Doing the math - The real cost/savings

[unixadm]

Northern Lights....very good points

This is NOT an investment for financial gain.....it's an investment for "priceless family vacations".

I KNOW that for the next 48 years, I can go to a DVC resort and the points won't change. My initial investment in points purchase will still buy me the same room every year regardless of whether the cash price goes up (which it will). What buy's me a $400 per night room today may get me a $600 room in 10 years, or an $800 room in 20 years. The cost of staying at a resort by cash has historically gone up year after year, and I don't see that changing, but the number of points per resort are fixed and CANNOT go up.

I know that I can enjoy our vacations for years to come without worrying that inflation has devalued the use of my points. I know that if my points get 2 weeks at a resort each year now, it will get 2 weeks at a resort for the next 48 years.

I'm buying into my vacations, not using the money to invest for retirement. If I want to invest money to make money (which, I can tell you from experience, doesn't always do as well as expected), then I will do that separately from DVC. As you put it (so well, I might add), I am investing in guaranteed "priceless family vacations".

 

[Plutofan]

We need to remember that at some point the value of the existing DVC resorts will go down. It is only a mamter of time. If you take a simple example as the Beach club which goes for about $90 per point. A one week stay at a one bedroom is 270 points in June. If the price does not go down I would hate to be the person who will $24,300 in 2041 for the one week (270 x $90). Right now the price per point is held at a high level due to demand and Disney price for sold at resorts currently at $92. At some point in the future Disney will probably need to set up a 2 tier structure for sold out resorts. One price for resorts expiring in 2042 and ones expiring in 2054. At some point people will no longer be willing to pay the same price for 12 years less of vacation. In 2041 would you pay the same price for a DVC resort with 1 year left versus one with 13 years left? When anyone does an analysis of DVC they do themselves a disservice of thinking that they will be able to sell for more or even close to what they originally paid. If you plan on selling in the early years of the contract you probably have a good chance of recovering most if not more of your contract but somewhere in the future that will change. As the contracts go one in years the price will go down and no one knows when that will happen.

 

[Plutofan]

One other point is that I am surprised about how many people think that they are making money renting points. In order to figure out your true cost of your points you would need to amortize your original investment, plus dues plus mortgage interest. This is a prepaid vaction plan and not ownership since everything goes back to Disney. Under the F & F plan your cost for your intial points at SSR would be around $1.70 = dues of $3.98 = $5.68. If you financed at at least 5% then your current year mortgage interest would be at least $4 per point. If you were lucky enough to pay cash then a 5% return on ypur original investment would be $4. Thus most people's cost in the intial years would be at least $9.5 or higher until your mortgage goes down. Lets not forget about Uncle Sams cut of the profit. I get the feeling that most people do not realize the true cost of their DVC points and most renters do not realize that the DVC person is not making much if any return on their investment. By far a renter who is saving 20-60% off the rack rates appears to have a good deal. I know that this is a simplified example but I believe it has merit. I bought so that I would take some great vactions with my family and being able to rent out points is a great option for the years that we can not use the points.

 

[Dean]

IMO, one can not own DVC and get essentially all the benefits by using cash. Thus the first and most critical determination is how the financial situation stacks up. But I do realize that many are not disciplined and would not be able to save the money, invest it just for vacations or the like and they need to make decisions accordingly. And some that have the need to belong to derive their enjoyment. When we were looking in 93/94, prices were a bit different, about half what they are now. And we planned to do Sunday to Friday. 12 years later prices are higher but the length of contract is less, except for SSR, and we've only stayed one weekend night on points ever. Dues are higher and we have other options and interests we didn't have in 94. For DVC to make sense it needs to be a slam dunk. Anyone is nuts to do it just to be around break even. DVC should save a full 20% minimum over time to be justifiable. And while I know that 10% in a mutual fund is a little optimistic, it's far more of a sure thing than DVC's value continuing to escalate.

 

[sajetto]

I agree with you. I very much considered joining DVC but when I talked to my DH about it, we decided that it made more sense for our lifestyle if we rented points when we needed to.

A. There is no commitment and we are not tying up our money.

B. We can still enjoy the amenities of DVC by renting.

C. We would probably never go more than once every 2 or 3 years.

I think there is just an emotional appeal of "owning" a piece of Disney which I do not underestimate. However, I like to leave my options open and it is worth paying a little extra for that IMO.

