confused on the draw to DVC

[Momtomouselover]

I know that this is a popular approach to valuing, but I'm not a big fan of taking purchase price dividing by total points and then adding in this years MF to get what it is costing you per point. The reason why is because the time value of your initial purchase can have a big impact. So your actual opportunity costs are much higher.

If you had of invested that initial purchase of $8404 at 1% over inflation that becomes $10,357 in today's dollars. At 2% over inflation that is $12,738 and at 3% over inflation that is $15,634. So those costs in today's dollars are really $12.09 if you assume 0% return, $13.23 at 1%, $14.62 at 2% and $16.32 at 3%. At 3% you are underestimating your costs by 35%.

The way I view it is it depends on whether you would be going to Disney anyways vs. investing. If you would invest and leave it alone then you are correct. If you are going and staying deluxe than the reasoning makes sense.

 

[skier_pete]

I know that this is a popular approach to valuing, but I'm not a big fan of taking purchase price dividing by total points and then adding in this years MF to get what it is costing you per point. The reason why is because the time value of your initial purchase can have a big impact. So your actual opportunity costs are much higher.

If you had of invested that initial purchase of $8404 at 1% over inflation that becomes $10,357 in today's dollars. At 2% over inflation that is $12,738 and at 3% over inflation that is $15,634. So those costs in today's dollars are really $12.09 if you assume 0% return, $13.23 at 1%, $14.62 at 2% and $16.32 at 3%. At 3% you are underestimating your costs by 35%.

The problem I always have with this plan is that you are assuming that someone would have taken that money and invested it instead of buying DVC. My assumption is I am NOT taking my investment savings to buy DVC - I am choosing buying DVC over say a boat or a kitchen remodel or maybe Disney vacations. I'm not taking it from paying my electric bill, but I am also not taking it from money I would've put into savings. Therefore, that money was gone either way. That's why I prefer to say the value of that money remains the value of that money in 2014 dollars (or whatever year I bought).

To each his/her own of course.

 

[Heather07438]

I'm late to the party but this is what makes DVC attractive to me:

After visiting the parks on many trips, our style changed to taking the time to enjoy the resorts. That made the cost of Moderates acceptable to us. Once you're in that price territory, buying or renting at discounted DVC prices isn't much more.

Right now we're in the considering DVC purchase phase, but still renting points in the meantime. Committing to a DVC purchase also gets all the perks, which are very attractive!

My advice would be to rent DVC points for a trip. Then you'll get an idea of what it feels like and if your family finds value in it. Plenty of people do, not everybody though.

 

[Jenniebee]

The problem I always have with this plan is that you are assuming that someone would have taken that money and invested it instead of buying DVC. My assumption is I am NOT taking my investment savings to buy DVC - I am choosing buying DVC over say a boat or a kitchen remodel or maybe Disney vacations.

Yes exactly! For me it's supposed to be for fun & enjoyment, this is my yearly vacation! It's not like an investment, so I do not get that granular about it. I have other things like stocks, CD's and 401K for that. If the money were not going toward DVC it would be still paying cash for on site WDW hotels, maybe travel somewhere else, renting a beach house, cruises, etc.

 

[Sandisw]

Yes exactly! For me it's supposed to be for fun & enjoyment, this is my yearly vacation! It's not like an investment, so I do not get that granular about it. I have other things like stocks, CD's and 401K for that. If the money were not going toward DVC it would be still paying cash for on site WDW hotels, maybe travel somewhere else, renting a beach house, cruises, etc.

This was our analysis when we bought in 2009. We had a vacation budget for yearly trips to WDW. We looked at owning vs. paying cash for a room and as long as owning DVC didn’t cost more, it was worth it since we would be getting larger rooms or more nights.

Fast forward to today and of course, I own a lot more points so I am not saving anything,,,but at least I can go anywhere from 40 to 70 nights a year! Lol

 

[snappy]

I bought because I wanted to stay in a Boardwalk villa with a boardwalk view. I am pretty sure you can't book a villa with that view through CRO. You can book at BWI water view but I prefer the villas, both for the kitchen and laundry facilities but also for the angle of the boardwalk views.

