CAGR Calculation or Spreadsheet

[HallDisney2019]

I will make this one quick. I know I have seen a CAGR Excel Spreadsheet many people have created to understand the ROI or break even when Buying DVC. Any chance someone can point me in the right direction where to find one so I can begin review

 

[lyric_rains]

I will make this one quick. I know I have seen a CAGR Excel Spreadsheet many people have created to understand the ROI or break even when Buying DVC. Any chance someone can point me in the right direction where to find one so I can begin review

I really liked Karen Bee’s YT video and spreadsheet link but I’m not sure it meets your needs on calculations for breaking even.

https://docs.google.com/spreadsheets/d/1tXJ_IE9Ne9QZchePUDnfBG7UKT16_CDx_tNrcoWp9z4/htmlview

 

[Kwkiwi]

I will make this one quick. I know I have seen a CAGR Excel Spreadsheet many people have created to understand the ROI or break even when Buying DVC. Any chance someone can point me in the right direction where to find one so I can begin review

Did you ever find the ROI spreadsheet for buying DVC? I would be interested too.

 

[supercarrie]

www.dvcfieldguide.com has one. (Under Free Resources-Purchase Model)

 

[DanCali]

www.dvcfieldguide.com has one. (Under Free Resources-Purchase Model)

The main problem with may these spreadsheets is that they come from places interested in getting you to buy DVC, and buy resale DVC. They tend to overstate the ROI substantially because they are missing assumptions on:

1. (i) opportunity cost - i.e., if I don't spend a chunk of money on DVC, I have that chunk of money to invest in the stock market, or bonds, or a savings account etc. (the link you provided seems to totally ignore that)
2. (ii) cash rates from renting alternatives rather than from Disney e.g, rentals via David's, Redweek or from another owner directly (the link you provided assumes rental costs per point start at $27.45, which is quite high, making ownership more attractive)

As a result, that spreadsheet shows resale DVC has a breakeven point in 5 years and direct DVC paying off in 10 years. But both of these missing assumptions have a large impact on the result.

I can give you an extreme example for illustrative purposes where DVC will never pay off... For example, suppose I buy 100 resale points for $16,000. If the alternative to owning is renting 100 points at $25pp ($2500), but I make 25% in the stock market every year, then keeping that $16,000 invested generates $4000 in the first year and I have $20,000 after 1 year. I can sell $3000 (some of that is taxable capital gain) and now, even after tax, I can still pay $2500 for the rental and my remaining balance invested in the market will be $17,000 - which I can now keep invested and it will continue to grow even if I rent DVC points every year, and even if rental costs increase by 5% per year. So with these (unrealistic) assumptions DVC never pays off.

Obviously that was a ludicrous example - nobody can rely on 25% returns, but 5%? 6%?, 7%? - those numbers matter and are not negligible. That was just to make a point that those analyses can be heavily flawed either because they come from a source that wants to prove a point that helps them, or because the person who did the analysis is not careful. Aside from the opportunity cost, we all know one can rent points at $20-$25 per point (even from reliable brokers), so why assume discounted rack rates at $27+ unless you just want to make a purchase option look better faster?

In reality, DVC does pay off over the years, but if you assume that the person who might rent keeps their money invested at a reasonable rate of 5%-7%, and they they rent directly from owners or via David's at more reasonable rates, then the breakeven even vs a resale purchase might come in 15-20 years, not in 4-5. That's not terrible from my point of view either, but does bring into question the value of buying some 2042 resorts at current prices, probably a topic for different threads! With those same assumptions, the breakeven vs. a direct purchase in the $200+pp range is a lot more questionable.

By the way, another assumption that matters a lot (because of compounding) is the percentage growth in dues vs percentage growth in rental costs. Most will assume they grow at the same rate (say 4%), but if dues grow at 5% and rental costs grow at 3%, that can make a difference between breaking even in 15-20 years and never breaking even before the contract expiration in the 2060s...

In sum, take everything with a grain of salt. Best to do you own analysis and vary your assumptions to see how much they matter!

 

[Kwkiwi]

The main problem with may these spreadsheets is that they come from places interested in getting you to buy DVC, and buy resale DVC. The tend to overstate the ROI substantially because they are missing assumptions on:

1. (i) opportunity cost - i.e., if I don't spend a chunk of money on DVC, I have that chunk of money to invest in the stock market, or bonds, or a savings account etc. (the link you provided seems to totally ignore that)
2. (ii) cash rates from renting alternatives rather than from Disney e.g, rentals via David's, Redweek or from another owner directly (the link you provided assumes rental costs per point start at $27.45, which is quite high, making ownership more attractive)

As a result, that spreadsheet shows resale DVC has a breakeven point in 5 years and direct DVC paying off in 10 years. But both of these missing assumptions have a large impact on the result.