30000 at 10% per year after 49 years gives you $291,000 - enough to pay for plenty of nice Disney Vacations!

This is something my DF and I have considered. However, the cost per point seems to be going up and so is the simple rack rate for a hotel room. Over the years it is going to become more and more expensive to vacation at Disney and it makes it really tempting to lock into a point value now. If we could do it now we would, but it looks like that is something that is going to have to go on the back burner until we move into our new home.

 

[sm4987]

interesting read. Just subscribing!

 

[Boston5602]

I agree it was an interesting read... We all have to do whats best for us and our families with what we have. I pay my bills, save for kids college fund , retirement and so on . I have a little in the bank and I would have a lot more money to invest in to get a return large enough to pay for my whole lifestyle of Disney stuff ....IF..... I stopped buying that cup of coffee in the morning. If I took the 6 am flight to Disney instead of the 11 am ( sometimes HUGH $$ Difference ) If I had my shoes resoled instead of new ones . If I got my oil changed every 10,000 miles or 10 months . If I got a small french fry instead of biggie sized . Anyways you get the points ( pun intended )


What I do know is after adding up all my trip cost for hotels since the first time I stopped into DVC Boardwalk more than 7 years ago I could have bought and paid for 400 points. I'm always gonna have bills even when I die it cost money to bury / cremate me ( still figuring that out )

I guess what I'm trying to say is I dont want to live a life of " woulda coulda shoulda's " I' m going to buy DVC .

 

[DrTomorrow]

And while I know that 10% in a mutual fund is a little optimistic, it's far more of a sure thing than DVC's value continuing to escalate.

I'd politely suggest that believing that one can generate 10% annual return from a mutual fund, year in and year out for decades is slightly more than a little optimistic. As others have said, please do your DIS DVC Dean fan club a favor and point out this fund....

 

[Dean]

I'd politely suggest that believing that one can generate 10% annual return from a mutual fund, year in and year out for decades is slightly more than a little optimistic. As others have said, please do your DIS DVC Dean fan club a favor and point out this fund....

You just did and I don't necessarily disagree. I think 8% long term is a reasonable expectation but you never know that may be a little much over time. Maybe you missed my point, that was that expecting 10% in a mutual fund WAS optimistic but DVC was a sure bet to lose money over time. The only way to make out with DVC is to use it to your advantage while you you own it which is why buying to use for poor value options is a very poor choice. But everyone's situation is different and they should make decisions accordingly. One can however, gets essentially all the benefits of owning by renting with a couple of minor exceptions of course.

Do I have a fan club, do I get royalties, LOL.

 

[deide71]

I'll join your fan club Dean. You seem to be the well needed voice of reason when one of us views our DVC through rose colored glasses. I appreciate your well thought out opinions and even handed approach. As for royalties.............

 

[JimFitz]

I'd politely suggest that believing that one can generate 10% annual return from a mutual fund, year in and year out for decades is slightly more than a little optimistic. As others have said, please do your DIS DVC Dean fan club a favor and point out this fund....

FCNTX has averaged 13.5% a year since 1967. 8% average annual return is very easy and has been since the early 80's. If your are in funds that are not averaging 8% or more for the past 15 years, you need to get out of them. This is of course based on your age and investment criteria.

 

[Dean]

I'll join your fan club Dean. You seem to be the well needed voice of reason when one of us views our DVC through rose colored glasses. I appreciate your well thought out opinions and even handed approach. As for royalties.............

What a compliment and a hard billing to live up to.

 

[greenban]

How do I respond.

I'm a charter member of the Dean DVC fan club!

But I'm also a member and treasurer of the Dr. Tomorrow DVC fan club!

the pain, oh the pain!

-Tony

 

[d-r]

A lot of people are saying that they never pay rack rates. I have not really seen many times when Disney has discounted a DVC room to a non DVC person. I see a lot of discounts for Disney owned hotels. Also just for the fun of it I gone to Sams Club and priced out DVC rooms. On several occassions I found DVC rooms being offered at MORE than the Disney rack rates. What is up with that.... I guess this is America.

I don't think CRO's computer knows if we are dvc members are not when we call up to make a reservation. There's been twice now that we've paid cash for holiday periods - Easter and Christmas - because it was a lot less to pay cash for AP rates than the cost of points. So I know they offer AP rates on OKW.