 

[Heather07438]

I'm late to the party but this is what makes DVC attractive to me:

After visiting the parks on many trips, our style changed to taking the time to enjoy the resorts. That made the cost of Moderates acceptable to us. Once you're in that price territory, buying or renting at discounted DVC prices isn't much more...

Other reasons why my family is considering DVC-

• A beautiful resort really does crank up the magic a WDW trip, especially for soaking up the atmosphere beyond the parks.
• If my family's going to stay in WDW at least every 1 or 2 years and spending that trip money regardless, we may as well plan ahead and get the perks and discounts that come with DVC.
• Each return trip you physically feel the "Welcome Home" and you're back in your happy place. You're part of this Disney family that just wants to smile right now.
• Perks include big discounts across Annual Passes, food, merch, hard tickets, etc. Free Moonlight Magic park nights, free parking, free lounge access, free laundry.

Our rationale is we're going to WDW often and spending a decent amount of money anyway. If we commit to buying DVC, that same amount of money will get us much more. Commitment is also the catch. Will we still want this in 10+ years? Probably.

I am concerned over so many changes to DVC recently. We are very interested but unless some great DVC deal comes out, we'll probably wait for the dust to settle. That means renting points or finding good offers thru WDW for the next year or two.

 

[Wakey]

The problem I always have with this plan is that you are assuming that someone would have taken that money and invested it instead of buying DVC. My assumption is I am NOT taking my investment savings to buy DVC - I am choosing buying DVC over say a boat or a kitchen remodel or maybe Disney vacations. I'm not taking it from paying my electric bill, but I am also not taking it from money I would've put into savings. Therefore, that money was gone either way. That's why I prefer to say the value of that money remains the value of that money in 2014 dollars (or whatever year I bought).

To each his/her own of course.

Agree with this. I may have saved some of it, or put some in my pension, but given I’d have still gone on a vacation the times I bought, and given I’ve always bought SSR points and nearly always resale at good deals, I would estimate I’d have spent 50% of my buy in costs on vacations anyway.

 

[Soap_1984]

Yes exactly! For me it's supposed to be for fun & enjoyment, this is my yearly vacation! It's not like an investment, so I do not get that granular about it. I have other things like stocks, CD's and 401K for that. If the money were not going toward DVC it would be still paying cash for on site WDW hotels, maybe travel somewhere else, renting a beach house, cruises, etc.

The investment comparison is only to compare between putting the up front money in dvc vs just investing it and using the proceeds to rent points every year. Either way you are spending the entire amount of money on something fun, just at different times.
For example if you took 160 points at riviera the basic comparison would be:

Dvc: cost for points, dues, and closing is about $32,000 then $8.31 x 1.04 a year.

Investing: you rent the same number of points for $17/pp for a total of $2700. You invest $29300 and rent points every year. Assuming the increase in dues is matched by the increase in the cost of renting points (2,700 x 1.04), you are spending $1,400 more a year to rent points but at 5% return a year on your invested money you would actually earn something close to that amount.

That is the simplified comparison. The result is that you don't really save any money generally at today's dvc prices and the only way to change that is to sell it for something substantial in the future.

The point is if you look at it the way you described it is the equivalent of disney offering 0% financing and you don't take it. If you have the cash that is like giving you a 6-10% discount on the price.

 

[Ms.Minnie]

My daughter was placed on any contracts I purchased after she turned 18. While she loves going now, who is to say if she will when she is 65, which is the age she will be when my last contract expires.

There are no guarantees about anything in life. I guess only you and your daughter can determine if she wants to inherit your DVC contracts. I do know that at least one of my children would love to inherit our contracts. Also I'm over 65 and I'm still going strong...just sayin if you love Disney you will love it even at 65.

I hope you know that I'm not trying to give you a hard time I'm just saying that being in your 60s, 70s isn't necessarily going to diminish your ability to still enjoy all that is Disney. I guess even in your 80s and maybe even in your 90s you can still enjoy WDW.

 

[Soap_1984]

There are no guarantees about anything in life. I guess only you and your daughter can determine if she wants to inherit your DVC contracts. I do know that at least one of my children would love to inherit our contracts. Also I'm over 65 and I'm still going strong...just sayin if you love Disney you will love it even at 65.

