Crunching the Math

[Tdisney]

OK I sat down and crunched some numbers. So here goes and assuming you buy after market from TTS. And this assumtion is on SSR.

150 pnts * $85 = $12750 + 400 closing cost = $13150

divide that by 48 yrs and you get $274/year to pay for your down payment if you dont finance it which I wouldnt.

Now if you take into your OL amount at %10 which is what the market has averaged over the last 25 years and since this will be long term you have to give it the full ten %. Thats $1315 per year in lost income and that is not including compounding interest.

Now lets throw in maintenance fees of $600/year thats at todays dollars.

So 274 + 1315 + 600 = $2189/year

Now I would go every other year so that would be $4378 for a weeks vacation everyother year during dream season. However i could borrow or bank my points and that would give me a nice two bedroom suite.

Remember i said this is based on SSR. If you try BWV or the BC then your cost goes up even more becuase it is more $$ per point and the initial down payment is over 12 year less.

now to rent 285 points for a week for a two bedroom would be 285 * $12 = $3420 Hmmm a little bit less.



Now if I wanted to just call up and book a room it was $3900 for the week for a two bedroom at SSR. Now that number seemed kinda low but she told me there are room always available in SSR. However getting a two bedroom in hte BCV was jsut about impossible unless you are an owner.

So can someone help me lol show me some other math where this is wrong becuase I love the DIS and want to own a part of it but it jsut doesnt seem financially reasonable when there are cheeper alternatives.



Thanks Will be in Dis for a week in May cant wait.

 

[mydogdrew]

OK I sat down and crunched some numbers. So here goes and assuming you buy after market from TTS. And this assumtion is on SSR.

150 pnts * $85 = $12750 + 400 closing cost = $13150

divide that by 48 yrs and you get $274/year to pay for your down payment if you dont finance it which I wouldnt.

Now if you take into your OL amount at %10 which is what the market has averaged over the last 25 years and since this will be long term you have to give it the full ten %. Thats $1315 per year in lost income and that is not including compounding interest.

Now lets throw in maintenance fees of $600/year thats at todays dollars.

So 274 + 1315 + 600 = $2189/year

Now I would go every other year so that would be $4378 for a weeks vacation everyother year during dream season. However i could borrow or bank my points and that would give me a nice two bedroom suite.

Remember i said this is based on SSR. If you try BWV or the BC then your cost goes up even more becuase it is more $$ per point and the initial down payment is over 12 year less.

now to rent 285 points for a week for a two bedroom would be 285 * $12 = $3420 Hmmm a little bit less.



Now if I wanted to just call up and book a room it was $3900 for the week for a two bedroom at SSR. Now that number seemed kinda low but she told me there are room always available in SSR. However getting a two bedroom in hte BCV was jsut about impossible unless you are an owner.

So can someone help me lol show me some other math where this is wrong becuase I love the DIS and want to own a part of it but it jsut doesnt seem financially reasonable when there are cheeper alternatives.



Thanks Will be in Dis for a week in May cant wait.

Why penalize the DVC analysis with the opportunity cost and then ignore that concept when you look at the cash rates? I mean you're gonna spend the money on vacations either way, right? Forget the investment returns and focus on the timing of the payments. I'd set up spreadsheet with a column for each year. Calulate the delta between ownership and renting for each year. Then discount each of the years back to todays dollars and the total will be the DVC savings (based on your assumptions). You'll also note that the extra 12 years for SSR is not very significant in todays dollars.

 

[lovinthemouse]

One more thought to consider. The cost of everything doubles every 20 years. So you need to take that into account also.

 

[Paging Tom Morrow]

Personally, I think a 10% rate of return you are using is ridiculous.

The market has switched significantly from a country-based economy to a globally-based economy. You aren't comparing apples to apples. Over the past 10 years, the average rate of return on the S&P 500 is just 5.5%.

 

[Tink-n-Belle]

If you are going to figure in the loss investment income- remember that with each cash vacation you take you need to reduce the amount of investment income by the amount of cash you paid for your vacation. So for year 1 its $1315 but by year 5 it would be 0.

Also, the market is variable- you cannot rely on a 10% return- The experts say to use 7% or 8%.

In addition, you need to figure in taxes too. The $1315 in investment income would be taxed either at 15% or 25% depending on your tax bracket.

