Calculating Savings?

[MTMom]

Is there any "magic formula" to calculate the savings you'd get by buying into DVC?

We have spent $6000 two years in a row for Disney Cruise Line land/sea vacations, and are trying to figure out the bottom line.

Can anyone help me out?

BTW, sorry about the many, many posts lately on the DVC forum.

 

[Dean]

It's such a personal decision that it's hard to come up with a good rule of thumb. It's not going to save you money on the Cruise portion though and is actually less value than using cash for the cruise. For the exact situation you quote, you need to consider where you stayed and what your overall vacation habits are as well then assign a price to that based on a DISCOUNT from the rack rates. For fun, also compare points price to cash with the cruise but I think you'll come out ahead on cash there. We can easily give you the points for the cruise and help you with a value and points cost for a "comparable" DVC stay for the land portion. I'd use the DVC resorts and not The Disney Collection option to stay at places like AKL or the GF.

Just for example, a moderate can be had at around $100 per night or less (frequently less) and AKL for $185 per night including Tax and WLV as low as $165. The 3 day cruise is 214 for 2 for Category 9 and the 4 day is 248 for summer. Additional children (3-12) are 50 and 63 each and adults (and children 13 and over) are 56 and 69 each. So putting it all together a 4 day stay at WLV for summer will be 52 points in a studio and a 3 day cruise will be 314 points for a category 9 or 364 overall. You could have had this stay for around $2600 to $3000 round numbers. Of course you could have used DVC for the onsite and then pay cash for the cruise if that was better. DVC might work out better for higher priced cabins which tend to be discounted less.

 

[Lisa P.]

If you would plan to use DVC points regularly for the Disney cruise, I'm afraid you wouldn't find it as valuable. That is a benefit subject to change. How many points would be needed to take the cruise and add your land package?

If a purchase (40 years) costs you $60/point (resale) plus annual maint fees of $4/point, it's safe to say that you'd be paying at least $6/point for usage. With all the lost opportunity cost (interest dividends or added loan interest costs), some people say the cost of DVC is more like $8-$10 per point. It's certainly higher for those who will pay $80 per point in the near future.

So take your points cost for your anticipated vacation usage with the points. Multiply it by 6 or 8 or 10 and you will be able to compare it to your expenses when paying cash. Use the same category room and the same time of year for your same (or comparable) hotel room stay. Remember that there can be specials, discounts and incentives when paying cash for cruises and hotel stays.

 

[boudreaux0]

I created a very in depth spreadsheet that can show you savings. It take into account the increase in room rates and in your annual dues. If you would like it give me your email address and I will send it to you. It is in Excel format.

 

[Tinkrbell]

boudreauxO- I would love an email of that spreadsheet. I have tried several times to "figure it out", and we too have spent thousands on years of Disney vacations, but never seem to take the plunge and buy into DVC.
Thanks

 

[pluto109]

cost of a point is around 5.00,including dues ..okw studio in jan is 8 pts..=40 dollars...cash price 250 +tax...

 

[John.Disney]

<i>Is there any "magic formula" to calculate the savings you'd get by buying into DVC? </i>

I don't know if it's magic but if you make enough assumptions you can hammer it down. I'll compare a studio at VWL to a Woodsviev room at WL because I think that is about as close as you can get to equivalency. Here are my assumptions...

# of points purchased...250
Cost per point...............$70 (current BCV cost)
Dues today per point....$3.77
What you get................2 weeks in a studio, Dream season, 40 years
WL Woodview cost today... $160 (discounted Dream season)
Inflation (discount) rate..... 3%
Dues Inflation rate.............. 4%
Hotel Room Inlation............ 5%

Cummulative Present Value Table:

Column 1- Actual Cash Flow for DVC purchase
Column 2-Cummulative Present Value of CF for DVC purchase
Column 3- Actual Cash Flow for paying cash for your hotel
Column 4-Cummulative Present Value of CF for paying cash for your hotel

