Calculating Savings?

[CRobin]

John,Disney, I think you hit it on the head with comparing the value of your vacation pre and post DVC.

I just did a quick calculation from my own records and saw that between DW and I and various ressies made for family, we spent 25 nites in 2001 in a DVC resort.

But that's a far cry from spending 1 week annually at the YB as we did for many years!

Plus, you're also eating more meals at Marrakesh and buying annual passes, car rentals, plane fare, etc.

This will never be a simple calculation, but, as you and Dean have pointed out, while some can work their calculations to show a quick payback, it's not apples to apples.

Still, nothing makes me feel better than getting that room charge statement with no room charge!

 

[John.Disney]

<i>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 </i>

Just to be clear, this was comparing to rack rates. If I take the current discount rate off mousesavers, the rates have only gone up 4-6% over that time period.

Again this is limited info, but my guess is that the 10% figure is not realistic (although I know timeshare salespeople like it). They would have to have been giving rooms away 20 years ago for it to be accurate.

For example, the Grand Floridian opened 14 years ago. The current AP rate for a garden view is $230-258. With an average price increase of 10%, the implied 1988 rate would be $60-68. I think it is safe to say that rates were never that low even with a large discount (the implied rack rate would be under $100). I could be wrong though and as I said would be curious to see some real data points.

John

 

[MTMom]

but I'll try my best to understand. First, I suppose that I didn't mention that we were also interested in a week during the summer at the Vero Beach or Hilton Head properties.

The additional info you requested to crunch the numbers for me:

1) What discount rate would you like to use?

Uh, I've always used a travel agent, can you help me out on this?

2) At what rate do you expect annual dues to increase?

Plug in the maximum that Disney is contracted to use.

3) At what rate do you expect hotel prices to increase?

Can you choose this for me also (haven't a clue)?

I hope that you're not spending too much time on this, but I do want you to know that you are GREATLY appreciated!

 

[RickW]

Another way to look at it (I like John's Analysis, mine looks at the same question on a yearly cost basis instead of a break even basis):

This is how I decided that DVC was a good deal for us. I didn't really care about a break even point, I just wanted to see how much it was actually "costing" us.

Here were my assumptions:
We bought in at $55 per point.
We assumed that if we invested the $12000 instead of buying DVC, we could make about 8% interest over the long term. (This is the value that my financial planner uses for my retirement planning.
I calculated based on taking a bit of that $12000 each year and spending it on vacation so that in 2042, we would just hit $0. (Kind of like a reverse mortage payment.)

You can take this info and put it into Excel with the following formula:
=PMT(0.08,42,55,0,0)
(This is the payment amount for 42 years for $55 with 8% interest.)

This gave us a value of $4.58 per point per year. If you add the maintenence of $3.23 (for OKW), you get a total "cost" of $7.81 per point. I round this up to $8 per point and then use that for comparison.

So, for our trip this year:
Sept 1-5 (S,M,T,W Nights) at Animal Kingdom Lodge Savannah view is 29 points per night. 29 * $8 = $224 per night.
Sept 5-8 DCL (Paying cash)
Sept 8-13 (S,M,T,W,Th Nights) at BWV 1 Bedroom Preferred view is 22 points per night. 22 * $8 = $176 per night.

Compare these prices to how much these rooms would cost if you were paying cash. (Remember that you need to add tax for the cash rooms, you don't have to add any tax to the DVC point "cost")

As for inflation, I figure that hotel costs will probably go up faster than dues, so I can just ignore it.

By the way, I realize that $55 per point for 42 years doesn't really apply to people who are looking to buy now so here are some comparisons:

$55 per point, 42 years: $4.58
$55 per point, 40 years: $4.61
$60 per point, 40 years: $5.03
$65 per point, 40 years: $5.45
$70 per point, 40 years: $5.87
$75 per point, 40 years: $6.29
$80 per point, 40 years: $6.71
$80 per point, 35 years: $6.86

Just add current maintence costs to these values for the particular resort you are interested in.