I hope you know that I'm not trying to give you a hard time I'm just saying that being in your 60s, 70s isn't necessarily going to diminish your ability to still enjoy all that is Disney. I guess even in your 80s and maybe even in your 90s you can still enjoy WDW.

This may be so but there are not many 70-90 year olds wandering around disney. It is hot and a lot of walking for the most part. I suppose if you stick to resorts and avoid parks then it is not so bad, but I'd also factor in where you live because I can't see myself flying down twice a year when I am 80 years old. That's just me based on seeing people close to me at that age, it is doable but you are equally likely to want to sell it or give it away at that point to a child.

 

[Ms.Minnie]

This may be so but there are not many 70-90 year olds wandering around disney. It is hot and a lot of walking for the most part. I suppose if you stick to resorts and avoid parks then it is not so bad, but I'd also factor in where you live because I can't see myself flying down twice a year when I am 80 years old. That's just me based on seeing people close to me at that age, it is doable but you are equally likely to want to sell it or give it away at that point to a child.

I don't know if this is an accurate statement and what are you basing this statement on, do you have access to some kind of study to back this up? My husband is in the 70 bracket and he still enjoys our time at WDW. I see plenty of "older" people at WDW. We typically go in Jan to avoid the heat and the walking is good exercise. It also allows us to enjoy all the extra calories we enjoy while at WDW. Also we do visit the parks, not like we did before DVC (not many DVC owners do) but we do usually visit all parks at least once during our time at WDW. We visit Epcot the most because it is our favorite and has many good dining spots. Just because a person is over 70 doesn't put them in the old and decrepit category. Age is a state of mind, some people are old at 30.

We live in the NE and as of 2018 we drive down, I would much rather drive then fly. Also we usually only go once a year but for a longer period of time, doing the snowbird thing I guess you could say. Not all 80 yr old's are created equal, some maybe can't or don't want to venture to WDW but some may still want to. I'm hoping I'm in the second camp when I reach the young old age of 80. Funny thing is the older you get the younger you realize that age is. I can remember when I was in my 20's thinking someone in their 40's was old. Pretty funny to me now that I'm well past that age.

 

[Soap_1984]

I don't know if this is an accurate statement and what are you basing this statement on, do you have access to some kind of study to back this up? My husband is in the 70 bracket and he still enjoys our time at WDW. I see plenty of "older" people at WDW. We typically go in Jan to avoid the heat and the walking is good exercise. It also allows us to enjoy all the extra calories we enjoy while at WDW. Also we do visit the parks, not like we did before DVC (not many DVC owners do) but we do usually visit all parks at least once during our time at WDW. We visit Epcot the most because it is our favorite and has many good dining spots. Just because a person is over 70 doesn't put them in the old and decrepit category. Age is a state of mind, some people are old at 30.

We live in the NE and as of 2018 we drive down, I would much rather drive then fly. Also we usually only go once a year but for a longer period of time, doing the snowbird thing I guess you could say. Not all 80 yr old's are created equal, some maybe can't or don't want to venture to WDW but some may still want to. I'm hoping I'm in the second camp when I reach the young old age of 80. Funny thing is the older you get the younger you realize that age is. I can remember when I was in my 20's thinking someone in their 40's was old. Pretty funny to me now that I'm well past that age.

I don't think it is a statement that is wildly controversial. If you separated the age groups in decades, would you not agree that 100-110 would be least represented on any given day/week/month at disney? I would imagine that would be followed by the 90-99, 80-89, 70-79; after that who knows but the curve of likelihood to attend must be going downward with age.

That was the only point I was making. If you want to assume you will be going when you are 90 to divide the cost of a contract by more years then you can.This is totally anecdotal so it isn't based on anything other than my observation; if you wish to discard the premise because of that you can.

It is possible I am going at times when the 80 and 90 year olds just don't travel, but in general I don't think that assumption that I am much less likely to go in my 80's and 90's is an inaccurate one to make. I am more likely to be sick, dead, uninterested in disney, tired etc. etc. I am already feeling that way and I am not that "old" lol. Thus, in analyzing a contract with length going into years above 70, I am not placing a lot of value on those years, and rather am thinking it is more likely I will be selling when I am 75 than still going after having gone 40+ times in 40 years.

