k more than the Toyota. Up to you whether it’s with it.

Buying DVC costs more than taking an annual Disney trip paying as you go, in some cases. (Mostly the 2042 contracts). Up to the buyer whether owning DVC is worth more than taking an annual cash/rental Disney trip. (They may see value in the pride of DVC ownership, in forcing themselves to take annual trips, etc).

Then we are indeed talking two different things. Just to clarify, I didn't spend $30K in 2009...I spent $8K, which $5K was going to be spent for my cash trip...I invested in DVC instead.

I saved $30K for a new kitchen...I decided to forgo that to get DVC. In my example, it doesn't matter whether or not what I got for my $30K to Disney made it a significant savings over the same stays vs. cash. That is my point. If I am spending it anyway, I am spending it anyway. Even if I had decided to throw it in the trash (for someone else to find and use), then the end result is the same...I spent it on what I spent it on.

You are correct that if I decided to sell my house, my kitchen is not new yet So, in that respect, anytime you make a choice on what to spend your money on you lose the opportunity to spend in on something else...and that is a trade off. I guess then what I am referring to when I say lost opportunity, I am not talking trade offs, I am talking about calculating the value of dollars I am losing by spending it now, vs. spending it every year instead (like I did with my cash stays).

Personally, I save money, and I spend money...and the money I spend doesn't have to be the best bang for the buck and why when we decided if DVC was worth our money, we didn't look at that aspect because for us, its not about what could be lost, but whether the expense makes sense for us.. We lease cars which we know in the long run is more expensive then having bought. But, its what works for us.

I guess my position is that not everything has to be a huge benefit/financial savings to still be worth it and in the end, even if it means I lost the opportunity to do something else with that money, and yes, that could very well be to give it away to someone else.

I certainly understand for some, they need to look at it financially that way...so if it is important to someone, go for it. I couldn't buy BWV or BCV now because for me, its not worth it because I don't want to stay there...but if I did, and I wanted to prepay vacations so its done and over with? I would spend it.

 

[BeachClub2014]

I guess my position is that not everything has to be a huge benefit/financial savings to still be worth it and in the end, even if it means I lost the opportunity to do something else with that money, and yes, that could very well be to give it away to someone else.

I certainly understand for some, they need to look at it financially that way...so if it is important to someone, go for it. I couldn't buy BWV or BCV now because for me, its not worth it because I don't want to stay there...but if I did, and I wanted to prepay vacations so its done and over with? I would spend it.

Yes.

I also maintain that lost opportunity cost is also a subjective metric and there is no one-size-fits-all way to evaluate DVC value.

 

[Sandisw]

Yes.

I also maintain that lost opportunity cost is also a subjective metric and there is no one-size-fits-all way to evaluate DVC value.

Exactly...I think a better term for me is the use of the words "trade off"...then it makes sense in that context. I have a friend who is a multimillionaire because she doesn't spend her money and is pretty frugral with it. Drove a 20 year old car with ripped seats because she did not want a car payment. And, of course, its why she is and I am not even close! LOL

But, she lost the opportunity, by not buying early, to enjoy a nicer car. For her, the trade off was worth it...for me, it never would and as you said, that is definitely subjective in nature.

 

[Brian Noble]

This year I had the choice to give my $30K to DVC or to the contractor for the kitchen. Regardless, spending that money stops any future interest. That is my point.

I think a point not often made is that while opportunity cost does exist, it is relative. Buy that $40k Toyota instead of the $70k Mercedes, and the $30k saved can be invested or used for other things (like replacing these pesky kitchen appliances).

Part of the problem may be the word "opportunity"--I think it encourages people to think about what else they'd *do* with the money, and that's a bit of a distraction.

Perhaps a better term is the time-value of money. Put simply, the value of "$1" isn't constant: over time, the purchasing power of $1 goes down, because the prices of things go up. But, it's also the case that, for most of us, the importance of $1 goes down, because we also get raises, promotions, or even better jobs in the meantime; we can expect to earn a little more each year. The simplest way to think about it is that a fixed sum of money becomes less valuable over time.