 

[RickW]

By the way, if you are conservative in your investing and would prefer a different interest rate, say 6%, it gives you these values instead:

$55 per point, 42 years: $3.61
$55 per point, 40 years: $3.66
$60 per point, 40 years: $3.99
$65 per point, 40 years: $4.32
$70 per point, 40 years: $4.65
$75 per point, 40 years: $4.98
$80 per point, 40 years: $5.32
$80 per point, 35 years: $5.52

Again, add these values to the maintenance cost per point for the resort you are interested in.

Also, we used the formula in the above post as a partial decision on paying cash for our 3-day cruise. The cruise would have cost 94 points per person, or 188 points total, so by using points it would have "cost" $1504 (Cat 10). Since the price we actually got for the cruise was $917, caah was a much better way to go. (On the other hand, there was a DVC DCL special last year and we got a Cat 5 for the 7 day cruise for 290 points, which means that our 7 day cruise only "cost" $2320 and we got a $150 stateroom credit, so that cruise was a pretty good deal)

 

[John.Disney]

MTMom,

<i>I hope that you're not spending too much time on this, but I do want you to know that you are GREATLY appreciated!</i>

Your welcome. I have a lot of fun crunching the numbers. I'll be at OKW in 9 days and what better way to spend the time than getting worked up over my upcoming BCV tour!

I think I understand your situation, but I will not use 15% (max)for dues inflation as this would unfairly skew the analysis (even though I geuss it is technically possible). If you plan on spending time at VB or HH anyway on an annual basis in addition to your 4 days at the Poly, I think DVC will work out great for you. I'll get back to the numbers from home over the weekend.

RickW,

That is a very interesting way of looking at it Rick.

<i>As for inflation, I figure that hotel costs will probably go up faster than dues, so I can just ignore it. </i>

I think your analysis is perfect so long as this turns out to be true. So far so good. I think most people would agree with you.

John

 

[MTMom]

This is probably a silly, silly question, but what's the deal with 2042? How did they come up with this magic number? Is that when EVERYTHING (all DVC resorts) reverts back to Disney ownership, or does everyone just buy in for a 40 year run, with different ending dates for everyone?

If everything reverts to Disney in 2042, what will happen then? Will they already have another (or several) other timeshares up and running, with even farther out dates than 2042? This is mind boggling!

 

[RickW]

Yes, all current DVC contracts end on January 31, 2042. It is assumed that at some point, perhaps with the resort after BCV, DVC will set the end date for the new resorts furter out, but no one really knows. There has been a lot of speculation on this board about exactly what will happen in 2042, but it's just that: speculation.

 

[Tinkrbell]

MTMom-
I was told that the land contracts owned by DVD (Disney Vacation Development) was for 50 years based on the first time share that went up, OKW. Then the land reverts back to Disney Co.

Why they don't start fresh with each building, is anyones guess.
I asked about this several times, but I was never given a good answer.

 

[RickW]

Originally posted by Tinkrbell
Why they don't start fresh with each building, is anyones guess.
I asked about this several times, but I was never given a good answer.

I would assume that the answer to this question is simply:
They aren't having any trouble selling the resorts with the 2042 end date, so why would they need to move it back?

I would imagine that in about 5-10 years the 2042 date might start effecting sales. At that point you would definately see new resorts opened with a new end date.

 

[JVL1018]

Originally posted by 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.

If you get a chance I would love a copy of the spreadsheet.
My email is JVL1018@aol.com
Thanks so much!

 

[John.Disney]

If you join DVC instead of paying cash for 1 Dream Season week at VB/HH as well as 4 <b>weekday</b> nights at Poly Garden View, and you therefore use points to stay at VB/HH and BVC, you will be in excellent shape (and need 170 points). You will never swap points out of DVC resorts or waste too many points on weekends. You shape up to be an ideal candidate for DVC. I will use the same inflation rates I used before (3% discount, 4% dues, and 5% hotel) and assume the following...

Cash cost of Poly.................$245 a night
Cash cost of VB/HH studio...$168 a night

The Poly rate is current AP +tax. The VB/HH rate assumes you rent points at $10 per point from a member (you can get <b>much</b> cheaper right now with AP or general codes but I'm assuming massive disccounting will only be around until the resorts sell out).