But IMO, DVC is really not about the money. I know that I'm going back to Disney very soon and will be able to stay in a 1 bedroom for 6 - 8 days depending on the season. That's priceless since I'm pretty frugal and would end up in a value resort. Good luck with your decision.

 

[browniemtb]

DVC shouldn't really be considered against in investment. As some one said you are going to go anyway. Take the return out of your equation. Your not comparing a Fideltiy Fund vs a Lisco. Its vaction time, timeshare.
150 pts @ $85 = $12,750 + $400 = $13,150 avg $87.67 per point
now $3.98 per point in dues = $597 x 48 = $28,656 (granted these will increase and others have done this with a 4% a year increase, but for example state it remains the same.)
$28,656 + $13,150 = $41,806/48 = $870.96
So figure every other year rough cost would be $1741.92. You would be hard pressed to rent a 2 bedroom unit from Disney for this.
Brownie

 

[ajksmom]

You can "make" an analysis to support the decision to buy and another one to show why you shouldn't.

I agree with making a spreadsheet showing future travel plans (36/48 years) to WDW. Price it with rack rates/AP rates/AAA discount etc., renting points,(however you normally would stay) and with purchasing DVC. If you're going to factor inflation, do it across the board. If you'd invest this money if not spent on a DVC purchase factor in the lost investment income.

 

[Didney Daddy]

I agree with the other posters. To assume the market goes up every year at a 10% after tax return is not prudent. Some years, like 2001 your account would be off 20% or more and you would further deplete that account by the cost of renting a room. You will decimate your principal in less than 10 years. That is why standard financial planning indicates that systematic withdrawl plans cannot exceed 4-5%.

DVC is not an investment. It is the prepayment of vacation expenses. You are going to spend this money at WDW anyway, what you are considering is the most efficient way to spend that money. The often repeated cavaets are true;

1) If you love all things Disney
2) If you go to WDW every year or two
3) If you stay at premium on site properties
4) If you can plan your vacations 7-11 months in advance
5) You have the organizational skills necessary to track your points

If you can do these things, buy DVC and have magical vacations from this point forward without the worry of what it is going to cost for accomodations.

 

[CPTJAK]

I think your numbers are fine if you assume a more conservative accounting, that is 5% return not 10%.

Although DVC is not a investment to determine if it financially responsible you should include the lost interest on your purchase.

That is you could create your own timeshare so to speak by taking $13,000 and putting it in a CD at 5% and than each year pay yourself the equalivalent of a maintenace fee of $600 now add the interest from your CD which would be $650
Therefore you have 1250 per year X 2 =$2500 to spend on vacation. Thus I do not believe you would get your 2 bedroom but you would always have your 13000?

 

[Boas]

I went back and forth for several months.. big Excel sheet with 3.5% inflation, initial investment + dues, avg cost of hotel w/ & w/o discount (w/ tax & inflation), rental option (w/ inflation), deduction of vacation cost from fund investment (assumed a 6% RR), etc... you get the idea.

And of course everything was built on pivot tables and formulas (yes... I know excel so it was very easy to build.)
... I did not factor loan rates since I paid "cash"


Here was were the assumptions:
1) need to go to WDW at least every two years
2) need to enjoy WDW (I have kids that like it)
3) need to enjoy a more premium resort vacation
4) need to plan vacations in advance (if you want choice of stay)... if you don't care then just buy the cheapest points you can get and stay where ever there is room.

Lots of variables change the mix over 30-40 yrs (impossible to predict)... and of course the amount of points you purchase (and how you use them) impacts the breakeven timeline.

... but for me the results looked mostly like:
Rental option: about 8 - 10 trip breakeven.
Purchase option: about 5-8 trip breakeven.

I found a great resale deal from Timeshare Store and concluded that I have approx. a 4 trip breakeven assuming I don't rent any points (less if I rent all the banked points I got)... and I know that I will do 4 trips. After that it pays for itself (I start saving $$).

... and in the end, we bought a "hot" property (BCV), so if we change our minds I am confident I can sell it (profit or loss wont be great either way).

Bottom line.... it is a personal decision and gut feeling.

Good luck either way.