The next idea is the difference between present value and future value. Because money loses "value" over time, $1 payments you make in the future "cost less" (in terms of value or worth) than the same $1 payment made today. Conversely, $1 payments in the present "cost more" than the same $1 payment made in the future. How much less (or more) is a bit of a question, because the rate R at which the value changes is not necessarily known with certainty. There are a couple of options people tend to use for R--long-run rate of inflation is one (somewhere in the 2-4% range--the Fed target is 2%, the observed rate from 1960 to 2021 is 3.8%). Another is what one might expect to earn (after taxes) over the long run with unspent cash that is put in some reasonable investment. For government bonds, the pre-tax rate is 5-6%. For large-cap stocks, the pre-tax rate is 10%. Reasonable after-tax rates might range anywhere from 3-8%.

These ideas collectively give you the ability to compare the "cost" (not the "price") of two different hypothetical alternatives.

1. Buying a 2042 resort. You spend $B to buy it, and then each year y spend $Dy in dues. You use it for 19 years on some set of DVC nights that use all of the points exactly, after which the contract expires.
2. Renting as you go. Invest $B in an investment account expected to grow at the long-term after-tax rate of R (the one we used above). At the beginning of every year, add $Dy to that account. Then pay for exactly the same set of DVC nights out of this account by renting them from an owner/from Disney/whatever.

If the investment account in Option 2 still has money in it when the 2042 resorts expire, then renting is cheaper than buying. If you run out of money in the investment account before then, then buying would be cheaper than renting. It doesn't really matter whether or not one is actually considering only these two options with the money; this is just a thought exercise to compare the cost of buying DVC to renting, given a plan to stay in DVC resorts for some number of nights over the horizon of the deed.

Lots of people have done this, with varying levels of sophistication. They might choose different numbers for R. They might disagree on how much dues will change over the life of the contract, or what the rental rates will be and how they will change. But, they all tend to agree on a few things: First, very few of them believe that a direct purchase of the 2042 resorts will cost less than just renting the same stays. Second, most of them think that a resale purchase of a 2042 resort might come pretty close to the cost of renting--it might be a little more, or a little less, but the difference is not particularly large either way. In other words: you probably won't "save (much) money" by buying a 2042 resort, even resale. MouseSavers has a spreadsheet that's a pretty good starting point if you want to play with this yourself.

That isn't the same thing as "you should never buy a 2042 resort" or even "you should never buy a 2042 resort direct." There may be lots of reasons that have nothing to do with "what it costs" for someone to prefer buying or renting. For example, I might know that my income is expected to grow significantly over the next 20 years, so renting makes more sense even if buying would be cheaper in the long run. Alternatively, I might hate with a white-hot passion the process of finding a point rental and negotiating it, and so I'd rather buy than rent, even if it costs a little more. In fact, I might even lose sleep at night over the fact that I'm not a "real" DVC Member and that I can't use my points for a DCL cruise, and so I'm willing to buy my favorite resort direct even if it costs (much) more to do it that way. Heck, I might even know myself well enough to know that if I didn't take this $30,000 and buy DVC with it that I'd just fritter it away on meaningless junk. (Guilty as charged, your honor.)

After all, money is for spending, and if that's what someone wants to spend it on, so be it. And that's why reasonable people can still make different decisions about buying (or not buying) at these resorts. But, an informed buyer who understands opportunity cost will probably not consider "it is cheaper than renting" to be a compelling reason to buy a 2042 resort.

-----------------------
As a grumpy-old-man aside: I find it criminal that high schools do not teach their graduates some of these basic economic principles, let alone that it is perfectly possible to have a college degree without seeing them. Yes, they require a little bit of math, but most high school graduates should be able to get their heads around compound interest, and that's all this is. \shakes-fist

I probably didn't learn these ideas until I took an Engineering Economics course as an undergraduate. Looking back over the 30 years since I graduated, that is easily the most valuable course I took at Berkeley. For example, when I bought my first house, it helped me decide whether or not I should pay points to reduce my interest rate (in that case, no), whether we should maximize our SEP contributions in our Schedule C businesses (yes), what we needed to put aside in our kids' 529 plans to make sure they had their college expenses covered without needing to borrow later, etc. etc. etc.

On the other hand, timeshare sales agents have an advantage when talking with a prospect who doesn't understand these ideas. That's because the usual sales pitch includes taking the purchase price and dividing it by the number of years you'd expect to use it for vacation, and using that as the "annual cost" of what you are buying. That significantly under-values the purchase price, and makes it look like the cost is much lower than it "really" is. Then the agent compares that to rack-rate rents, valuing future costs at present values, which over-values renting. The comparison looks fantastically good for the buyer.

The only problem with it is that the case for buying is exaggerated at best, and in some cases buying might cost the consumer more.