<pre>
Today ($17,500) ($17,500) $0 $0
1 ($950) ($18,422) ($2,486) ($2,414)
2 ($988) ($19,354) ($2,611) ($4,875)
3 ($1,028) ($20,294) ($2,741) ($7,383)
4 ($1,069) ($21,243) ($2,878) ($9,941)
5 ($1,111) ($22,202) ($3,022) ($12,548)
6 ($1,156) ($23,170) ($3,173) ($15,205)
7 ($1,202) ($24,147) ($3,332) ($17,915)
8 ($1,250) ($25,134) ($3,499) ($20,677)
9 ($1,300) ($26,131) ($3,674) ($23,492)
10 ($1,352) ($27,137) ($3,857) ($26,362)
11 ($1,406) ($28,153) ($4,050) ($29,288)
12 ($1,462) ($29,179) ($4,253) ($32,271)
13 ($1,521) ($30,214) ($4,465) ($35,311)
14 ($1,582) ($31,260) ($4,688) ($38,411)
15 ($1,645) ($32,316) ($4,923) ($41,571)
16 ($1,711) ($33,382) ($5,169) ($44,792)
17 ($1,779) ($34,459) ($5,427) ($48,076)
18 ($1,851) ($35,546) ($5,699) ($51,423)
19 ($1,925) ($36,643) ($5,984) ($54,836)
20 ($2,002) ($37,751) ($6,283) ($58,314)
21 ($2,082) ($38,870) ($6,597) ($61,861)
22 ($2,165) ($40,000) ($6,927) ($65,476)
23 ($2,251) ($41,141) ($7,273) ($69,161)
24 ($2,341) ($42,293) ($7,637) ($72,918)
25 ($2,435) ($43,456) ($8,019) ($76,748)
26 ($2,533) ($44,630) ($8,420) ($80,652)
27 ($2,634) ($45,816) ($8,841) ($84,632)
28 ($2,739) ($47,013) ($9,283) ($88,690)
29 ($2,849) ($48,222) ($9,747) ($92,826)
30 ($2,963) ($49,442) ($10,234) ($97,042)
31 ($3,081) ($50,675) ($10,746) ($101,340)
32 ($3,204) ($51,919) ($11,283) ($105,722)
33 ($3,333) ($53,176) ($11,848) ($110,189)
34 ($3,466) ($54,445) ($12,440) ($114,743)
35 ($3,605) ($55,726) ($13,062) ($119,385)
36 ($3,749) ($57,019) ($13,715) ($124,117)
37 ($3,899) ($58,325) ($14,401) ($128,941)
38 ($4,055) ($59,644) ($15,121) ($133,858)
39 ($4,217) ($60,975) ($15,877) ($138,872)
40 ($4,386) ($62,320) ($16,671) ($143,982)
</pre>


continued...

 

[John.Disney]

continued...


As you can see, the cummulative savings are significant and the break-even point (with these assumptions) is roughly 11 years. I would be happy to plug in <b>your</b> assumptions and re-post the results. You might also want to include how often you plan on using points for non-DVC resorts as I can factor that in. You will find that the savings can decrease rapidly if you plan on using the points for cruises etc.

If you used a $99 moderate instead of a WL room in the example, the break-even goes out to 22 years.

If on top of this you assume 20% of your points will be used for non-DVC resorts, the break-even goes out to 27 years.

If on top of this you assume dues and hotel rooms only go up with inflation at 3%, DVC expires before you break-even.

Post your assumptions and we'll see what you get!

John

PS I can also factor in the opportunity cost of investing the money but suprisingly I've found that this does not drastically alter the final results, although it depends on the assumed return. The reason for this is that although you will have more money to invest <b>up-front</b> if you don't join DVC, you will have less money to invest <b>each year</b> for the next 40 years because you'll be paying cash for a hotel room instead of paying dues. Eventually these yearly savings surpass the initial cost of DVC (your initial <b>investment</b> if you <i>don't</i> join) and you start making more money on these saving than you would have by paying cash and not joining DVC. The break-even point will move out marginally (due to investing up-front versus paying into an annuity), but the savings (earnings) in the end can be tremendous. IOW, by including these calculations, DVC actually becomes an even better deal from a financial standpoint (assuming normal returns).

 

[Dean]

John has the most realistic set of numbers I've seen in a while. The only things I'd add to the numbers are that I personally would need to assume the investment rate of return, would use the same inflation for all items and just to let you know that you can skew the numbers in favor of buying DVC is you avoid weekends as the points are much lower during the week. This is a good way to downplay those that say you'll break even in 4-8 years, it's unrealistic for most of us. 15-20 is far more realisted to think of break even on buying DVC or not. Good luck.

 

[MTMom]

OK, what assumptions should I provide to you?

We are considering buying into the BCV, and historically, we have stayed in a Garden View Poly room for 4 days, then take a 3 day cruise. We are thinking that in the DVC, we would buy in at the minimum points, and use them for the WDW section of our trip, then just pay cash for the cruise. We usually travel in off -peak, or shoulder times. What other info do you require from me in order to run those numbers?

Thank you so very much for your honest and realistic number crunching. That is EXACTLY what I was looking for.

 

[vacationman]

Even using points for a cruise is not so bad an idea. Try this scenario:

Buy 300 points resale at $58 per point (incl. maint and taxes and closing costs) with 300 points available this year, 300 more in Oct this year. These deals are out there.

You would have spent $17,400. Add in the cost of funds at a hardy 7%, your cost after two years would be $19,921.26. Add in maintenace and taxes for two years at $2,100.00 and your total in is now $22,021.26.