I can give you an extreme example for illustrative purposes where DVC will never pay off... For example, suppose I buy 100 resale points for $16,000. If the alternative to owning is renting 100 points at $25pp ($2500), but I make 25% in the stock market every year, then keeping that $16,000 invested generates $4000 in the first year and I have $20,000 after 1 year. I can sell $3000 (some of that is taxable capital gain) and now, even after tax, I can still pay $2500 for the rental and my remaining balance invested in the market will be $17,000 - which I can now keep invested and it will continue to grow even if I rent DVC points every year, and even if rental costs increase by 5% per year. So with these (unrealistic )assumptions DVC never pays off.

Obviously that was a ludicrous example - nobody can rely on 25% returns, but 5%? 6%?, 7%? - those numbers matter and are not negligible. That was just to make a point that those analysis can be heavily flawed either because they come from a source that wants to prove a point that helps them, or because the person who did the analysis is not careful. Aside from the opportunity cost, we all know one can rent points at $20-$25 per point (even from reliable brokers), so why assume discounted rack rates at $27+ unless you just want to make a purchase option look better faster?

In reality, DVC does pay off over the years, but if you assume that the person who might rent keeps their money invested at a reasonable rate of 5%-7%, and they they rent directly from owners or via David's at more reasonable rates, then the breakeven even vs a resale purchase might come in 15-20 years, not in 4-5. That's not terrible from my point of view either, but does bring into question the value of buying some 2042 resorts at current prices, probably a topic for different threads! With those same assumptions, the breakeven vs. a direct purchase in the $200+pp range is a lot more questionable.

By the way, another assumption that matters a lot (because of compounding) is the percentage growth in dues vs percentage growth in rental costs. Most will assume they grow at the same rate (say 4%), but if dues grow at 5% and rental costs grow at 3%, that can make a difference between breaking even in 15-20 years and never breaking even before the contract expiration in the 2060s...

In sum, take everything with a grain of salt. Best to do you own analysis and vary your assumptions to see how much they matter!

I've found there are two types of DVC ROI spreadsheets out there. Ones that take into account the opportunity cost of not having the money you spent on the contract invested in the stock market and those that don't take that into account.

Agreed it depends what assumptions you make re inflation on dues and point rental costs, rates of return you could achieve in the market. A lot of moving parts . It also depends if you try to work in that you would sell your contract after a set number of years, what would the market value be? (I don't believe as these contracts get to the end of their life that they will be worthless. Disney isn't going to give you an extension for free but they will be offering a fairly favourable extension price. They must have learnt off the Old Key West extension experience.)

BTW when looking at whether to buy/not buy, how do you secure standard studios without a home contract? Studios are all sold out at the 7 month mark, and from what I can see it's a lot of mucking around trying to rent points with an owner through a broker.

We devised a spreadsheet with IRR calculations back in 2018 when we bought our SSR contract, comparing the discounted cash flows of buying SSR vs paying cash. I'm just revisiting it to see what actually panned out!! I'm about to have a look at the dvcfieldguide one under the free resources as he does take into account the time value of money...

 

[Brob2132]

I come back to the same thing every time: if your primary concern is opportunity cost and getting an ROI, buying a timeshare probably isn’t your calling.

I do think you can find financial value in it, but there’s also a huge mental/convenience value.

 

[Kwkiwi]

I come back to the same thing every time: if your primary concern is opportunity cost and getting an ROI, buying a timeshare probably isn’t your calling.

I do think you can find financial value in it, but there’s also a huge mental/convenience value.

I'm doing the internal rate of return exercise, really to decide what the breakeven point is, so as to decide whether to buy the timeshare contract vs investing the money in the market and drawing down the returns to pay for cash price of the Disney resorts by renting points (as DanCali mentioned as on option in his post)

You can devise a ROI/breakeven spreadsheet to find out at what market return you are better off investing and paying cash, vs buying the timeshare. For eg this spreadsheet may even indicate that it's better to stump up for a VGC contract, which is running at 12% annual growth rate, vs buying SSR which has had 0% growth in the point price.

Of course renting points has issues as it's very fiddly, non cancellable, less flexible and studios are often sold out. So there are pros and cons to both avenues. I've got the money so it's not a matter of trying to decide if there's enough return there for the deal to stack up, for me.

DVC is more like a lifestyle asset like the family home. It's been an interesting exercise running the various deals out there through the ROI calculation to find out the breakeven point. Through the ROI/breakeven calculation I've been able to identify which ones are the better deals. As DanCali pointed out above, many of the ROI spreadsheets out there don't take into account the time value of money, whereas ones that do, reflect the real cost of tying up your money with a timeshare purchase.

One of the big issues I noticed was the increase in dues that can greatly affect the calculation. For eg Aulani has 6% average increase in dues vs SSR with 4% average increase.