My brother has an MBA from a top-20 B-school. He knows his way around a financial analysis. He once attended a timeshare sales pitch in which the agent pulled exactly this trick. "Hold on a second," my brother said, "you are ignoring the time value of money. If you add that in, how does that change things?" The agent said he didn't have that off the top of his head but would ask the senior agent to go over it. The senior agent (really, the "closer" who was already supposed to talk to them) came in, and did exactly the same thing that the first agent did.

At that point, my brother looked at the agent and said: "Either you don't understand finance, or you think I don't. This meeting is over," and that was the end of that. It's too bad, really, because he was a great candidate for a timeshare, even from the developer (in this case, Hilton). A better-informed sales staff probably could have sold him on it. Que sera.

 

[Sandisw]

Part of the problem may be the word "opportunity"--I think it encourages people to think about what else they'd *do* with the money, and that's a bit of a distraction.

Perhaps a better term is the time-value of money. Put simply, the value of "$1" isn't constant: over time, the purchasing power of $1 goes down, because the prices of things go up. But, it's also the case that, for most of us, the importance of $1 goes down, because we also get raises, promotions, or even better jobs in the meantime; we can expect to earn a little more each year. The simplest way to think about it is that a fixed sum of money becomes less valuable over time.

The next idea is the difference between present value and future value. Because money loses "value" over time, $1 payments you make in the future "cost less" (in terms of value or worth) than the same $1 payment made today. Conversely, $1 payments in the present "cost more" than the same $1 payment made in the future. How much less (or more) is a bit of a question, because the rate R at which the value changes is not necessarily known with certainty. There are a couple of options people tend to use for R--long-run rate of inflation is one (somewhere in the 2-4% range--the Fed target is 2%, the observed rate from 1960 to 2021 is 3.8%). Another is what one might expect to earn (after taxes) over the long run with unspent cash that is put in some reasonable investment. For government bonds, the pre-tax rate is 5-6%. For large-cap stocks, the pre-tax rate is 10%. Reasonable after-tax rates might range anywhere from 3-8%.

These ideas collectively give you the ability to compare the "cost" (not the "price") of two different hypothetical alternatives.

1. Buying a 2042 resort. You spend $B to buy it, and then each year y spend $Dy in dues. You use it for 19 years on some set of DVC nights that use all of the points exactly, after which the contract expires.
2. Renting as you go. Invest $B in an investment account expected to grow at the long-term after-tax rate of R (the one we used above). At the beginning of every year, add $Dy to that. Then pay for exactly the same set of DVC nights out of this account by renting them from an owner/from Disney/whatever.

If the investment account in Option 2 still has money in it when the 2042 resorts expire, then renting is cheaper than buying. If you run out of money in the investment account before then, then buying would be cheaper than renting. It doesn't really matter whether or not one is actually considering only these two options with the money; this is just a thought exercise to compare the cost of buying DVC to renting, given a plan to stay in DVC resorts for some number of nights over the horizon of the deed.

Lots of people have done this, with varying levels of sophistication. They might choose different numbers for R. They might disagree on how much dues will change over the life of the contract, or what the rental rates will be and how they will change. But, they all tend to agree on a few things: First, very few of them believe that a direct purchase of the 2042 resorts will cost less than just renting the same stays. Second, most of them think that a resale purchase of a 2042 resort might come pretty close to the cost of renting--it might be a little more, or a little less, but the difference is not particularly large either way. In other words: you probably won't "save (much) money" by buying a 2042 resort, even resale. MouseSavers has a spreadsheet that's a pretty good starting point if you want to play with this yourself.

That isn't the same thing as "you should never buy a 2042 resort" or even "you should never buy a 2042 resort direct." There may be lots of reasons that have nothing to do with "what it costs" for someone to prefer buying or renting. For example, I might know that my income is expected to grow significantly over the next 20 years, so renting makes more sense even if buying would be cheaper in the long run. Alternatively, I might hate with a white-hot passion the process of finding a point rental and negotiating it, and so I'd rather buy than rent, even if it costs a little more. In fact, I might even lose sleep at night over the fact that I'm not a "real" DVC Member and that I can't use my points for a DCL cruise, and so I'm willing to buy my favorite resort direct even if it costs (much) more to do it that way. Heck, I might even know myself well enough to know that if I didn't take this $30,000 and buy DVC with it that I'd just fritter it away on meaningless junk. (Guilty as charged, your honor.)