Now, you take a 7 day Western Carribean cruise during Peak Season in a Category 6 (that's with a veranda - very nice). Your family of four is two adults, one teenager and one under 12. Without transfers, airfare and travel insurance, that would cost you $5,515.08. In points it would be (2002 point chart) 772 points.

As of October, you have 600 points available and you borrow the remaining 172 from the next year (Oct. 2003 allotment) for the cruise. You now have 128 points left to use before you would get your next 300 in Oct. 2004.

That 128 could get you a full week at a VWL studio during dream season or five days in a one bedroom at OKW during peak season.

Upon hitting your second year, you decide to sell your points. Here is the subjective part - I will assume you could sell your points at $53 per point (net). That would be $15,900.

You have now saved $5,515.08 on the cruise costs and at least $700 on your stay at VWL (assuming you could have gotten that room for $100 per night - likely higher). That's $6,215.08.

Subtract the money from the sale of your points and what you did not spend for the VWL stay and the 7 night West Caribbean cruise and your grand total cost would be negative $93.82 - so you wuld be up almost $100. That's better than real break even in just two years.

Of course, breaking even is not the point. The longer you stay a DVC member, the better it gets.

I know there may be something I missed, but anyway you look at it, if you like to go to Disney properties with any regularity, DVC is a bargain.

 

[Dreamfinder2]

Being simpleminded as I am about finances (I am not an accountant nor the son of an accountant) , when we were obsessing over the "to buy or not to buy," I didn't factor in an investment rate of return, assuming I would've invested DVC funds into something else. It was easier for me to think of our DVC funds being "anyway money," money I would be using toward vacations anyway, and therefore not investing.

For us, that made DVC even that much more attractive, but I wouldn't cast you in our autobiography. Is DVC a "gut" decision or a well-reasoned, thought out decision? In our case, it was a combination of both.

 

[vernon]

Nice spread sheet John, I did something similar to see how it worked for me before I bought in.

MTMmom, I don't know what days of the week the cruise/WDW breaks usually work out to but as Dean correctly says it does make a big difference to your cost effectiveness. If it works out that you spend the weekends on the boat, then DVC is going to be a much more attractive option than if the boat is midweek and the land time covers a Friday and Saturday. As you'kll see if you check on the DVC points cost calculator a weekend is about 2.5 times the cost of a weekday. If your 4 day stay at WDW is all on weekdays a studio is going to cost between 32 points and 60 points for most of the year ( excluding Christmas) whereas a 4 night day which has a Friday AND a Saturday in it would cost between 56 and 105 points. Just to clarify any stay including a weekend will ALWAYS cost almost double that of a stay with no weekends USING THE SAME SEASONS.

 

[Tinkrbell]

If the break even point is 11 years based on $70/ppt at todays rates for a remaining 40 years.

What will it be at the proposed $75 or $80 /ppt with less use years?

Also when do you think that DVC resales will no longer be marketable? 35years? 30? ...??

Thanks for all of the info. You are making my decision alot easier.

 

[John.Disney]

Okay, first off it is worth noting that 150 points is way too many points for four days at the BCV in a room equivalent to a Garden View Poly room. So you will not save money if this is all the time you would otherwise spend in a Disney Resort.

If you don't mind spending more and just want to know if you're getting a good 'value' for your money, we can still do the analysis. You have to assume either a longer 'land' stay in a BVC studio, or you have to let me know what it is worth to you staying in a 1br or 2br villa versus the Poly room on a per night basis (I can estimate this for you if you wish, I avoided this problem in my example by using the 'roughly equivalent' accommodations of a VWL studio vs. WL Woods View).

I think it is important to make a distinction between two important questions...

1) Is DVC a good economic value in its own right?

2) How expensive is DVC relative to what <b>you</b> would otherwise be spending on vacation accommodations?

I think the answer to the first question is almost always yes (unless you assume annual dues go up <b>much</b> faster than hotel prices), and can be illustrated quite easily by comparing 'equivalent' accommodations.

I think the answer to the second question varies greatly. It is my unscientific opinion that when people join DVC, in many cases, they end up spending <b>more</b> on their accommodations. But since they are getting excellent <b>value</b> for the extra spending, they consider it a great deal.

If you think this applies to you, all I need from you is...

1) What discount rate would you like to use?
2) At what rate do you expect annual dues to increase?
3) At what rate do you expect hotel prices to increase?

...and I will estimate the rest and provide the analysis for you.

Otherwise, you are better off paying cash for those four nigts at the Poly every year, as this will cost much less than joining DVC.

John

 

[DVCDAVE]

JOHN.DISNEY; I may be wrong, as I don't have a historical, but I remember seeing posts before on this forum that indicated the inflation rate for the Disney resorts was much higher than the 5% you used in your assumptions. If my memory serves me correctly I thought I remember it was in the 10 to 11% area. I've tried to get to the Disney Vacation & Reservation website this morning, but it seems to be down. I just want to see what the rate changes will be from 2002 to 2003.

