DVC Survey asks about pre-paying for annual dues for future years

[Sammie]

I don't think anyone would do it unless they were locked into a set rate. As Chuck said I guess interest earned on the advance payments might be enough or possibly even more than any increases.

Actually to me it sounds like they are in need of cash.

 

[ssawka]

It may have to do with making capital investments in the properties. For example, for BLT they are already doing some refurbishments, well they probably would like to have that money up front rather than paying it out of pocket and then charging it back to the owners.

I would probably consider doing it up to 5 years. The life of the contract is a bit much, as I do not have an extra $50K-$75K laying around, but if I happened to come into some money, I might consider it.

 

[dianeschlicht]

Isn't there something in the POS that says dues have to reflect actual operating costs? I thought that meant Disney couldn't make any money on dues, so I don't see how a pre-pay program would improve their balance sheet. Anything they collect would have to be used for dues.

IMHO, any discount Disney might offer could only be the amount they expect the "principal" to earn unless Disney plans to make up any difference between actual and pre-paid estimates. Don't see that they could legally require those who don't pre-pay to cover any shortage due to a poor estimate or discount for those who pre pay.

What do the rest of you think?

I agree Carol, and that is what makes me skeptical of the whole idea.

 

[theww228]

It seems to me that they are locking you into the current MF rate and they are gambling that they will make more than 3-4% off of the prepayments. The MF's go up by 3-4% so anything they make off the prepayment over the 3-4% is profit. If DVD's cost of capital is 6% then they come out a percent or two on top. I think it makes sense for members who have no debt and extra money that they don't kow what to do with, if members have any debts that are with an interest rate higher than 3-4% then they would be better off paying those instead of paying ahead on MF's.

As long as DVD can make more than 3-4% then it should not affect anyone's dues, whether they prepaid or not.

 

[Granny]

Actually to me it sounds like they are in need of cash.

This is possible but if offered as an option to existing members I can't see it raising a lot of money for Disney.

I received the same survey and my thought on that question was that they were sending up a trial balloon. It might be that they want to offer this option on new sales in the future.

I think a lot of people interested in DVC see the big cash layout for points and then are surprised (negatively) to find that they still have to pay annual fees on top of that. Maybe rolling the MF's into the purchase price would be a way to truly be able to pitch that DVC is a completely pre-paid accommodation package.

One other interesting side note...I'd say this would make the re-sale market even more interesting.

 

[TisBit]

It also could be a future sales pitch, allow members to buy in and pay MF's all up front, removing that concern of what dues will be in X number of years.....

It is an interesting concept and if members finance these dues the money made off the financing of this would more than offset the increases, at least in the short term. There could be some cost savings as well, if they are not sending out dues statements to a certain percentage and processing monthly payments.....

Regardless of what DVC does, it will definitely not be a losing proposition. I would definitely wait and see the terms and conditions before I passed judgement on this one.

 

[Brian Noble]

I answered this survey question very positively, and said I'd be interested in paying dues up to 5 years in advance. I assumed they meant that you would be pre-paying those years at today's dues rate, since that's how prepayments typically work (though I think the wording should have been more explicit).

Many timeshares allow pre-payment of MFs at the then-current rate (for e.g. the ability to deposit future time into an exchange company) but bill the owners the difference when the new budget is known. I would not automatically assume there is a discount.

I can't understand why anyone would do this either (absent a discount, which I don't expect will happen.) On the other hand, it never ceases to amaze me how many people like the dining plans---even though they don't save them much if any money in many cases---because it is "convenient" and "pre-paid".

 

[dis-happy]

Two thoughts, Disney is short cash and they are implementing programs to improve their balance sheet. That is the reason why they are not exercising ROFR.

Secondly, some people like to pay in advance, I would never do it, but that's just me.

Bill

I agree that there may be a cash shortage but it can't improve the balance sheet. Pre-paid dues would have to be listed as a liability.

 

[hakepb]

From a sales perspective, I almost think this would be a negative. That huge pre-paid total would be a in-your-face reminder about how expensive DVC really is.
Several years ago, Lincoln offered a one time lease payment. I think that failed, as it was a reminder that you are paying $11,000 to use a car for only 2 years.