I am not saying that as a 70 or 80 year old you won't, or can't, or shouldn't go. Nor does it mean there are no 90 year olds at Disney.

 

[SecondEventuality]

I kinda gave up on resale and changed gears, but then today revisited the idea when I reconsidered looking at OKW. Most of the contracts are for 2042. I'll be 68 when that expires, which I like, there's less commitment going in. I know there are no elevators in buildings (for the most part) and the reason why I wrote it off (I'm a former runner and my knees are basically ****), but maybe this resort could work, given the short contract. The PP works MUCH MUCH better than BCV, which is basically akin to renting points (which doesn't make a lick of sense buying). I very much like OKW (it almost reminds me of BCV!), was just scared off bc of the elevator issue.

D

 

[bigredbeta]

The investment comparison is only to compare between putting the up front money in dvc vs just investing it and using the proceeds to rent points every year. Either way you are spending the entire amount of money on something fun, just at different times.
For example if you took 160 points at riviera the basic comparison would be:

Dvc: cost for points, dues, and closing is about $32,000 then $8.31 x 1.04 a year.

Investing: you rent the same number of points for $17/pp for a total of $2700. You invest $29300 and rent points every year. Assuming the increase in dues is matched by the increase in the cost of renting points (2,700 x 1.04), you are spending $1,400 more a year to rent points but at 5% return a year on your invested money you would actually earn something close to that amount.

That is the simplified comparison. The result is that you don't really save any money generally at today's dvc prices and the only way to change that is to sell it for something substantial in the future.

The point is if you look at it the way you described it is the equivalent of disney offering 0% financing and you don't take it. If you have the cash that is like giving you a 6-10% discount on the price.

Of course the math works out, but a 5% rate of return is of course not risk free and there in lies the rub. (And really you'd need to have a higher ROI than that to account for taxes and fees). Having the market tank your vacation fund is probably not a desirable outcome for a number of people.



For the OP, while I haven't purchased yet (needs to work out with our cash flow timing), I view a DVC purchase as a behavior modifier to meet my family's goals more than any sort of vacation savings plan.

By that I mean, our planned DVC purchase appears to be the best way to meet our values which include the following

1. My wife and I decided WDW trips are important enough to be done at least every other year and more than likely more frequently than that
2. There is time value added by making organizing such trips as easy as possible, even if only by a small degree
3. We tend to view money as out of sight out of mind, so once it's spent, we aren't the type to bemoan our bank account (this is especially true for me).
4. Because of point #3, we rarely are looking to secure the best possible deals for vacations as others might, and are more inclined to choose luxury accommodations when we vacation. This is not to say we just throw money away, but we're just not the type to exert a significant effort to nickle and dime our way on vacation (which is the way my parents did it).

Those particular values lead us to DVC, because when we looked at the possibilities, we foresaw a lot of trips to GF or WL or Y&B. I'll thank my lucky stars that we're in a fortunate situation to be able to cashflow our DVC purchase when the time comes, it also means we'll be able to purchase enough points that our stays will likely be longer than we might have otherwise planned for if we were doing it the non-DVC way. Knowing myself and the way I can get planning a project, DVC removes a layer of that decision making process for me, saving me time. And of course as everyone likes to point out, the perks might go away, but I do think they represent a chance to maximize the amount of magic you can have at Disney.

The end result is that we will take more trips, stay longer, and stress less. Others mileage may vary though and that's okay!

 

[CanadaDisney05]

I kinda gave up on resale and changed gears, but then today revisited the idea when I reconsidered looking at OKW. Most of the contracts are for 2042. I'll be 68 when that expires, which I like, there's less commitment going in. I know there are no elevators in buildings (for the most part) and the reason why I wrote it off (I'm a former runner and my knees are basically ****), but maybe this resort could work, given the short contract. The PP works MUCH MUCH better than BCV, which is basically akin to renting points (which doesn't make a lick of sense buying). I very much like OKW (it almost reminds me of BCV!), was just scared off bc of the elevator issue.

D

You can also look at Boulder Ridge. Very similar contract specs as OKW, but atleast you get an 11 month booking window that really matters. Most of the time you can get OKW and SSR at 7 months without even trying.