Here are the results...

<pre>
Today ($11,900) ($11,900) $0 $0
1 ($641) ($12,522) ($2,393) ($2,323)
2 ($667) ($13,151) ($2,513) ($4,692)
3 ($693) ($13,785) ($2,638) ($7,107)
4 ($721) ($14,425) ($2,770) ($9,568)
5 ($750) ($15,072) ($2,909) ($12,077)
6 ($780) ($15,725) ($3,054) ($14,635)
7 ($811) ($16,385) ($3,207) ($17,243)
8 ($843) ($17,050) ($3,367) ($19,901)
9 ($877) ($17,723) ($3,536) ($22,611)
10 ($912) ($18,401) ($3,713) ($25,374)
20 ($1,350) ($25,562) ($6,047) ($56,128)
30 ($1,999) ($33,449) ($9,851) ($93,403)
40 ($2,959) ($42,137) ($16,046) ($138,583)
</pre>


Your breakeven is roughly 6.5 years with these assumptions.

Your overall savings in present value terms is $96,446.

We can now make various adjustments...

continued...

 

[John.Disney]

continued...

If your BCV stays fall on the weekend instead of during the week, your breakeven moves out to just over 8 years, and you would need 202 points (now might be a good time to mention that point requirements can shift between seasons at Disney's discretion, so these exact totals are just for analysis sake). Your total savings would go down to $88,515.

If on top of this dues increase by 7.5% (half of the contractual limt) instead of 4% (I mention this simply because you brought up the contractual limit, not because I expect it), the breakeven moves out to just over nine years (no big deal), however your overall savings goes down to $47,754. [BTW, if dues <b>did</b> go up at the limit of 15%, with hotel prices only going up 5%, DVC is more expensive by almost 400 thousand dollars. Needless to say, this is not a happy thought but I think you are safe.]

If you do as DVCDAVE might suggest and assume you would be paying rack rates everywhere, and hotel prices would go up 7%+ a year with dues only going up 4%, you would breakeven in under 5 years and save a quarter of a million dollars. Keep in mind though that for this to be true, a Poly Garden view would have to be going for $5,000 a night 40 years from now (not a typo). Sometimes the power of compound interest isn't obvious until you run the numbers. [At 10% annual increases, a Poly Garden view would be going for $15,000 <b>per night</b> 40 years from now, and your savings with DVC would be over half a million dollars.]

If you do as Dean might suggest and assume 3% inflation across the board as well as missed investment opportunity in the early years, your breakeven would be about 12.5 years. Your total savings however would go up because you would make more money re-investing your annual savings than you would lose by not being able to invest the upfront cost of DVC.

Lastly, going back to the original assumptions but getting 1br accommodations instead of a studio, you will need 328-384 points and the breakeven goes out to 12-15 years (basically doubles, but hey this is a big upgrade).

My opinion is that since you are going to be paying cash at a pricey Disney Deluxe resort (that costs more to rent than a DVC studio) as well as cash for DVC property at VB/HH anyway, DVC is the perfect substitute. The biggest impact in your case is that you are already planning on spending $2,200 a year at Disney, which is a fair amount of money when compared to a 170-202 point DVC contract. In comparison, in my original example I was paying $2,240 a year in exchange for a 250 point contract, which is what led to the breakeven being further out.

In general, if you replace expensive cash vacations with small DVC contracts, you will do extremely well. It's the people who replace two weeks at a moderate for a 250 point contract that will take 20+ years to breakeven.

John

 

[John.Disney]

<i>Lastly, going back to the original assumptions but getting 1br accommodations instead of a studio, you will need 328-384 points and the breakeven goes out to 12-15 years (basically doubles, but hey this is a big upgrade). </i>

This can be very confusing. I upped the cash cost for hotels in this example under the assumption that you would be willing to pay cash for a 1br at VB/HH as well. If this is not the case and you want to compare to the original cash costs ($245 for Poly room and $168 for VB/HH room), the breakeven is actually 17-21 years. The range represents whether or not the BCV stays include the weekend days.