 

[Parkhopper13]

I have been following these boards since I was researching my own purchase of DVC. I have posted on other threads, discussing the financial aspects of DVC. I would also like to say that I am a Certified Financial Planner with an MBA in Finance. This doesn't mean I am perfect, but I do have a lot of experience running numbers of this type. I also looked at this very objectively before going into this program. I would like to clear up a few misconceptions:

First, it is true that 10% from a mutual fund is possible and fairly common over a 50 year period, but this does not include taxes or management fees, thus bringing your return somewhere in the ballpark of 7%-8%. Also, volatility must be taken into account. Say you invest your $30,000, and the first year you lose 15%....very possible. Then, you withdraw $3000 to take your vacation. Your account is down to $22,500 right off the bat. A risky investment would not be advised if you were to try to compare DVC vs. an "invest and pay cash" scenario.

Something else to consider, even considering time-value of money, after 10-15 years, according to my calculations, you actually start saving money using DVC over "pay cash" vacations. Those savings also accumulate interest over time. This can and does more than offset the lost TVM on the initial downpayment. E.g. Say at year 15 you've broken even (even after time-value of money) on your DVC purchase, after that, lets assume you save $2000 per year (which is very conservative when you consider inflation, but should demonstrate my point). You could then add that $2000 each year to your retirement account and earn, say 6%, conservatively. After 33 years of this, you would have $194,686. That is 2054 dollars, of course...but still a nice savings...more than enough to offset your initial outlay.

If anyone would like my excel spreadsheet on this...feel free tp PM me and I will get it to you.

 

[CPTJAK]

parkhopper,

That's one I didn't think of , the fact that if you are already spending money every year on vacation and after pay the DVC off you have the $ for re investment?

 

[tomandrobin]

8%...10%...13.5%

Do I hear 15%.....anyone?

 

[SCDisneyholics]

JimFitz is correct, the Fidelity Contra fund has "averaged" north of 10%. I've had this fund since the late 90's when it was pulling down in the 20+% range. I also can tell you that from 2001-2003, it took a serious hit. -6.80%, then -12.59%, then
-9.63%. Nothing is a sure thing, other than death and taxes.

 

[Groucho]

parkhopper,

That's one I didn't think of , the fact that if you are already spending money every year on vacation and after pay the DVC off you have the $ for re investment?

That's why I don't count "lost opportunity" - buying DVC is not like tossing money in a CD or some other investment. You're using money that you would otherwise by putting into hotel rooms for your Disney trips.

If you're not putting that money into hotel rooms for Disney trips, then either DVC isn't for you, or you'd LIKE to but DVC gives you an excuse.

Anyway, last time I checked, there's no "lost opportunity" for paying for a room at Grand Floridian vs putting that money towards your DVC bills. It's apples and oranges.

You'll always have disagreements on Disney Math, though. Some will say "yes, but you're paying a lot more upfront than you would for a hotel", but I don't think that makes enough of a difference to skew the numbers. Besides, DVC is (for most of of us) not a financial investment but an investment in one's own happiness or the happiness of our families.

 

[bcvillastwo]

CPTJAK said,

That's one I didn't think of , the fact that if you are already spending money every year on vacation and after pay the DVC off you have the $ for re investment

A little later Groucho said,

That's why I don't count "lost opportunity" - buying DVC is not like tossing money in a CD or some other investment. You're using money that you would otherwise by putting into hotel rooms for your Disney trips

I've been prowling the DIS Boards DVC board for some time and the subject of lost opportunity cost comes up every time someone doesn't factor this into their calculations. I completely agree with Groucho on the subject of lost opportunity.

Hypothetically, if you didn't invest the money used to buy your DVC points then I suppose it could be argued that you lost the opportunity to invest. However, if you never intended to invest the money that you spend to vacation at WDW then I can't see the need to factor in the lost opportunity cost of some hypothetical investment. On the other hand if you were investing the money you use to buy into DVC and you weren't already routinely vacationing at WDW then under that scenario I would completely agree that lost opportunity cost should be factored into your calculations.

For the record, I am not completely unsophisticated when it comes to financial matters as I am an accountant by training and an auditor by practice with 30 years of experience in these areas. With that said, I am not an expert I'm just letting everyone know that I have some working knowledge of financial matters. If someone want to take issue with me that's fine. If you do so please sent me something to show me the error of my ways. Perhaps this old dog will learn a new trick.