 

[caven553]

Don't forget that your calculations are set at a given amount of money over the next 48 years comparing to the room rate now. 20 years from now your cost will still be the same for "lost" income and down payment but the room rate will be much much higher.

 

[jade1]

Plus you may suddenly want to sell. Nobody knows the future but BCV has increased at a minimum 28% in 4 years ($70 to $90) and maybe as much as 66% ($60 with MB to close to $100 now).

So feel free to rent if you want, I plan to stay with the 10 to 15 percent a year and worry free ressies at BCV, not purposely as a financial investment but not complaining either.

 

[Crissup]

Hmmm... Now, I'll admit I didn't read every post above, so I may be repeating here (and I'm definitely rambling)...

Anyway, I view it this way... If I take the original $10,000 that I would have spent on DVC and invest it at %10, then when I pull $4,000 to pay for my vacation in a few years, I'm no longer collecting 10% on that original $10,000. Most posts I've ever seen on this always assume that if you don't buy DVC, that original money would sit untouched for the next 40 years at 10%.

The other problem I've had is posts where people tell me I've lost money becuase I would have made 10%. However, I know that the year I bought DVC, I lost $10,000 less in the casino (spread out over months, of course) because I spent that money on DVC instead of gambling it away. So, now instead of having memories of how much fun I had blowing $10,000 in the casinos, I have a DVC contract. So, for those people, I generally ask them to tell me again exactly how much I lost by spending that money on a DVC contract.

 

[mydogdrew]

Hmmm... Now, I'll admit I didn't read every post above, so I may be repeating here (and I'm definitely rambling)...

Anyway, I view it this way... If I take the original $10,000 that I would have spent on DVC and invest it at %10, then when I pull $4,000 to pay for my vacation in a few years, I'm no longer collecting 10% on that original $10,000. Most posts I've ever seen on this always assume that if you don't buy DVC, that original money would sit untouched for the next 40 years at 10%.

The other problem I've had is posts where people tell me I've lost money becuase I would have made 10%. However, I know that the year I bought DVC, I lost $10,000 less in the casino (spread out over months, of course) because I spent that money on DVC instead of gambling it away. So, now instead of having memories of how much fun I had blowing $10,000 in the casinos, I have a DVC contract. So, for those people, I generally ask them to tell me again exactly how much I lost by spending that money on a DVC contract.

Exactly (see my post above). The opportunity cost should be ignored but the timing of the payments should not. Many make the mistake of amortizing the cost of the points evenly over the term of ownship and comparing that with cash rates. That's a good start but the savings in the last year is insignificant in todays dollars while shelling out the cash in year one obviously does not compare favorably to cash rates in that same year.

You really need to take advantage of that Excel spreadsheet and discount to today's dollars. When you do, you'll find that DVC doesn't really work at more than $85 per point if you hold to term. My prediction is that DVC will need to count on the impulse buys to sell at $100 a point - I just don't see that model working long-term.

 

[cavecricket]

Hmmm... Now, I'll admit I didn't read every post above, so I may be repeating here (and I'm definitely rambling)...

Anyway, I view it this way... If I take the original $10,000 that I would have spent on DVC and invest it at %10, then when I pull $4,000 to pay for my vacation in a few years, I'm no longer collecting 10% on that original $10,000. Most posts I've ever seen on this always assume that if you don't buy DVC, that original money would sit untouched for the next 40 years at 10%.

The other problem I've had is posts where people tell me I've lost money becuase I would have made 10%. However, I know that the year I bought DVC, I lost $10,000 less in the casino (spread out over months, of course) because I spent that money on DVC instead of gambling it away. So, now instead of having memories of how much fun I had blowing $10,000 in the casinos, I have a DVC contract. So, for those people, I generally ask them to tell me again exactly how much I lost by spending that money on a DVC contract.

Excelllent post!

Personally, I never considered profit at all on this, its the same as Disney collectibles.....Over the years I have gathered quite the array of items that are worth a pretty penny.....I will never sell them though! Because they are worth their weight in memories. Just like I am sure the DVC will turn out to be!

I used the DVC to quit smoking! The saved money from smokes pays my annual dues!....guess all I lost was a nasty habbit lol



Jenn

 

[Disney Doll]

See, the thing is that it's never been portrayed to be an "investment".

I simplify it this way...