Furthermore, if you assume the same 3% inflation rate across the board (as Dean suggested), the breakeven is actually 21-30 years. The wide range is due to the two alternatives being so close in cost. In this last example, the oveall savings is less than $10,000.

As the breakeven point moves further away, the analysis becomes highly sensitive to small changes in the assumptions.

John

 

[Dean]

John has done a lot of work for you and his way of looking at this is right on. His accounting is one of the few I've seen that I'm confortable with. I want to emphasize one thing. The savings of DVC assume you would travel to DVC most years and would stay at a Disney property (other than All Stars) most trips. DVC will never look favorable financially compared to most off site options. Off site to DVC, now that's an ever bigger upgrade! DVC doesn't save me money, it just allows me to have much better options and much more enjoyment along the way. Good luck.

 

[nisiemouse]

Dean made a great point. My dh ran the numbers on a spreadsheet trying to talk me out of it and I have to admit he made some good points. However, I much prefer to stay on site. He thinks he will enjoy disney vacations much more especially as the kids get older if we have more privacy and room to spread out. We did decide to join and got a resale. I think there is also some savings to be noted if you can eat a liitle in the room. Having the refrigerator is a big plus for us. I enjoy nice meals out when I am on vacation so I am not talking about eating in the room all the time by any means. Like Dean said it is about much more options and enjoyment for your disney vacations. Good luck in making the best decision for you!

 

[Cruelladeville]

John---You had asked about historical room rates at Disney. Since I have been going to Disney since 1974, I do have those rates. In 1974, the first year that we went to Disney, a room at Poly went for $60 per night for lagoon view. I believe that room is now going for about $345 a night, if I'm not mistaken. In those days there were no discounts on rooms, as the only hotels they had were Poly and Contemporary. The only people who got discounts were stockholders, so we bought stock to get the 20% summer discount on a room.
Also, you assumed in your calculations that dues would go up 5%, while the reality is that dues have actually gone up almost not at all since BW opened. This year our dues went up about 1 1/2 cents per point. I'm no mathematician, but I think that's far less than 5%, isn't it? That would mean that DVC actually becomes an even better deal than you had indicated in your posts, and makes me even happier that I bought into DVC when I did.

 

[John.Disney]

<i>In 1974, the first year that we went to Disney, a room at Poly went for $60 per night for lagoon view. I believe that room is now going for about $345 a night, if I'm not mistaken.</i>

That room now goes for $294, current AP rate (30% off rack). Which is a 5.84% average inflation rate (7.2% compared to current rack rate). Considering as you mentioned there were only a few games in town at that time (as compared to the massive development in the last 10-15 years), I wouldn't expect this inflation rate to continue 20-something years into the future.

<i>Also, you assumed in your calculations that dues would go up 5%, while the reality is that dues have actually gone up almost not at all since BW opened. </i>

I assumed a 4% increase but your point is well taken nonetheless. They set dues too low for OKW in the beginning but it appears they quickly learned their lesson with BCV starting at 3.77 and VWL at 3.62.

<i>This year our dues went up about 1 1/2 cents per point.</i> [at BWV]

And this year dues at VB went up 6.1% and dues at HH went up 5.1%. I think it is too soon to judge what will happen in the long run. The track record at BWV is the best so far, the other are pretty good as well but there is uncertainty over the next 40 years. Uncertainty demands a premium, just like required returns in the capital markets. I find that most people want to assume large increases in hotel prices which I see as unrealistic. The compromise I make is bumping up the dues inflation a little more than I expect.

What I <b>actually</b> expect is dues and hotels both to go up at roughly the inflation rate, perhaps a little slower for hotels due to over supply. But since I can find almost no one to agree with me on this I don't post those calculations here .

<i>That would mean that DVC actually becomes an even better deal than you had indicated in your posts, and makes me even happier that I bought into DVC when I did</i>

You have already made out very well with BWV. If the dues keep going up at under 1% per year as they have over the past 5 years, you will save a fortune by the end of DVC!

Thanks for your comments and please post any old Contemporary rates if you find them, thanks...

John