Further, why wouldn' you use the cash cost of the exact room you would be using in DVC...ie: the cash cost of a studio at VWL instead of a WL hotel room ? otherwise you are comparing to unlike rooms. A WL room is a HOTEL room, a DVC Studio has a Sink, Coffee maker Microwave and a refridgerator. In addition, there are also perks, like free use of the sauna, workout room, and free video rentals, including some discounts. Therefore I contend that the cash comparison rate should be $269 per night NOT $169. If we make comparisons, it seems we should compare apples to apples.

Then again; it is only my opinion.

 

[John.Disney]

<i>The only things I'd add to the numbers are that I personally would need to assume the investment rate of return</i>

If I have time over the w/e I will illustrate what I was writing about last night. Overall, it does not have a significant effect on the break-even date (pushes it out 1-2 years).

You are correct in wanting to factor in a higher investment return (my analysis implicitly assumes a 3% return in its discounting, which is too low). I am simply trying to say that it doesn't have a large effect on the break-even date. What you lose by not investing the money upfront you make back by having more money to invest annually, because you are paying dues (low cost) campared to cash (high cost) for your resort every year.

<i>would use the same inflation for all items</i>

So would I, but I find many people disagree, which is why I used the numbers I did.

<i>This is a good way to downplay those that say you'll break even in 4-8 years, it's unrealistic for most of us</i>

Seems a bit of a stretch to break-even that fast. You have to be careful not to confuse apples with oranges. As I said in my previous post, you must make a distinction between the <b>value</b> of DVC and your personal vacation habits. If you compare a 150 point contract to an annual one month stay at the GF concierge, then of course you will save a fortune with DVC and breakeven in under a year. It may be true, but its is not a <i>fair</i> comparison. You have changed your vacation habits.

John

 

[John.Disney]

<i>What will it be at the proposed $75 or $80 /ppt with less use years? </i>

Small price changes do not have a large affect on the breakeven dates. The biggest factors are the assumed inflation rates for annual dues and hotel costs.

<i>Also when do you think that DVC resales will no longer be marketable? 35years? 30? ...?? </i>

My opinion is that this is closely tied to Disney's marketing efforts. As long as they are pushing DVC at the resorts, parks, and in the media, there will be a strong market for resales. When they are done building though, my guess is you'll see a significant drop off in demand for resales.

Your guess is really as good as mine.

John

 

[Terry S]

John.Disney.... I sent you an E-mail with my numbers asking if you wouldn't mind doing a speadsheet for me. (if you don't mind) I do want to compare apples to oranges even though I know its not really a fair estimate. But, I want to know what I would have spent on BC hotel rooms if I had never bought into DVC. Thanks.

 

[John.Disney]

<i>I may be wrong, as I don't have a historical, but I remember seeing posts before on this forum that indicated the inflation rate for the Disney resorts was much higher than the 5% you used in your assumptions. If my memory serves me correctly I thought I remember it was in the 10 to 11% area.</i>

I've heard the same thing but I've never seen any evidence to prove it. If someone has data points of old hotel rates I'd be very interested in seeing them. The very limited evidence that I have (CR and FW) is that hotel prices have gone up 6-7% annually over the last 20-30 years (inlaws save the funniest things re: FW, CR is hearsay but I believe accurate). It is worth noting that the US has enjoyed the largest economic expansion in its history over those 20 years. And where there was a shortage of hotel rooms 20 years ago, there is over-developmemnt today. I am willing to put in any numbers you like, but I think 10% is much too high, maybe 7%?

Also, if you're going to pump this up I think you have to pump up the dues inflation number. I know that OKW had a jump in the beginning but has been flat for several years now. How's the track record of the others?

<i>Further, why wouldn' you use the cash cost of the exact room you would be using in DVC</i>

Seems perfectly reasonable to me. Again, I'll plug in any number you like. The reason I didn't use rack rates at DVC resorts in that one example is because they are artificially high due to extremely limited demand. Disney is picking off the top of the utility curve here which doesn't apply to most guests in my opinion. The main difference (in the lower price at WL) is that at WL there is no artificial demand from timeshare owners keeping the supply short. The other differences you mention (gym, kitchenette, etc.) make the studio more attractive so I should probably bump the WL price a bit ($40?), but not up to rack rates IMO.

<i>If we make comparisons, it seems we should compare apples to apples. </i>

Agreed, but Disney prices the DVC resort rooms at artificially high rental rates to pick off the small part of the population that is price-insensitive because they know they only have limited rooms to fill. My understanding is that at times it is not unusual to get 50% off these rental rates for residents of Southeastern states and especially Floridians. I think you are absolutely correct in your logic, but you need to adjust your math to take these facts into consideration.

I will whip-up an adjusted analysis to see what we get over the weekend, thanks for your comments!

John