After all, money is for spending, and if that's what someone wants to spend it on, so be it. And that's why reasonable people can still make different decisions about buying (or not buying) at these resorts. But, an informed buyer who understands opportunity cost will probably not consider "it is cheaper than renting" to be a compelling reason to buy a 2042 resort.

-----------------------
As a grumpy-old-man aside: I find it criminal that high schools do not teach their graduates some of these basic economic principles, let alone that it is perfectly possible to have a college degree without seeing them. Yes, they require a little bit of math, but most high school graduates should be able to get their heads around compound interest, and that's all this is. \shakes-fist

I probably didn't learn these ideas until I took an Engineering Economics course as an undergraduate. Looking back over the 30 years since I graduated, that is easily the most valuable course I took at Berkeley. For example, when I bought my first house, it helped me decide whether or not I should pay points to reduce my interest rate (in that case, no), whether we should maximize our SEP contributions in our Schedule C businesses (yes), what we needed to put aside in our kids' 529 plans to make sure they had their college expenses covered without needing to borrow later, etc. etc. etc.

On the other hand, timeshare sales agents have an advantage when talking with a prospect who doesn't understand these ideas. That's because the usual sales pitch includes taking the purchase price and dividing it by the number of years you'd expect to use it for vacation, and using that as the "annual cost" of what you are buying. That significantly under-values the purchase price, and makes it look like the cost is much lower than it "really" is. Then the agent compares that to rack-rate rents, valuing future costs at present values, which over-values renting. The comparison looks fantastically good for the buyer.

The only problem with it is that the case for buying is exaggerated at best, and in some cases buying might cost the consumer more.

My brother has an MBA from a top-20 B-school. He knows his way around a financial analysis. He once attended a timeshare sales pitch in which the agent pulled exactly this trick. "Hold on a second," my brother said, "you are ignoring the time value of money. If you add that in, how does that change things?" The agent said he didn't have that off the top of his head but would ask the senior agent to go over it. The senior agent (really, the "closer" who was already supposed to talk to them) came in, and did exactly the same thing that the first agent did.

At that point, my brother looked at the agent and said: "Either you don't understand finance, or you think I don't. This meeting is over," and that was the end of that. It's too bad, really, because he was a great candidates for a timeshare, even from the developer (in this case, Hilton). A better-informed sales staff probably could have sold him on it. Que sera.

I think you are right...it comes down to knowing it...vs. not caring about it enough to make it part of the decision making process. We were comfortable enough to make decisions without that...maybe that makes us financially different than others who do, but in the end, we didn't care if it was the best use of my money long term or how much was lost because spending it on DVC made us happy and in the simplest way, it was cost effective compared to what we were spending at the time and would continue to spend over time to remain cash guests.

For us, that is all that mattered. I would never attempt to figure out now if what I have spent has actually "saved" me any money. No question I feel I have gotten value out of my purchase...could I have maybe gotten it for less had I did a much more indepth analysis? Possibly...but I had no desire to do it because those aspects were not a top priority on my list of what made this a good decision.

 

[havoc315]

Then we are indeed talking two different things. Just to clarify, I didn't spend $30K in 2009...I spent $8K, which $5K was going to be spent for my cash trip...I invested in DVC instead.

I saved $30K for a new kitchen...I decided to forgo that to get DVC. In my example, it doesn't matter whether or not what I got for my $30K to Disney made it a significant savings over the same stays vs. cash. That is my point. If I am spending it anyway, I am spending it anyway. Even if I had decided to throw it in the trash (for someone else to find and use), then the end result is the same...I spent it on what I spent it on.

It’s not the same result. If you spent it on sushi dinners — then you got the value of enjoying sushi dinners. That’s not the same as throwing it in the trash. Savings has value. A kitchen has value. A sushi dinner has value. When you prepay DVC, or throw in the garbage… you’re giving up that alternative value. That lost value is part of a fundamental financial equation.
Throwing in the garbage has zero value. Prepaying has value, but a reduced present value. Fundamental finances.

You are correct that if I decided to sell my house, my kitchen is not new yet So, in that respect, anytime you make a choice on what to spend your money on you lose the opportunity to spend in on something else...and that is a trade off. I guess then what I am referring to when I say lost opportunity, I am not talking trade offs, I am talking about calculating the value of dollars I am losing by spending it now, vs. spending it every year instead (like I did with my cash stays).