We own a total of 430 points, which we paid an average of$65/point for, for a total of $27950. We have owned since 1997, so I will assume that maintenance fees over the years have averaged out to be about $10800, assuming $1200/year. We average about 25 days per year at WDW.

$27950 + $10800=$38750 divided by 225 (25 days per year for 9 years)= $172.22.

Now of course, we have never stayed in anything smaller than a 1 BR, and some of those days have been spent in a 3BR GV. You'd be hard pressed to find anything on WDW property in a deluxe resort for $172/night, and I don't care what kind of discount you're working. Now granted, you might be able to do just as well on the rental market, but I personally don't want to be dependent on someone else for my vacation plans. I control my points and I like it that way.

It's not a money-making financial investment, and anyone who tells you it is, is lying to you. Chances are you won't lose money, because WDW is a desirable place to go, so you could rent points if you couldn't use them one year and probably cover the cost of the points, and maybe even make a bit of a profit. And chances are, if you had to sell it, you would lose money...you 'd at least break even and might even make a little.

We like the condo-style of the units. We like having a full kitchen and laundry, we like "knowing" we'll be able to go back because we have points.

For us, it was a decision of finances to a degree, obviously, but also a decision of pleasure, memories, family & friends.

 

[Cruelladeville]

Interesting posts!! I bought most of my 900 points for around $56, and I could sell now for $83, so my costs are pretty well covered. I figure each vacation cost me around $300-$500 in lodging. My investments, which are doing OK at 5-7%, are pretty pathetic in comparison to DVC, and I had fun with DVC...believe me, my investments were NO fun at all. Even if I held onto DVC until the end, I think it would have been worth it...I have so many memories that I never would have had if I hadn't bought DVC, so I'm happy with my decision back in 97.

 

[drakethib]

I look at DVC as an expense, money spent that I am not going to get back.

Don't get me worng, I looked at DVC from every angle possible, and in the long run I in theory will save money. But now I go to WDW more often so I probably am actually spending more money then before but I am staying in much nicer rooms.

 

[jade1]

See, the thing is that it's never been portrayed to be an "investment".

I simplify it this way...

We own a total of 430 points, which we paid an average of$65/point for, for a total of $27950. We have owned since 1997, so I will assume that maintenance fees over the years have averaged out to be about $10800, assuming $1200/year. We average about 25 days per year at WDW.

$27950 + $10800=$38750 divided by 225 (25 days per year for 9 years)= $172.22.

Now of course, we have never stayed in anything smaller than a 1 BR, and some of those days have been spent in a 3BR GV. You'd be hard pressed to find anything on WDW property in a deluxe resort for $172/night, and I don't care what kind of discount you're working. Now granted, you might be able to do just as well on the rental market, but I personally don't want to be dependent on someone else for my vacation plans. I control my points and I like it that way.

It's not a money-making financial investment, and anyone who tells you it is, is lying to you. Chances are you won't lose money, because WDW is a desirable place to go, so you could rent points if you couldn't use them one year and probably cover the cost of the points, and maybe even make a bit of a profit. And chances are, if you had to sell it, you would lose money...you 'd at least break even and might even make a little.

We like the condo-style of the units. We like having a full kitchen and laundry, we like "knowing" we'll be able to go back because we have points.

For us, it was a decision of finances to a degree, obviously, but also a decision of pleasure, memories, family & friends.

It is not a financial investment. Then again if you sold your 430 points today at $90-you would get all $38,750 you have spent back and had 10 years (or 225 days in a 1BR) for free. A 1BR for 225 nights even at $200 a night is $45,000, since they actually are at least $400 a night that is $90,000 of accomodations you have enjoyed at no cost if you sold. Now like a home investment-you dont gain a thing unless you sell, but the point is you can-and sitting on the sidelines may have been a bad choice. The question is would your $27,950 invested somewhere else in 1997 returned $45,000 to $90,000-pretty hard to do.

 

[Steamboat Bill]

I originally bought two contracts of 250 points at VWL in 2001 and then sold them to buy two 250 contracts at SSR in 2004. I made over $3,000 on the sale of my VWL even after paying the Timeshare Store commissions. If I ever sell my SSR points, I am sure to make another $3,000 profit. That's just a nice bonus of DVC points....they keep getting more expensive.