 

[theww228]

If I paid all of my dues now at the current rate it would be $33,280. The total with a 4% annual increase is $65,209.

 

[tiggerrr]

If I paid all of my dues now at the current rate it would be $33,280. The total with a 4% annual increase is $65,209.

So, I calculate that out to be annual dues of $1040 a year for the next 32 years to make those numbers work.

If you had a spare $33,280 that you could invest today (don't have to borrow it) and you could get an investment that returned 5%, just 1% more than the dues increase, you could pay your dues annually and you would have $20,310 left over in 32 years.

That's my whole problem with it is that the finances only make sense if there is a discount or MAYBE if you don't have to pay any of the increases.

 

[tiggerrr]

Despite my previous comments, being from Canada, we would consider pre-paying as a hedge against devaluation of the Canadian dollar against the US dollar. I have to believe we will reach a low point of the value of the USD, so there is some appeal to prepaying several years while the CDN and USD are near parity, if we believe the CDN will fall to more historic levels between .80 and .90.

 

[disneymath]

Despite my previous comments, being from Canada, we would consider pre-paying as a hedge against devaluation of the Canadian dollar against the US dollar. I have to believe we will reach a low point of the value of the USD, so there is some appeal to prepaying several years while the CDN and USD are near parity, if we believe the CDN will fall to more historic levels between .80 and .90.

I agree with you on this.

 

[hakepb]

I guess I can see this making a lot of sense from an international standpoint.
Now, when DVC allowed the fixed week option for international concerns, there was a 10% premium.
That sort of buffer would make little sense in the US, but with a low dollar, it would make sense internationally.

 

[gkrykewy]

Wow, I hadn't even thought of that. With the yen mear all-time highs against all currencies, this could be a huge bonus for potential Japanese Aulani buyers.

 

[Mickey'sApprentice]

Some economists believe that recent U.S. fiscal policy will cause high inflation. Purchasing dues would serve as a hedge, and be particularly popular with seniors now.

To me...it seems like Disney knows that there will be money to be made in the near future, and would like more funds to invest in the new opportunities.

I'm just guessing that they have some pretty smart people in finance...but then again, they didn't see the financial crisis coming.

 

[nunzia]

I would consider it, depending on the terms. My biggest concern with DVC in the future are those dues...it might be worth it to pay them now rather than later. To the poster who mentioned getting a 5% return on their money, I must not be putting my money in the right place, because I get nowhere near that anywhere.

 

[dis-happy]

Some economists believe that recent U.S. fiscal policy will cause high inflation. Purchasing dues would serve as a hedge, and be particularly popular with seniors now.

But dues can only rise a certain percentage each year. Seems like it would be better to pay them later with inflationary dollars that are worth less than today's.

 

[gkrykewy]

Some economists believe that recent U.S. fiscal policy will cause high inflation. Purchasing dues would serve as a hedge, and be particularly popular with seniors now.

a) "Economists" predicting high inflation are generally partisan yahoos rather than economists. Actual economists generally project very modest inflation for the foreseeable future, with a small risk of *de*flation over the next couple of years. Of course you're right that it would be particularly popular with seniors now, much like the cynically marketed gold "investment" products are particularly popular with seniors now.

b) As already posted, given % caps on dues increases (isn't it 5% or 10% in a given year?), pre-paying may not be a good hedge in an inflationary environment, depending on the level of inflation.

 

[tiggerrr]

I would consider it, depending on the terms. My biggest concern with DVC in the future are those dues...it might be worth it to pay them now rather than later. To the poster who mentioned getting a 5% return on their money, I must not be putting my money in the right place, because I get nowhere near that anywhere.

An index fund invested in the S&P 500 would do it. My use of the 5% figure was based on the example of a PP comparing dues over a 32 year period - a long term view. If you even look at 15 year time periods, 5% return is easy.

In the last 60 years, the S&P 500 has returned greater that 5% per year gains in every single 15 year period except the one that ended in 1974. Even 2008, with its troubles still had a 15 year return of over 6% per year. And 2009 was back up to 8% average return.

If DVC is planning to offer dues prepayment in 5 year increments, the long term return on money is what is needed to do the right financial analysis.