Personally, I save money, and I spend money...and the money I spend doesn't have to be the best bang for the buck and why when we decided if DVC was worth our money, we didn't look at that aspect because for us, its not about what could be lost, but whether the expense makes sense for us.. We lease cars which we know in the long run is more expensive then having bought. But, its what works for us.

I guess my position is that not everything has to be a huge benefit/financial savings to still be worth it and in the end, even if it means I lost the opportunity to do something else with that money, and yes, that could very well be to give it away to someone else.

I certainly understand for some, they need to look at it financially that way...so if it is important to someone, go for it. I couldn't buy BWV or BCV now because for me, its not worth it because I don't want to stay there...but if I did, and I wanted to prepay vacations so its done and over with? I would spend it.

 

[Sandisw]

It’s not the same result. If you spent it on sushi dinners — then you got the value of enjoying sushi dinners. That’s not the same as throwing it in the trash. Savings has value. A kitchen has value. A sushi dinner has value. When you prepay DVC, or throw in the garbage… you’re giving up that alternative value. That lost value is part of a fundamental financial equation.
Throwing in the garbage has zero value. Prepaying has value, but a reduced present value. Fundamental finances.

Maybe to you, throwing it in the trash would have zero value. But if throwing it in the trash gave me pleasure, then it had value. Granted, that is an extreme example, but plenty of times I have given money away

That’s the point..to me if I chose what I wanted, then whatever potential loss of that came from not choosing a different option is meaningless for me

I just don’t define the value money in the same way you do and don’t need all my decisions to be the ones that others might think make better financial sense.

Having said that, I agree that there are trade offs in everything you buy and if someone wants to make decisions, especially with every single financial aspect covered, more power to them.

 

[Flash2014]

I think you are right...it comes down to knowing it...vs. not caring about it enough to make it part of the decision making process. We were comfortable enough to make decisions without that...maybe that makes us financially different than others who do, but in the end, we didn't care if it was the best use of my money long term or how much was lost because spending it on DVC made us happy and in the simplest way, it was cost effective compared to what we were spending at the time and would continue to spend over time to remain cash guests.

For us, that is all that mattered. I would never attempt to figure out now if what I have spent has actually "saved" me any money. No question I feel I have gotten value out of my purchase...could I have maybe gotten it for less had I did a much more indepth analysis? Possibly...but I had no desire to do it because those aspects were not a top priority on my list of what made this a good decision.

I Agree. We could just never visit Disney and just invest our money instead. Not for me, it has been worth every penny, being able to control my own reservations. I think if I had a large amount of disposable income, I could just rent for cash stays pretty much whenever I wanted too and stay pretty much wherever I wanted. But owning allows me almost that amount of freedom with just a few requirements, such as booking far enough ahead and not having daily housekeeping (rather not have it). So, in this way it does save me money, although I wouldn't buy a 2042 resort even though I had considered it in the past.
This is not really my first post, had to make another account because for some reason, e-mail notifications are not getting through. DVCsloth.
Hope it's just a technical issue and I didn't get booted for some reason. I did notify Dis Boards

 

[Flash2014]

Not talking about renting points, talking about cash reservations direct from Disney.

 

[Brian Noble]

We could just never visit Disney and just invest our money instead.

That's not the comparison.

The comparison is buy DVC, or use the same money, placed an investment vehicle, to rent the same DVC stays. Either way, you are visiting Disney exactly the same number of times, in the same rooms. The only difference is how you are paying for it.

 

[Flash2014]

That's not the comparison.

The comparison is buy DVC, or use the same money, placed an investment vehicle, to rent the same DVC stays. Either way, you are visiting Disney exactly the same number of times, in the same rooms. The only difference is how you are paying for it.

If you had your money invested, wouldn't you be using additional money on top of whatever your initial DVC purchase was?

 

[Brian Noble]

That's exactly my point in my post up-thread. If you fund your "renting DVC" account only with the DVC purchase price and annual dues, and have money left over when the contract would have expired, renting is cheaper. If you run out of money before the contract would have expired, buying is cheaper.

 

[BeachClub2014]

That's exactly my point in my post up-thread. If you fund your "renting DVC" account only with the DVC purchase price and annual dues, and have money left over when the contract would have expired, renting is cheaper. If you run out of money before the contract would have expired, buying is cheaper.

This has been an interesting discussion, and I appreciate the differing perspectives. There are other variables that may be considered as part of the equation. Things like taxes, timing the market on your investments, the money value of your time, risk in renting, etc.

t is fascinating to read how others determine value in DVC.