 

[Soap_1984]

So the market could tank so assume you won't make five percent despite the fact that historically that is a relatively conservative estimate over any 25 year period? You would be better off just saying you don't want to do the analysis because what you are saying makes no sense. Five percent would be a conservative estimate that actually considers the probability of having a recession during the period. Also 5 percent is after tax since I didn't adjust downward.

If we are in a recession so bad that you don't earn 5% cagr over 25 years then I am quite certain wages won't increase, and there would be some larger effect on your income, including potentially losing your job, house value plummeting etc. I'd focus much more on those since if you bought dvc with cash up front, I personally would much rather have it in my bank account than disneys if there is a huge depression where you potentially lose your job or 30 percent on your home.

 

[CanadaDisney05]

So the market could tank so assume you won't make five percent despite the fact that historically that is a relatively conservative estimate over any 25 year period? You would be better off just saying you don't want to do the analysis because what you are saying makes no sense. Five percent would be a conservative estimate that actually considers the probability of having a recession during the period. Also 5 percent is after tax since I didn't adjust downward.

If we are in a recession so bad that you don't earn 5% cagr over 25 years then I am quite certain wages won't increase, and there would be some larger effect on your income, including potentially losing your job, house value plummeting etc. I'd focus much more on those since if you bought dvc with cash up front, I personally would much rather have it in my bank account than disneys if there is a huge depression where you potentially lose your job or 30 percent on your home.

In general I agree. However, the one thing this doesn't take into consideration is the risk of "sequence of returns". What you are suggesting (and fwiw, I've suggested the same thing many times before as a viable alternative to DVC), is being in the withdrawal phase of an investment life cycle.

Had you been in the accumulation phase, then the long tern risk of things like a market downturn is really negligible. However, when you are in the withdrawal phase, it could make a big impact. Suppose you have 30k put aside for DVC but instead you do your plan. In year 1 theres a 25% drop in the market. On top of that, you've withdrawn 4k to pay for your Disney trip. That 4k is lost. It doesn't have 25 years to recover. Next year the market stays static, and you spend another 4k on your vacation. Again, that 4k will never see that long term 5% average. Your fund is now half of where it started, and your long term expectations are still around 5%.

The long term expectations only work if you keep your money invested long term. As soon as you start withdrawing, they don't mean anything anymore

 

[Soap_1984]

Yes that is true but I am not stating you would be in a withdraw phase necessarily. I am assuming, although I suppose I didn't state it explicitly, that your money is sitting there since I am also assuming it is compounding. The difference between your dues and cost of renting points is being paid by disposable income, which in theory is increasing your cash cost annually, but when compared to what your money is earning you are net 0 (or better or worse off depending on the variables, including price and MF). Perhaps the $1200-$1400 difference in cash is just me assuming that won't cripple your finances, which is probably a fair assumption for a dvc cash payor.

I admit I am not going through actuarial charts to model out my likelihood of death during each year or trying to predict a recession; this does not factor in the probability of a recession on the date you are withdrawing just like no one assumes a recession when they have to sell their house. although paying dues and for a disney vacation apparently is not affected whatsoever if there is recession?

I would still posit in your suggested scenario of a 25% market drop you would much rather have your $22,500 that is much more liquid and available to convert to cash than have it spent on dvc which will be worth much less in your suggested scenario. Sure it blows up the assumptions but if your alternative is to buy dvc that to me is a head scratcher because you could sell your a portion of your stock and buy dvc for pennies the next year if you wanted to and be far better off; a 25% drop in the market would cripple people and decimate the dvc resale market.

Sorry I understand everyone has their own analysis, but the response to what is a pretty basic investment analysis of "well if there's a recession you are going to wish you had dumped all that money into dvc" is a bit nonsensical is it not?

Obviously the modelling is imperfect, but how would you factor in the recession scenario you suggested? It isn't really practical, as the best alternative in the original post I replied to would be to never spend cash on dvc and never invest either. The recession hits and you could stay in cash and buy dvc after the recession and pay 30-40 cents on the dollar for what you were going to buy a year before. My point being making that assumption of a potential recession should actually make someone less likely to buy dvc if you ran the numbers.

 

[SecondEventuality]

Do rental pts every go up? Or is it always ~$17 PP?